i know cnbc was too busy having the dow celebratory lunch to notice, but since i WAS banking on amaranth being the bloated floating corpse in the water, this made me notice. hopefully a blip, first on bloomberg (does bloomberg still have the terminals you can buy?)
Pirate Capital Says Half of Investment Staff Resigns (Update4)
By Katherine Burton and Jenny Strasburg
Sept. 28 (Bloomberg) -- Pirate Capital LLC, a $1.7 billion hedge fund, said five of its 10 investment professionals resigned or were fired, two weeks after the firm came under regulatory scrutiny for possible securities-law violations.
Pirate founder Thomas Hudson, in a letter sent today to investors, didn't say what led to the departures. He'll close the Norwalk, Connecticut-based firm's funds to new investments, and concentrate on managing money rather than courting clients and overseeing his staff, according to the letter.
``My goal is to focus on returns, not the size of the assets we manage,'' he wrote.
Pirate may have violated securities rules by belatedly disclosing the sales of its stakes in OSI Restaurant Partners Inc. and Freightcar America Inc., lawyers not involved in the matter said earlier this month. The firm said it eventually publicly reported the stock sales after being contacted by the U.S. Securities and Exchange Commission.
The SEC is investigating Pirate, according to a person with direct knowledge of the probe, who declined to be identified because the inquiry isn't public.
Hudson, 40, built a reputation as an activist investor by taking stakes in companies and pressing for changes to boost their stock prices. Recent campaigns against companies including James River Coal Co. and GenCorp Inc. have fallen short.
Hudson declined to comment when contacted by e-mail.
`Mischaracterization'
The letter said analysts Zachary George and David Lorber resigned on Sept. 26, and Carl Klein, the firm's fixed-income portfolio manager, quit the next day. Hudson then fired analysts David Muccia and Matthew Goldfarb, the letter said. All will leave after a 30-day transition.
``What Hudson wrote in the letter to investors is a blatant mischaracterization of the circumstances of our departure,'' Goldfarb and Muccia said during a phone call this evening. ``We are currently exploring appropriate legal remedies.''
Still at Pirate are Stephanie Tran, Peter Desloge, Glenn Haberfield and Chadd Kirk, according to the letter. Hudson said he may hire a new analyst.
At the end of August, the firm's Jolly Roger domestic fund was up 3.3 percent for the year, while the offshore fund returned 5.2 percent. Both the onshore and offshore Activist funds had climbed about 2.8 percent. That's below the 5.8 percent average return of equity hedge funds this year, according to Hedge Fund Research Inc. in Chicago.
Holdings Decline
Shares of companies that are among the funds' largest holdings declined today. CEC Entertainment Inc., the Irving, Texas-based owner and franchiser of Chuck E. Cheese pizza restaurants, fell 2.7 percent to $31.92 at 4:16 p.m. in New York Stock Exchange composite trading. Pirate held 3 million shares, or 9 percent, as of August, according to regulatory filings.
Shares of PW Eagle Inc., a Eugene, Oregon-based maker of polyvinyl pipes for water and sewage systems, fell 3.9 percent to $29.98 in Nasdaq Stock Market trading. Pirate owned 2.7 million shares, or 22 percent, as of this month.
Pirate owned 7 million shares, or 10 percent, of CKE Restaurants Inc., the Carpinteria, California-based parent of Carl's Jr. and Hardee's restaurants. The shares fell 2.5 percent to $16.61 on the New York Stock Exchange.
In a September newsletter for investors, Hudson called James River Coal the ``shipwreck of the month.'' He pushed the Richmond, Virginia-based company to add three new board members in August. The stock has since tumbled 28 percent.
Earlier this year, Pirate won a proxy contest at GenCorp Inc., a defense contractor based in Rancho Cordova, California, gaining three board seats. The shares are trading at $13.06, down from the firm's average cost of $13.50 a share.
Hudson, who has more than 90 percent of his own net worth in the fund, said he would hold a conference call for clients on Oct. 3.
To contact the reporters on this story: Katherine Burton in New York at
kburton@bloomberg.net ; Jenny Strasburg in New York at
jstrasburg@bloomberg.net
Last Updated: September 28, 2006 21:13 EDT