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As The British Pound Tumbled After The Brexit Vote, Some Hedge Funds Made Millions

MARY LOUISE KELLY, HOST:

Now to a story about profiting from chaos. The chaos in this case was caused by Brexit, the United Kingdom's vote in 2016 to leave the European Union. It sent the British pound tumbling and surprised nearly everyone. It did not surprise certain hedge fund managers who had bought secret polling data, data the public did not have access to that allowed hedge fund managers to short sell the pound and make millions. This story comes courtesy of Bloomberg. And Bloomberg's Cam Simpson joins us now via Skype. Hey there.

CAM SIMPSON: Hi. Thanks for having me.

KELLY: Explain in a few sentences exactly how this worked.

SIMPSON: Yeah, so as you said, you know, the pound suffered quite a dramatic crash after the vote because it was unexpected. In fact it was the largest crash of any major currency in the history of the modern global financial system. I mean, it fell off a cliff. And we're still suffering from that in the U.K. today. But what happened was, also like you said, it wasn't a complete surprise to a handful of people.

There was a group - probably a couple dozen hedge funds had purchased secret exit polls from the largest polling companies in the U.K., all of which are for-profit commercial entities. So they were asking people how they voted on the day. Some of them were very sophisticated. Some of them were less sophisticated. And they were streaming that throughout the day to the hedge fund traders and analysts so that they could figure out how to target derivatives trades around the coming crash of the pound that they saw before everyone else.

KELLY: So explain to me the role of an outfit called YouGov. What are they, and what role were they playing on the day of the Brexit vote?

SIMPSON: So YouGov is one of the most prominent polling companies in the U.K., and it does tons of media polls, a lot of them for free, including an exit poll it did on the night of the election. It was the only one in the space at 10 o'clock when everyone expects to see sort of the definitive, authoritative broadcasters' exit poll. That one wasn't happening that night. YouGov gave Sky News for free this exclusive poll. Earlier in the day, without Sky News knowing it, without anyone knowing it, it sold a poll with identical results to a hedge fund - to a single hedge fund for about a million dollars.

KELLY: So it gave this hedge fund a running start.

SIMPSON: Yeah, I think that's - it certainly enabled this hedge fund to have a running start about what was going to happen to the pound when you go out on the air on Sky News.

KELLY: Let's fill in some of the facts here. How much money are we talking? How much did hedge funds make?

SIMPSON: That's a really good question. We don't know. Some of the ones that we know were involved in this operation and these various relationships with pollsters - you know, they're not transparent. They don't report their earnings. They report how they do usually to the people whose money they manage. And we've figured out some of them did incredibly well. One of them made 300 million pounds or I think $300 million just in one night. You know, other hedge funds we saw got 3 percent of their entire value in one day.

KELLY: To be clear, there's no evidence you uncovered that the actual outcome of the Brexit vote was swayed in any way. This is all about who might have been able to make money in those few hours before the actual outcome was known.

SIMPSON: That's absolutely true, yeah. That's fundamentally true.

KELLY: Is buying and selling polling data in this way legal?

SIMPSON: It's really unclear. I think what we can say for sure is that the exit polling data on the day that these polling companies sold to hedge funds - it would have been illegal for them to give it to the public or any section of the public. You know, people are talking about insider trading. It's gone crazy, as you can imagine, all over Twitter in the U.K. People are talking about, you know, market manipulation. I'm not a prosecutor. I don't know anything about those questions. But I think lots of people are looking into those issues now.

KELLY: That's Cam Simpson, investigative editor and writer for Bloomberg based in London. His story "The Brexit Short" is online now. Cam Simpson, thanks very much.

SIMPSON: Thank you. Transcript provided by NPR, Copyright NPR.