The day after Paul Singer’s hedge fund, Elliott Management Corp., disclosed it had increased its stake in aluminum-parts manufacturer Arconic to more than 10 percent, its private investigators hit the pavement.
It was January 26, 2017. The two sleuths, employed by Berkeley Research Group, were knocking on the doors of neighbors of Klaus Kleinfeld, Arconic’s then-CEO, in suburban Westchester County, New York. Claiming to be working for investors considering doing a deal with Kleinfeld, the men asked if the CEO was known to have loud parties. Later that evening, they were seen at Rye Grill & Bar, a local restaurant.
“They had the look of retired policemen,” one neighbor emailed Kleinfeld and his wife two days later. The men introduced themselves as “global investigations and strategic intelligence senior managing consultants” for Berkeley, emailed another neighbor.
Singer’s Elliott has an aggressive reputation, known to search for information on its opponents — a skill honed in its battles with sovereign debtors, including Argentina and Peru. In the political world, in 2015 a Singer-financed publication was the first to hire investigative firm Fusion GPS in what ultimately resulted in the infamous Steele dossier on President Donald Trump.
In recent years, though, Elliott has turned its tactics on corporate chieftains, becoming the most feared activist hedge fund around the globe. Last year, the $35 billion fund subjected 24 companies to its demands — far more than any other fund. And while it might be the most feared, it is far from alone. “The use of private investigators is par for the course in proxy contests,” says Kai Liekefett, partner and chair of the shareholder activism practice at Sidley Austin. “They’re just like political campaigns with their opposition research.”
But the Kleinfeld case remains an important example of the extreme lengths private investigators or researchers working for hedge funds — as well as their opponents — may go.
Some say it’s going too far. “We do still feel like there’s a level of personal space that people ought to be entitled to, in particular in the business world, where the person is not a known criminal,” says Robert Brenner, chief operating officer and chief legal officer at K2 Intelligence, a top-tier investigative firm co-founded in 2009 by Jules Kroll, a pioneer in the business of corporate private eyes in the 1970s with the creation of Kroll, which has been sold several times and is now owned by Duff & Phelps.
Liekefett, meanwhile, calls Elliott’s behavior an effort “to intimidate the other side. It’s more about the shock effect.”
Such tactics are part of the shadowy world of private investigative services, populated by ex-cops, former lawyers and prosecutors, former investigative journalists, and onetime spies from the CIA, Mossad, and MI5. It isn’t just activist investors and their corporate prey who are hiring them, either. Long-short firms — notably short sellers — and private equity firms are also big clients, as are their investors.
Many investigators say they are governed by strict compliance rules that forbid them from engaging in certain practices, like obtaining material nonpublic information, getting law enforcement records, or pretending to be someone else — a legally murky tactic known in the trade as pretexting. The term has become so common in the hedge fund world that it even merited a mention in a recent episode of Billions, the hit Showtime show about a hedge fund mogul.
Yet seasoned professionals acknowledge off the record what they won’t acknowledge on: That the field is awash in unscrupulous characters who stretch the outer bounds of legality and morality, individuals willing to secretly record targets, pay off sources, hack, and steal, all covered by what one due diligence researcher calls an attitude of “don’t ask, don’t tell.”
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