Any time the SEC, porn-addled as they may be, cracks off those two magic words--insider trading--the blood of virtually every trader runs colder than a Siberian morning. And for David Baldt, former manager of the Schroder Municipal Bond Fund (ticker: SMBIX) and Schroder Short Term Municipal Bond Fund (ticker: STMVX) from 2003 to 2008, his blood has to be in chunks by now.
According to the SEC, Baldt told members of his family, who'd invested heavily in the fund he managed (it's described as "the bulk of their life savings" to explain just how heavily), to bug out of the fund due to market conditions that were about to, relative to 2003, look like a total flaming collapse.
Schroder, for its part, was worried that it wouldn't be able to meet redemption requests without a significant influx of cash, and thus forewarned, Baldt told his family to bug out of Dodge. His family took the advice and started frantically bugging out, redeeming fifty thousand dollars worth of shares per day, which was the firm's maximum allowed.
It's hard to blame the guy, really. Can you imagine what Thanksgiving at the Baldt house would've been like if he'd let them lose as big as they might have? They'd be beating him with turkey legs, and you don't even want to know what they'd do with the oyster stuffing. And it's not like they did it to make a profit--they just did it to save what they'd already earned in the fund. And that'll likely be the defense's angle on this one--insider trading? WHAT insider trading? They just decided to pull out all on their own one fine day! And wasn't it a good thing that they did when they did!
Insider trading has always been one of those things that's hard to prove, especially without a paper trail, but the Baldts are likely in for a protracted legal battle.
Comments
jg
May 22, 2010
What Schroders did was worse... they were using their "inside knowledge" of the redemptions in line to get a big investor "out" before everyone else, in effect using up all the liquid issues and leaving the illiquid ones, and declining bids, to the remaining investors' detriment. If you read the entire complaint it's pretty clear... Schroders didn't care about the holders as a whole... they tried to get the big guy out first and leave the others holding the bag. Baldt argued in favor of an orderly liquidation.
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Beth
July 23, 2010
JG-Since when do 2 wrongs make a right? Calling someone else guilty doesn't excuse Baldt's actions. And people wonder why investors think the market is rigged. It is.
1. Why did Baldt have is family's money in a fund he managed in the first place? This is already suspicious.
2. Where did Baldt's young daughter get the millions to invest in this fund? This has the appearance of someone investing on behalf of the fund manager in order to get around insider trading rules.
Baldt is guilty and should be made an example of in this case. I would like the see the case turned over to the DOJ for prosecution once the SEC is done.
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