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| Henry Paulson, Secretary of the Treasury of the United States. (Photo credit: Wikipedia) |
The Securities and Exchange Commission recently sent subpoenas to hedge funds and other firms that were represented at the July 2008 meeting, the people said. SEC investigators are seeking information on whether Mr. Paulson suggested in the meeting that the government was willing to rescue the struggling mortgage-finance companies Fannie Mae and Freddie Mac, the people said. The SEC is also looking at whether the firms traded on any information Mr. Paulson had shared, the people added.
Mr. Paulson, a former Goldman Sachs Group Inc. chief executive who helped lead the government's response to the financial crisis, attended what his calendar called a "lunch roundtable with hedge fund and private equity firm managers" on July 21, 2008, at the New York offices of Eton Park Capital Management LP. Less than two months after the meeting, the federal government seized control of Fannie and Freddie amid heavy losses on mortgage defaults. It is unclear how many subpoenas the SEC has issued to the fund managers and Wall Street executives who attended the meeting, which was the subject of a November 2011 story in Bloomberg Markets magazine.
Taconic Capital Advisors notified investors last week that it received a subpoena related to the meeting. "Our understanding is that this fact gathering...is directed at firms that were represented at the meeting,'' the hedge-fund firm said in a letter. "Taconic believes that its conduct has been proper in all respects.'' A spokesman confirmed the letter and said it conveys the investment firm's views on the matter. Attendees at the meeting also included representatives of GSO Capital Partners, now part of Blackstone Group LP, Lone Pine Capital LLC, Och-Ziff Capital Management Group LLC and TPG-Axon Management LP, according to people familiar with the meeting.
Peter Rose, a Blackstone spokesman, said in a statement that the company doesn't believe "market-sensitive information" was discussed at the meeting and didn't "take any positions in Fannie or Freddie" between the meeting and the government's takeover of the mortgage companies, the statement said. The civil probe is at an early stage and will not necessarily lead to any enforcement action, according to a person close to the inquiry.
Even if the former Treasury secretary did reveal material information about the government's plans at the meeting, that wouldn't have broken any securities laws, legal experts said. But any firm that acted on what Mr. Paulson said at the meeting might fall afoul of laws banning trading on material, nonpublic information about companies, according to the legal experts. "It would clearly be unsafe to trade on such information," said William Black, a former bank regulator who is now an associate professor at the University of Missouri-Kansas City. A spokesman for the SEC declined to comment.. Mr. Paulson hasn't received a subpoena, a spokesman for the former secretary said. The inquiry comes amid an aggressive government crackdown on insider trading.
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