There was a big explosion when Moore Capital became affiliated with an insider trading scandal a couple of weeks ago.
Then there was much less of a splash a few days later when news hit that a Gartmore portfolio manager, Guillame Rambourg, was being investigated for influencing his traders to execute trades through particular brokers.
We got it backwards: a Moore Capital trader possibly insider-trading is really not a big deal. Julian Rifat, the arrested trader, is just an execution trader.
Gartmore’s Guillame Rambourg, on the other hand, is a big deal. He is a portfolio manager, Gartmore’s star portfolio manager, he owns 4% of the firm (according to the Times), and he is accused of trying to influence his traders into using specific brokers to execute trades.
Gartmore instituted a fund rule last year that managers should not be involved in selecting brokers. Then Gartmore found out that Rambourg had used Bloomberg’s instant messaging system to IM traders and “direct” trades for nearly a year after their rules on had changed. So they suspended him.
There is no evidence that he received kickbacks from brokers. The only concrete evidence we’ve seen of him “benefiting” from using specific brokers comes from Reuters, who say that some brokers have donated money to Rambourg’s charities. Yet the fund suspended him, which looks really bad for both parties. Rambourg’s reputation went instantly from star trader to trader basically accused of taking kickbacks.
It does appear Rambourg did one thing that looks suspicious: skirt the company’s IT system and talk to traders through Bloomberg IM.
But imagine if the situation becomes Gartmore is wrong and Rambourg has done nothing wrong. Would Rambourg leave Gartmore? Investors worry that if he left, Gartmore would suffer.
On the flip side, Moore Capital won’t be hurt by one rogue execution trader. Their books won’t change, they won’t lose a 4% shareholder, like Rambourg, by default.
“A number of people said this sounds like this is a little bit too far, too much of a rap on the knuckles,” Jeffrey Meyer, chief executive officer of London-based Gartmore ,told Bloomberg. “But we were in consultation with the FSA. We got their views on the situation.”
Gartmore came out today in a letter to intermediaries and said Rambourg was only involved in one breach that the FSA is investigating. (Gartmore, not Rambourg, is also being investigated for short-selling ahead of an IPO – possibly an inadvertent slip similar to Appaloosa’s. They could be fined $1.9 million. The two investigations are entirely separate.)
In the letter, Gartmore’s head of UK retail addressed the reasons for Rambourg’s suspension. He said:
“We have suspended one of our leading fund managers because we suspect that he may have breached internal procedures relating to directing trades which is one of the controls that we have in place.”
They say Rambourg’s “single, isolated and inadvertent breach” did not disadvantage the relevant fund and its investors.
So if you’re an investor, you’re wondering right now: What the heck is Gartmore doing?
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