How a Doctor's Visit Helped Hedge Funds Trade Annuities

A trip to the doctor is always a gamble. But for hedge fund Millennium Partners, a standard physical exam was the key to placing huge bets on insurance-company stock portfolios.

Millennium, the $3.2 billion fund run by Wall Street impresario Israel Englander, regularly asked its workers to submit to insurance company physicals they didn't need, so that they would become eligible for variable annuity life insurance policies.

According to former employees, Millennium's traders would then pile into the insurance contracts, exploiting their mutual fund-like characteristics in a strategy of rapid-fire trades known as market timing. The technique is a legal cousin to late-trading, the forbidden stale-price arbitrage that led a Millennium trader into the arms of prosecutors last fall. ...