Tuesday, May 5, 2009

SEC Charges Two with CDS Insider Trading on VNU

The Securities and Exchange Commission charged two men for insider trading on VNU credit default swaps. VNU has flagship Nielsen Media amongst its media holdings. The Carlyle Group purchased the company in June 2006. Yet, the men charged work for Millennium Partners and Deutsche Bank Securities. The Deutsche banker tipped off the hedge fund manager of a coming VNU bond structure change. The hedge fund manager made a $1.2 million profit.

What bond change? Was it during the initial Carlyle courtship or later in a bond holder cramdown? (The Wall Street Journal indicates the bond change came as part of Carlyle's acquisition of VNU. FT has more.)

I've been worried about Carlyle's use of CDS's to ease the pain of bankrupt affiliates. A timely credit bet on an imploding affiliate could add to the coffers of Carlyle financial funds. Where one arm pains, the other gains. Did Carlyle do that before SemGroup, Edscha, or Hawaiian Telecom imploded? Are they playing the game with IMO Carwash? I expect a real super regulator to watch such things. That's not coming with Obama's powder puff financial reform.