Pirate Swabs the Deck

The poor performance at Pirate was first reported by TheStreet.com back in August. In response to that story, Hudson sent out a mea culpa letterto investors, explaining that the fund "undertook a firm-wide review of our trading strategy, core and non-core investments, risk controls, and hedging strategies."

In that Aug. 21 letter, Hudson blamed Pirate's dismal July performance on a number of "shipwrecks." Some of those investments included big stakes in GenCorp(GY), James River Coal(JRCC), Cendant(CD) and OSI Restaurant Partners(OSI).

In fact, right before Hudson sent the Aug. 21 letter, he said Pirate sold its entire stake in OSI, the parent company of the Outback Steakhouse chain, after the firm's "investment thesis" didn't pan out. The hedge fund had been urging OSI's management to spin off some of its smaller brands.

But the sale of Pirate's Outback stake landed the hedge fund in hot water with regulators. Earlier this month, Bloomberg reported that the Securities and Exchange Commission was investigating whether Pirate violated securities laws by waiting a month to formally report the share sale.

Pirate formally disclosed the sale in a regulatory filing in mid-September. However, the sale of the Outback position was widely reported before the filing in TheStreet.com and other publications.

>To order reprints of this article, click here: Reprints