Adding to the difficulty in unwinding a large portfolio is this fact: When Wall Street firms get a whiff of trouble at a fund whose holdings they know well, they are known to capitalize by front-running — buying and selling in advance of the fund’s forced trades, increasing its losses as it liquidates.
That is precisely what happened when Long-Term Capital Management hit the skids in 1998. Some brokerage firms that held the fund’s securities profited from such front-running after being allowed to pore over its books as regulators fashioned a rescue. These trades exacerbated Long-Term Capital’s losses.
In other words, in a liquidation, Mr. Cohen may learn how loyal, or not, the firms on which he lavished such hefty commissions over the years will be.
Subscribe
‘Enforcement 40’ for 2020
Our Sponsors
Join Us On LinkedIn
Join the Securities Litigation and Enforcement Group on LinkedIn