PIPEs are popular with hedge funds because of the market discount. Critics, however, contend that the ability of a hedge fund to purchase discounted stock makes the PIPEs market ripe for abuse by unethical short-sellers. There's no indication that the insider trading scheme involving Daws is related to the PIPEs inquiry. No charges were filed against Gryphon in the Elgindy investigation, although Daws, in pleading guilty, said "others at Gryphon made trades in the some of the relevant stocks, independent of me, and not at my direction.'' There are some similarities between the allegations underlying the Elgindy case and the PIPEs inquiry. One of the charges regulators are looking into in the PIPEs probe is that some hedge funds routinely shorted stock once they learned a PIPE deal is in the works. Regulators contend that such premature short trades are illegal, since knowledge of the PIPE deal is confidential, nonpublic information. In any event, Gryphon won't be the only hedge fund to find itself in the regulatory cross hairs because of its trading in PIPEs. Some 18 months ago, the SEC sent an initial round of subpoenas to 10 hedge funds and 20 brokerages that either arranged PIPE deals or handled trades for hedge funds that a major PIPE investors. The investigation is being coordinated with parallel inquiries by the National Association of Securities Dealers and the Department of Justice. In October, TheStreet.com reported that the SEC formally notified an unidentified hedge fund that it is facing potential regulatory action by sending it a so-called Wells notice. In addition, securities regulators are taking a close look at a number of PIPE deals that HBK Investments, a $7 billion Dallas hedge fund, has invested in. This summer, Alexandra Investment Management, a $1.4 billion hedge fund complex, disclosed that it "has been providing information'' about its investments in PIPEs to both the SEC and federal prosecutors. Alexandra's disclosure, which was first reported by Bloomberg, was contained in a copy of its 2004 audited financial statement. An Alexandra spokeswoman says investors in the fund have known about the inquiries since June.