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Moody's faces a Department of Justice probe into its ratings of securities during the financial crisis, the ratings agency disclosed on Friday, according to the Washington Examiner. In regulatory filings, Moody's told investors that it had received notice from the Justice Department in September that it was preparing a civil complaint against the company for violating federal laws with the ratings it gave mortgage-backed securities and other securities tied to the housing market prior to the 2008 financial crisis. The Justice Department told Moody's that its investigation was ongoing and may broaden in scope. Moody's also said that "a number" of state attorneys general warned them that they were preparing claims against the firm.

Hedge fund investors pulled $28.2 billion from the industry in the third quarter, the most since the aftermath of the global financial crisis, according to Hedge Fund Research Inc., Bloomberg News reported yesterday. The net outflows, which amount to 0.9 percent of the industry, are the largest since the second quarter of 2009, the firm said yesterday. Investors redeemed $51.5 billion in the first nine months of the year, even as industry assets rose to a record $2.97 trillion, it said. Hedge funds have been under pressure from investors critical of high fees and uninspired performance. The Kentucky Retirement Systems’ investment committee voted Oct. 14 to exit hedge funds over a three-year period. Marc Levine, chairman of the Illinois State Board of Investment, said yesterday that the plan had moved two-thirds of its assets to passive management to reduce fees, causing it to withdraw about $1 billion from hedge funds.

Two Platinum Partners hedge funds have sought chapter 15 protection as part of an ongoing liquidation effort, according to court documents filed in New York federal court, Reuters reported yesterday. In August, a Cayman Islands court ordered that an outside expert unwind the so-called offshore versions of its flagship hedge fund, Platinum Partners Value Arbitrage, which, along with the firm, is also being investigated by U.S. authorities. That liquidator, RHSW Caribbean, filed the chapter 15 petition and seeks to protect Platinum’s U.S. assets from creditors while an insolvency proceeding is underway in the Cayman Islands. Mark Nordlicht founded Platinum more than a decade ago and generated years of double-digit percentage returns by investing in often controversial businesses, a Reuters special report revealed. New York-based Platinum has been caught up in federal investigation by the U.S. Securities and Exchange Commission and the U.S. Attorney’s offices in Manhattan and Brooklyn.

Patriarch Partners Founder Lynn Tilton can’t block a planned sale of assets in one of her former investment funds, a deal she claims was structured to benefit insurer MBIA Inc., Bloomberg News reported yesterday. U.S. District Judge Jed Rakoff yesterday denied Tilton’s request to bar the sale of collateral in the Zohar I distressed loan fund pending the outcome of her lawsuit against the trustee of the fund, U.S. Bank NA, and MBIA. The judge ordered the trustee to issue another notice about the auction on Oct. 24 and to keep the sale open at least until Nov. 23. Tilton sued the trustee and the insurer in September, arguing that the auction is structured solely for the benefit of Purchase, New York-based MBIA, which holds a $149 million claim on the collateral. She won an initial court order barring the sale temporarily and sought a permanent ruling.MBIA argued that Zohar I defaulted on its payments in November 2015, obligating the company to repay the $149 million to noteholders. The default allowed MBIA to instruct the fund’s trustee to sell the collateral, the insurer said. Judge Rakoff’s two-page ruling follows Tilton’s decision to drop a lawsuit seeking to halt an SEC probe into allegations she overcharged investors in loan securities.

Bets on expensive but poorly performing hedge funds have cost pensioners in New York $3.8 billion in the last eight years, according to a report published by the state's financial regulator on Monday, Reuters reported. “Hedge fund managers continue to reap hundreds of millions of dollars in fees, regardless of their performance, which is a rip-off at the expense of pensioners,” Maria Vullo, superintendent of the New York State Department of Financial Services, said in a statement. The New York State Common Retirement Fund, which oversees $178 billion in assets and is the third-largest U.S. pension fund, paid $1 billion in fees to hedge fund managers over the last eight years, the regulator said in the report. The funds underperformed to the tune of $2.8 billion, said the regulator, which oversees banks and insurance companies in the state.

