Hedge-Fund Lending Draws Scrutiny

The Wall Street Journal reports:

Companies that borrow money from hedge funds often see a sharp rise in bets against their shares before the loans or loan amendments are announced, new research shows, suggesting that fund managers or others privy to these deals may be illegally trading ahead of the announcements.

The sharp spike contrasts with little change in the short selling of companies that borrow money from banks, according to the research.

"Hedge fund lenders, like banks, are 'quasi-insiders' and thus privy to private information about the performance of borrowing firms," the authors write. "However, hedge funds are not subject to the same degree of oversight and regulation as banks."

An interesting article.