Who knew? Wall Street’s spawned a sub-life form of “eat what you kill” shops where ex-hedgies are handed a pile of money but no salary, told to keep half what they earn and, if they lose, they’re toast. That’s a rather appealing concept, actually – you live on your performance, nothing else. Unfortunately, it seems to also encourage cutting a few corners.
Schottenfeld Group and Incremental Capital LLC have joined Galleon Group and New Castle Funds on the list of trading firms under scrutiny by a federal insider-trading investigation.
New York based Schottenfeld and Incremental are among a group of lesser-known hedge funds that are each organized as “eat-what-you-kill” shops. Each employs 50 to 60 traders, according to people familiar with the firms.
Unlike better-known competitors, these firms don’t pay trader salaries. Rather, they commit capital to a group of individual traders, giving them a sizeable piece of any profits. Should they lose money, they are quickly pushed from the firm. The pressure to produce is high, say traders, and so is turnover.
Such firms have attracted streams of new traders since 2008, as hundreds of hedge funds have gone out of business and big Wall Street banks have shrunk their proprietary trading desks. Those developments made the smaller trading firms a refuge for traders looking for work.
…. Incremental Capital was started in early 2008 by Michael Kimelman, a former lawyer with Sullivan & Cromwell, and Zvi Goffer, a former Galleon employee.
The firm’s offices just off Park Avenue in Midtown Manhattan are packed with traders working elbow to elbow. Incremental’s traders mostly juggled stocks and options and pocketed 50% or more of their trading profits, a person familiar with the firm said.
Around 8:45 a.m. on Thursday, about 30 traders at the firm filed into a conference room for a daily strategy meeting. Adam Gittlin, a senior member of the firm, told traders that Mr. Kimelman and Mr. Goffer, who normally ran the meeting, had been called to a “breakfast meeting” and were unavailable, said a person who was there. Lawyers for the two men declined to comment.
About five minutes after the meeting, Mr. Gittlin received a phone call. Immediately after, he stood up and instructed Incremental’s traders to exit all of their trading positions, this person said. Mr. Gittlin did not respond to a request for comment.
Minutes later, about half a dozen FBI agents walked onto the trading floor, started calling out names and escorted several individuals out of the room, the person said. Most traders quickly left the office.
Mr. Goffer previously worked at Schottenfeld, where his trading caught the attention of colleagues, said former colleagues. At Schottenfeld, Mr. Goffer showed a special ability to profit by picking merger targets, according to a senior firm executive.
At Schottenfeld, Mr. Goffer once stood up in the fund’s morning meeting, before 60 or so other traders, and said: “A lot of guys are questioning my integrity.” He then uttered a curse to those who wouldn’t “say it to my face,” said a person who attended the meeting. A few weeks later, he left the firm.
Darwinian selection and creative destruction are some of most efficient aspects of US capitalism and society
I’m all in favor of writers getting their due, but now that WSJ’s policy of “pay to play” requires a subscription fee to read anything beyond the teaser, it’s nice of you to reveal the whole article.
Amidst all the financial woes honest Joes and Josephines are enduring, I get the warm and fuzzies at the prospect that perhaps some justice will be served. Call it the Schadenfreude Shuffle, my new workout routine.