Student-loan borrower woes are spilling over into the bond market as an increasing share of federal student-loan borrowers are entering into repayment plans that allow them to make smaller payments than they actually owe on the loans, according to new data out Friday, the Wall Street Journal reported yesterday. Some of these plans allow borrowers to make no payments. The trend has become an area of concern for a pool of federal loans that were originated by banks and other private lenders until 2010. Borrowers are still paying down these loans, and nearly $159 billion of them back bonds, according to the data from research firm MeasureOne.

Starting Christmas Eve, the 2010 Dodd-Frank regulatory overhaul will require companies that package most types of loans into bonds to keep at least 5 percent of the securities they create, the Wall Street Journal reported today. The intent is to prevent a repeat of crisis-era behavior, in which loan quality fell dramatically as lenders passed all of the risk along to investors. But in the market for “collateralized loan obligations,” which are backed by junk-rated corporate loans, many issuers don’t plan to use their own money to retain the whole 5 percent. Firms including JPMorgan Chase & Co. spinoff HPS Investment Partners LLC have moved instead to set up affiliated companies that would buy the stakes. HPS and some others would own roughly 51 percent of the new firms, and outside investors would own the rest, according to market participants. The move is allowed by the rules, which say issuers can hold the securities via majority-owned affiliates. Blackstone is one company weighing whether to push that boundary further by setting up an affiliate in which it holds as little as 20 percent.

One of Theranos Inc.’s biggest financial backers has sued the embattled startup and its founder for allegedly lying to attract its nearly $100 million investment, the Wall Street Journal reported today. Partner Fund Management LP, a San Francisco-based hedge fund, filed the suit in Delaware Court of Chancery Monday afternoon, a letter to the hedge-fund’s investors says. “Through a series of lies, material misstatements, and omissions, the defendants engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company,” says the letter. The letter says that Theranos, its founder Elizabeth Holmes and a former executive deceived the hedge fund by claiming it had developed “proprietary technologies that worked,” and was close to getting regulatory approvals.

Lynn Tilton took the witness stand in a Manhattan courtroom and urged a judge to maintain a freeze on the sale of assets in one of her former investment funds so she can renegotiate the terms of the auction to get more bidders and a bigger recovery for investors, Bloomberg News reported today. Tilton, the founder of Patriarch Partners LLC, won a temporary halt to the auction last month after she sued the trustee of the Zohar I distressed loan fund. She argued that the planned sale was a sham structured to benefit MBIA Inc., the insurer that holds a $149 million claim on the collateral. As currently structured, the auction would "chill" interest and frighten possible bidders for the collateral because it wouldn’t give them enough time for research, she said. The sale involves more than 100 financial assets and more than 50 entities in more than 20 industries, Tilton told U.S. District Judge Jed Rakoff yesterday.

Donald Trump called it the Eighth Wonder of the World, but the Trump Taj Mahal closed its doors yesterday just before 6 a.m., CNNMoney.com reported yesterday. Donald Trump himself no longer owned anything more than the name attached to the Taj's grandiose neon minarets. In its last days, the casino was controlled by the financier Carl Icahn. Icahn called it a "sad day for Atlantic City" and for the 3,000 workers at the Taj. But he said he couldn't reach an agreement with striking union workers and could no longer run the casino without hemorrhaging money. The union, representing about 1,000 of the Taj's workers, reached deals with four other casinos in the city just before the Independence Day weekend, including another casino owned by Icahn. But Taj workers went on strike July 1. The Trump Taj Mahal had been in trouble for years, along with the rest of cash-strapped Atlantic City, where five casinos have closed since 2014, including Trump Plaza. Of the seven that remain, two, Bally's and Caesar's, have filed for chapter 11 protection.