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Feb 2 2010 | 10:16am ET
Hedge funds are always looking for an edge, and you don’t get much more edge than this: Current and former Central Intelligence Agency operatives on the payroll.
According to a new book from Politico’s Eamon Javers, top hedge funds—including SAC Capital Advisors—and other major financial firms have brought on officers from the CIA for a variety of activities, including “deception detection.” The moonlighting by the nation’s spies and intelligence analysts is permitted by the CIA, which is intent on holding on to top talent that might otherwise be tempted to leave the agency and peddle their wares to the private sector.
In particular, Javers’ Broker, Trader, Lawyer, Spy: The Secret World of Corporate Espionage deals with a company called Business Intelligence Advisors. Boston-based BIA was founded by a group of retired CIA members, and has been retained by a number of hedge funds, including SAC.
In 2006, the Stamford, Conn.-based hedge fund giant had a pair of BIA specialists teach its employees the finer art of “tactical behavior assessment,” or how to be a human lie detector. The former spooks, one with 20 years in polygraph experience, the other with 25 in interrogation experience, taught the SAC employees how to look for both verbal and nonverbal cues that a person—say, a company executive—is being something less than truthful.
Another, unidentified hedge fund decided to cut out the middleman and hired BIA to do the analyzing for it.
The hedge fund, which Javers describes as “enormous,” had a roomful of CIA-trained, BIA-employed experts listening in on a 2005 earnings conference call with UTStarcom, an internet equipment company. The BIA experts said that CEO Hong Liang Lu and CFO Michael Sophie were being less than forthright about the company’s revenue recognition.
“Management’s behavior indicates that they will post poor third-quarter results, and it is also highly unlikely they will achieve profitability in the fourth quarter,” BIA’s 27-page report on UTStarcom concluded. Those conclusions were right on the money.