Who knew? Mystery Hedge’s Post-Katrina Trades Spark Inquiry

Securities regulators are investigating whether a big hedge fund tried to cash in on the mess that Hurricane Katrina wrought late last summer.

The mystery hedge fund allegedly made improper short sales in shares of New Orleans-based Hibernia just as Katrina was laying waste to the bank's hometown, sources say. The fund sought to profit from Wall Street speculation that the devastation caused by Katrina would force Capital One to cut the price of its planned acquisition of Hibernia.

In effect, the SEC is looking into the possibility that the hedge fund engaged in "naked shorting."

Unless you’ve been hiding your head in the sand, you know that over the past year, allegations of naked shorting have become huge on Wall Street. Some execs have tried to paint short-sellers as merchants of evil who will stop at nothing in their effort to drag down healthy businesses. But clouding these claims is the fact that many of the supposed corporate victims either aren't profitable or face other problems -- raising the question of whether chicanery is really driving the decline in their shares.

http://www.thestreet.com/_tscana/newsanalysis/banking/10310715.html