As if Wall Street needed more to be concerned about, Visium Asset Management, a hedge fund with almost $8 billion in assets, has announced it will liquidate and cease operations. The announcement was made by founder Jake Gottlieb, who was responding to a number of controversies that have been plaguing the fund in recent months.
The problems seemed to start with internal infighting among investors who became upset when Gottlieb obtained a 5% stake in Intercept Pharmaceuticals back in 2014. On the same day that the purchase was disclosed, Intercept Pharmaceuticals announced that trials for one of its liver-disease drugs was going so well that they were prepared to cease the trial period and begin submissions to the FDA. The news immediately drove the stock up an amazing 281%
Further adding fuel to the fire over at Visium was the disclosure that Gottlieb had also bought a personal stake of 25,000 shares for his own investment account. While it’s not clear when all 1,000,000+ shares were purchased, the fact the fund realized a profit of $364 million made the transaction very visible. Investors were also upset that Gottlieb’s purchase violated the fund’s bylaws.
In more recent news, Sanjay Valvani, one of the hedge fund’s top portfolio managers, has been charged with securities fraud related to alleged insider trading issues that may have occurred between 2005 and 2011. Signs of impropriety were everywhere as two other former portfolio managers have been charged with providing fraudulent information to the fund’s investors.
This announcement is sending shockwaves through the hedge fund industry and Wall Street. Visium anticipates selling off its top-performing portfolio to AllianceBernstein with the remaining portfolios being liquidated in as orderly as fashion as possible.
In a letter to investors, Gottlieb stated: “Given the uncertainty relative to the final outcome of the recent regulatory developments, the negative impact of the resulting publicity, and the substantial investor withdrawals, it became clear that maintaining the status quo was increasingly untenable for the firm.”