Tepper made big bets with shareholders’ money

I enjoyed the Just Thinking column “The great Easter hedge fund blowup” (April 12).

What would have made it better would have been some discussion of the asymmetrical risk taken by David Tepper, founder of Appaloosa Management LP.

More precisely, he risked his shareholders’ money when he made his bets.

If he had rolled craps, they would have been out. Would he have personally lost $4 billion if he had bet wrong?

I know hedge fund managers typically co-invest, so I think your readers would be enlightened to know how much money Mr. Tepper had on the table and measure his return on investment on that money.

Was this not the classic “heads, the manager wins; tails, the shareholder loses” situation?

To the extent that Mr. Tepper brought home some alpha to his shareholders, he took it from someone else, who bet incorrectly. Those of us who play poker understand that no wealth is created at the table; it is merely exacted from other participants (and good luck beating the house).

Your ability (or anyone’s) to spot the winners in the big casino doesn’t make the game any more palatable.

Paul A. Meloan

Director

Aegis Wealth Management LLC

Bethesda, Md.

Common sense should accompany regulation

The entire issue of imposing a new level of regulation is flawed.

Some years ago, while I was licensed as an insurance agent registered representative and registered investment adviser, I was trying very diligently to obey all the rules.

One of the local television stations came to town to discuss financial services regulations with a fellow introduced as a financial planner.

He was from the halfway house, probably immune to any regulations due to his mental incapacity — which was in no way disclosed to the viewing public.

It made me wonder who really the crazy one was.

Any regulation will fail if common sense isn’t employed by all parties in a transaction.

Just giving up and letting any “expert” handle anything isn’t a sound move — even with government licensing.

John C. Hawley

Teacher of property/casualty

pre-licensing

Preferred Systems

Montrose, Pa.

Expect to see SEC study of GunnAllen transactions

The Securities and Exchange Commission will likely dig deeper into any transactions between GunnAllen Financial and its shareholders.

Under corporate-law principles, if a shareholder is deemed to be an insider, transactions between the company and that shareholder are presumed to be unfair to the other shareholders.

The burden will be on the insider to prove that the transaction was fair.

Generally, one of the requirements to meet that burden of proof is disclosure of the transaction to the other shareholders. The SEC will likely look to see whether any such transactions might be considered “cherry-picking” good assets while leaving poor assets behind.

Also, should GunnAllen file for bankruptcy, creditors might well seek to unwind all insider transactions.

Todd C. Ganos

Principal

Doolittle & Ganos

Investment Counsel LLC

Carmel, Calif.

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