I have a friend working at a hedge fund. He has asked me to make a trade with him after hours wherein he sells some stocks to me for much less than market price. He will be "losing" in effect more than 1 point per share and I will be able to sell it immediately for a 1 point profit. He will be selling these stocks from his hedge fund account (he works for the hedge fund). I don't quite understand how this will work out for the hedge fund, but he says that they have some complicated formulas that will make it better for them if they actually lose money on occasion. I know it will work for him since he has asked me to send him half of the profit. He only gets 20% of what profit he makes for the hedge fund trading their money. So if he loses $1000 to me then he only loses $200 in pay and I will reimburse him $500 so he will end up ahead and of course so will I. The question is - "Is this Legal ?" He insists that his hedge fund is OK with it, but I have my doubts- I just don't see how they can be better off losing $1000 - it is like losing $1000 and saying it is OK because it is a tax writeoff but in the end it is better to just keep the $1000 even if you pay taxes on it - right ? So please advise- I would like to make the extra money, but I do not want to anything that I could get in trouble for.
Umm... i'll go out on a limb here and say no, it all sounds pretty fishy to me, especially since he is asking you to kick money back to him. You are also creating a tax nightmare for yourself by the way since the profitable trades are in your name so are the taxes owed. Try explaining to the IRS that you actually made less than reported by your broker because you had to pay back your hedge fund buddy after each trade. If it does not feel right to you (which it obviously doesn't if you are posting this) I would follow your instincts. It is not worth possibly getting the SEC or IRS (or worse) breathing down your neck...
No this is not legal he is stealing money from his firm by doing so. If you kept your mouth shut and told nobody it was free money for you. Never post on the net a public site information like this as eyes are all over. If someone wanted to give me a twenty for my five i would swap it and say thanks! Lesson learned.....
It's a form of EMBEZZLEMENT: http://en.wikipedia.org/wiki/Embezzlement Also see CONSPIRACY: http://en.wikipedia.org/wiki/Conspiracy_(crime) I believe it is listed in the ethics section of the series 6 or 63 lic test. But I could be wrong.
Yeah right... free money until the three letter agencies come calling or the white shoe law firm hired by the hedge fund. I'm sure the legal fees alone would not make this "free" money in the long run. He probably saved himself a lot of trouble by posting this message if it keeps him from participating in this scheme.