Billions: Real-Life Applications of Scenarios Depicted on the Show – Hedge Fund Trading and Ethics

In this episode, the ethical aspects of Axe’s capital raising tactics and trading antics really come into focus. Spoilers Ahead

Throughout this season we’ve been learning bits and pieces about how Axe started Axe Capital in the wake of 9/11. Initially we learned that Axe started a scholarship fund for the children of his former associates that died in the 9/11 attacks. We also learned that his wife’s brother, a fire fighter, died in the towers that day. Kate Sacher, from the US Attorney’s Office, later uncovers a redacted chapter from the controversial book authored by a 9/11 widow which is replete with negative information about Axe’s firm. In that chapter, we learn that Axe was not in the towers on 9/11 because he was at an attorney’s office reviewing his own severance package. Once Axe learned that a plane hit the first tower, he shorted hospitality and airline stocks to make the money, which provided the seed money he needed to start Axe Capital. This information is quickly leaked by a reporter. This episode sees the fallout of Axe’s actions. Axe’s family is out to dinner when he sees a vulgar message on his car; there are protesters camped outside Axe Capital; the head of Axelrod Hall tries to force Axe to change the name dropping any public affiliation with Axelrod; the police-pension fund is pulled from Axe Capital; and three key employees leave. Meanwhile, his family is being affected too. Lara’s family confronts her judgment about being with Axe based on this information, and her restaurant is shut down in a retaliatory raid by the fire department. Axe and Lara go to the fire station where Lara’s brother worked to try and appease the fire fighters who are upset after learning how Axe made this “blood money.” Axe confronts this issue head-on and tries to convince them he is genuine by telling them the whole truth. He shares, “You know I made the trade after the first plane hit, before we knew it was terrorism, before I knew I was going to lose my office. What the papers didn’t say is that I kept trading after the South Tower was hit, too. In fact, that’s when I put on the gas.” The men do not react well to this information and respond by tearing up the farm that supplies Lara’s restaurant forcing her to shut it down as well. Hedge fund managers are known for taking market opportunities and turning it to their advantage. For example, a manager may engage in “short selling” when a trader believes a security will decline in price, which will enable the trader to buy the security back at a lower price to make a profit. In practice, the manager will borrow shares and sell them until such time as the manager closes the short position by buying back the security on the open market to replace the shares. This is exactly what Axe did when he shorted airplane stocks on 9/11. While there is technically nothing wrong with “hedging” a bet that a security may go down in price, it carries with it high risks. Financial firms must develop strong internal controls for monitoring trading activities and for communicating with investors the risks inherent with this type of investment strategy. Short selling is not suitable for every investor, and must be reviewed carefully. The ethics surrounding Axe’s actions we will leave for Hollywood. But the practice of hedging is very common in the investment industry. For more information, including internal control and compliance considerations for short selling activities, contact Jacko Law Group at 619.298.2880 or

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