Wall Street, as anyone familiar with the failure of Long Term Capital Management will know, treats a teetering hedge fund as carrion crows do a wounded animal.

And with Galleon investors rushing to withdraw money from the scandal hit fund (the WSJ reports about $1.3bn of its $3.7bn of assets having been pulled) the feeding frenzy has begun.

The tactics are pretty simple. Redemptions trigger forced selling. Traders at rival funds/banks merely have to establish what Galleon’s holdings are, pin point the least liquid ones, and short them.

Paul Kedrosky over at Infectious Greed has helpfully drawn up a list of Galleon’s largest known holdings, several of which were hammered on Tuesday as traders began to bet on the fund’s future.

Not long after the opening bell in New York on Wednesday most of these shares were holding steady.

Raj Rajaratnam, meanwhile, has struck a defiant chord, pledging his ongoing commitment to the fund as some of its prime brokers have started to refuse to do business with it:

Dear Galleon Employees, Clients and Friends:

During this challenging time, I wanted to take a moment to address you directly. As I am sure you understand, I am not able to respond in detail to the charges recently brought against me. But let me be clear: they are, without exception, entirely baseless. I am innocent and will vigorously defend myself and our firm.

As I move forward on my defense, I want to assure you that our commitment to our investors and employees will remain unwavering. I will continue to be here working for Galleon, and the firm will continue to serve its clients with effectiveness and integrity. Thank you for your ongoing support.

Sincerely,
Raj

Related links:
Rajaratnam alert: be afraid, be very afraid? – FT Alphaville
“Put ya money on Galleon” – Rajaratnam’s rap sheet – FT Alphaville

This entry was posted by Miles Johnson on Tuesday, October 20th, 2009 at 15:35 and is filed under Hedge funds. Tagged with Galleon, insider dealing, Raj rajaratnam. Edit this entry.