Why Some Hedge Funds Are Under Investigation

September 3, 2003
Brice Wightman

Stocks were
higher Wednesday, although the
semiconductors were weak as money moved out of chips and into software.
Encouraged by more positive comments about IT spending, investors pushed
the major indices into new multi-month highs before a late-day selloff. The Dow broke above weekly trendline resistance to a new 15-month high, the S&P broke out of a 13 week
trading range, also to a 15-month high. Meanwhile the Nasdaq Composite jumped to
a 17-month high. All the major indices made new highs before pulling back. The
Nasdaq has been up five days in a row — it has only been up six consecutive
days once this century. Volume on the NYSE came in at a one-and-a-half month
high as traders returned to their desks.

General Electric
(
GE |
Quote |
Chart |
News |
PowerRating)
benefited from a JP Morgan upgrade to “neutral.” After Goldman Sachs upgraded the software sector yesterday,
CSFB followed suit today and upgraded the sector to “overweight” from “market
weight”. saying that spending will improve over the next 12 months. SG Cowen’s latest technology survey revealed a “modest recovery” in IT spending.

Cisco CEO John Chambers told analysts and investors at SG Cowen’s
technology conference that orders in August were “better than expected”.
Shares of Cisco Systems
(
CSCO |
Quote |
Chart |
News |
PowerRating) jumped over 3% to levels not seen since last
January.

New York Attorney General Eliot Spitzer is investigating illegal trading practices
that have allowed hedge funds to buy mutual fund shares at special prices not
available to the public. These include funds run by Bank of America, Bank One, Janus
Capital, and Strong Capital Management. After the close, the state of
Massachusetts said they would also pursue the allegations.

Former MCI Chairman Bernard
Ebbers pleaded not guilty to fraud in an Oklahoma City arraignment.

In economic news, the
Construction Spending in July rose by 0.20% compared to expectations of a
rise of 0.5%. Later today we will have the Fed Beige book. The Beige Book
report pointed to more economic recovery this summer, with 11 of the Fed’s 12
districts reporting increased levels of activity.

The 10-year U.S. Note
was +095 at 110 185.

The dollar was -0.19 at
98.76.

Gold was +1.20 at 374.30.

Crude OilÂ was
+0.07 at 29.48.

Volume was
1,648,722,000 on
the NYSE, and 2,300,650,000 on the Nasdaq.

Market breadth was positive,
with NYSE advancing issues over declining issues by 1.73, and up over down
volume by 1.73; Nasdaq advancing issues over declining issues at 1.37, and up
volume over down volume at 2.21.

Top Dow stocks were:

Stocks in the news:

Communications equipment maker
Adtran
(
ADTN |
Quote |
Chart |
News |
PowerRating) rose 14% after the company raised its
third-quarter revenue and earnings forecasts. Due to higher-than-expected
shipments of DSL access multiplexers devices and gains in the HDSL market, the
company now sees revenues between $98 and $100 million and earnings between 34
to 36 cents a share. This was up from its previous forecasts of 30 to 33 cents a
share. Current consensus estimates are calling for revenues of $94.2 million and
earnings of 33 cents a share.

Health benefits management
company AdvancePCS
(
ADVP |
Quote |
Chart |
News |
PowerRating) gained 18% after the company
agreed to be acquired by Caremark Rx
(
CMX |
Quote |
Chart |
News |
PowerRating). Under the terms of the nearly $6
billion deal, each AdvancedPCS share will be exchanged for 2.15 Caremark shares.
Ninety percent of the deal will involve the share exchange while the remaining
10% will be paid in cash.

Printing and imaging solutions
provider Electronics for Imaging
(
EFII |
Quote |
Chart |
News |
PowerRating) rose 10% after the
company raised its third-quarter forecasts. Due to a stronger-than-expected
product mix, the company now expects GAAP earnings of 19 to 20 cents a share and
pro forma earnings of 21 to 22 cents a share compared to its prior
forecast of 8 to 9 cents and 20 to 21 cents, respectively. The company also
announced its acquisition of T/R Systems
(
TRSI |
Quote |
Chart |
News |
PowerRating).

Speciality food maker Hain
Celestial
(
HAIN |
Quote |
Chart |
News |
PowerRating) fell 13% after the company reported
fourth-quarter results in line with estimates. However, the company disappointed
Wall Street with its fiscal fourth-quarter forecasts. The maker of the popular
Celestial Seasonings teas reported earnings of 19 cents a share compared to a
loss of 38 cents in the year-ago quarter. Hain also announced the launch of a
supply management improvement program which is expected to save the company $30
million a year after three years. Looking ahead, the company sees fiscal 2004
revenues between $540 to $565 million and earnings between 95 cents to $1.03 a
share. Current consensus estimates are calling for revenues of $535 million and
earnings of $1.05.

Hotel and casino operator
Mandalay Resort Group
(
MBG |
Quote |
Chart |
News |
PowerRating) added 3% after the company reported
better-than-expected second-quarter results. The company earned 67 cents a share
compared to 41 cents a share in the year-ago quarter. The results topped
analysts’ expectations by 4 cents. Mandalay also raised its quarterly dividend
from 23 cents a share to 25 cents a share.

The maker of the popular “Grand
Theft Auto” video game series, Take Two Interactive
(
TTWO |
Quote |
Chart |
News |
PowerRating) rallied
22% after the company reported third-quarter results that topped
estimates by a penny. The company earned 18 cents a share compared to 12 cents a
share in the year-ago quarter. Revenues jumped 27% to $155.6 million. Take Two
also raised its full-year forecast. It now sees revenues of $1.02 billion and
earnings of $2.30 a share. It had previously forecasted sales of $975 million
and earnings of $2.26 a share.

If you have any comments or
questions, please feel free to email me.

Brice
Wightman

bricew@tradingmarkets.com

Why Some Hedge Funds Are Under Investigation

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