Last week, The Wall Street Journal ran an odd story on its front page headlined “Hedge Funds Pound Euro”—something Felix Salmon saw as the latest evidence of “the sensationalist WSJ.” I did, too.
That was because the headline implied that the euro’s fall was being caused by hedge funds who, it’s hinted in the second paragraph, are colluding at exclusive dinners at private homes. But the piece was a mess, as I noted:
The thing with this story and its headline is that the piece details how the euro started falling in December, continued to fall in January—all well before the hedge-fund dinner, which happened less than three weeks ago. Indeed, since the meeting the euro’s rate of decline against the dollar has eased. So “Hedge Funds Pound Euro” just doesn’t make sense when juxtaposed with the February 8 meeting. But hey, it’s above the fold and I’m sure helps sell newsstand copies, so who cares if it’s accurate?
It turns out the story is messier than that, with a couple of errors that made the dinner in question seem more sinister than it apparently was.
Playing up the secret nature of the meeting, the Journal said it was “hosted by a boutique investment bank at a private townhouse.” Well, not really. It turns out, according to Bloomberg News and Reuters, that the meeting was actually held at a restaurant, not a townhouse. It’s called the Park Avenue Townhouse, but it’s a sort of banquet hall for the Park Avenue Winter restaurant. Hardly the biggest deal in the world, but still—oops!
More problematic, is that the Journal got what happened at the dinner wrong. Here’s what it said:
Then, big hedge-fund managers, such as Greenlight Capital Inc. President David Einhorn, who also was at this month’s euro-dominated dinner, determined that the fortunes of Lehman Brothers Holdings and other firms were dim and bet heavily against their securities, accelerating their decline.
But according to others’ reporting (including its own—see below) the euro was hardly a dominant topic of discussion. Reuters’ Matthew Goldstein writes that “The portion of the program… devoted to trading the euro took up no more than five minutes, according to people familiar with the matter.” And no, you can’t argue that Goldstein is soft on hedge funds—ask Stevie Cohen about that (here’s where I note that The Audit is in part funded by a hedge fund, Kingsford Capital. See our disclosures here).
Plus, Goldstein reports that the whole dinner was tape recorded:
The dinner was tape recorded and transcribed into a research report that was circulated by Monness Crespi after the event.
And anyway, here’s The New York Times this morning:
That request followed a dinner in New York last month where, among several other subjects, representatives of some of these hedge funds discussed betting against the euro…
But people present at the dinner or knowledgeable about the discussion said the idea of shorting the euro occupied only a few minutes of the conversation.
The presentation on the euro, by SAC, lasted less than five minutes, according to these people.
More interesting, is that the The Wall Street Journal itself has now swatted back against its own reporting, although the original story remains uncorrected. Here’s Peter Eavis in the “Heard on the Street” column yesterday:
Can you organize a cabal in three and a half minutes?
That is roughly how long hedge-fund managers discussed shorting the euro at an “ideas dinner” in New York last month, according to a person present…
The evening’s discussion lasted about 145 minutes, according to the attendee, and mostly focused on which stocks to buy.
Eavis writes this because the Journal‘s A1 story set off a Justice Department inquiry into the matter:
So why would the Justice Department probe the euro bet and not a proposal to buy shares in health-care-services provider McKesson, one of the other ideas? The apparent rationale: to find out whether there was collusion against the euro. Of course, that is possible. But as there could have been collusion on the other ideas, the red flag must have been the idea itself—targeting the euro. And this is where probes can get dangerous.
It’s a good idea to keep an eye on events like this—far be it for me to believe that there’s not criminal collusion in the hedge-fund industry. But you’ve got to have the goods if you’re going to run a story out like this on page one of The Wall Street Journal. This story painted a darker picture than the facts themselves, and that’s now had real-world consequences.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.