Rep. Gonzalez calls for an investigation of currency trader Soros' impact on market questioned

June 19, 1993|By Bloomberg Business News

WASHINGTON -- Rep. Henry B. Gonzalez, D-Texas, chairman of the House Banking Committee, yesterday called for an investigation of money manager George Soros' foreign exchange trading activities.

Mr. Soros, the most highly paid money manager in the world, runs the Curacao-based Quantum Fund, which has more than $2.5 billion of assets. Mr. Soros' personal interest in funds he runs was worth about $785 million in late 1992, Forbes magazine estimated.

And in its annual ranking of the financial community's top earners, appearing in the July 6 issue, Financial World placed Mr. Soros in the top place with a record $650 million, beating former junk bond king Michael Milken, who was estimated to have made $500 million in one year before being convicted in 1990 of conspiring to violate securities and tax laws.

In a speech on the floor of the House, Mr. Gonzalez cited other press accounts that Mr. Soros made more than $1 billion by betting against the British pound.

"I am interested in knowing how Mr. Soros was able to make such profits, how much of his investment capital is from bank loans, the U.S. bank exposure to Mr. Soros' fund, and the role derivatives played in earning Mr. Soros that windfall," Mr. Gonzalez said.

Derivatives are financial instruments whose value is based on another security. For example, an option is a derivative because its value is based on an underlying stock or stock index.

Currency swaps and interest rate swaps are two other common derivative products.

Mr. Gonzalez said he would ask the Federal Reserve and the Securities and Exchange Commission to review Mr. Soros' impact on the foreign exchange market to determine if it was possible for an individuals to manipulate that market.

"At a minimum, it is in the best interest of the Federal Reserve and other central banks to fully understand Mr. Soros' methodology for manipulating the forex market," Mr. Gonzalez said.

"After all, they are competing head on with Mr. Soros in an effort to manipulate the value of various currencies."

Mr. Gonzalez made his remarks about Mr. Soros as part of a broader speech on the potential dangers of banks' exposure to derivatives.

The total credit exposure from derivatives at money center banks is well in excess of 100 percent of their capital, Mr. Gonzalez said.

The Banking Committee chairman said he was concerned that a large credit default or systematic problem in an underlying market could cause "a catastrophe that could easily eclipse the capital of our largest banks and endanger the deposit insurance fund."

Federal Reserve officials weren't available for comment.

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