URL http://query.nytimes.com/gst/fullpage.html?res=9C06E5DE1E30F93AA25752C0A9619C8B63

DATE/ AUTHOR None	AUTHORS: Lynnley Browning

H From Ethics Overseer to Hedge Fund Boss

S1 As the court-appointed guardian and self-described fixer of some of America's most wayward companies, Richard C. Breeden, the former top securities regulator, is considered a pillar of corporate ethics and governance.

S2 Now he trying to become another paragon -- that of savvy investor in troubled companies.
S3 And in the coming months he will face his first major test: taking on the Applebee's International restaurant chain in a proxy fight.

S4 Mr. Breeden's fledgling advocacy hedge fund, Breeden Partners, which owns a 5.2 percent stake in Applebee's, began its battle last month, when Mr. Breeden nominated four close friends to its board.

S5 Hedge funds, the lucrative private investment pools for institutions like endowments and pensions, and for the wealthy, are nearly always managed by former Wall Street traders or money managers.

S6 Mr. Breeden -- a Harvard-trained securities lawyer -- has no investing experience.
S7 But he is seeking to bring his knowledge of securities laws and corporate governance into investing in underperforming companies.

S8 Some in the business are skeptical.

S9 ''I guess I wonder, how does a guy with no investment management experience run a hedge fund?''
S10 asked Philip Goldstein of Bulldog Investors, which runs hedge funds similar in style and intent to that of Mr. Breeden.
S11 ''You get the guys leaving Goldman Sachs and raising $2 billion, but this is even more astonishing -- he doesn't have a track record.''

S12 Mr. Goldstein added that ''it's kind of like starting at the top -- you'd think you'd want to work at a hedge fund for a while.''

S13 But what Mr. Breeden may lack in investing experience, he makes up for in other ways, according to his friends, who cite his hard-driving nature, his intellect, his attention to detail and his decisiveness, if marred at times by a divalike attitude.

S14 ''If it's a bad idea, Richard will kick it down the toilet and flush,'' said Laurence E. Harris, a lawyer in Washington who is one of four close friends that Mr. Breeden nominated last month to the board of directors at Applebee's, with a view to gaining a say in how the company is run.

S15 Mr. Breeden ''knows what to look for,'' Mr. Harris said.
S16 ''He's a lot less likely to be fooled than a lot of people who are pure investors, because he understands the mechanics of corporate governance and securities laws.''

S17 Mr. Breeden, 57, declined to comment for this article.

S18 He has not only has a new professional life, but a new personal one as well.
S19 Last year, Mr. Breeden married a trust administrator of the Bennett Funding Group, which he had overseen as the court-appointed monitor.
S20 (He and his first wife, Holly, were divorced in 2005 after 27 years of marriage.)

S21 Mr. Breeden is now perhaps the most senior former government official ever to run a hedge fund.
S22 Mr. Breeden oversaw the Securities and Exchange Commission from 1989 to 1993.

S23 He then ran one of the world's largest accounting firms, Coopers & Lybrand, before establishing his private firm, Richard C. Breeden & Company, in Greenwich, Conn., to advise companies hobbled by ethics and governance problems.

S24 In recent years, he has served as the high-profile outside monitor for scandal-plagued firms like WorldCom, which filed for bankruptcy in 2002 and Conrad Black's former company, Hollinger International.
S25 It was when he was overseeing the bankruptcy of WorldCom, later MCI, that Mr. Breeden first began thinking about starting a hedge fund, according to friends and associates.
S26 Seeing the roles played by the Mexican tycoon Carlos Slim Helú and Mark Neporent of the hedge fund Cerberus Capital as investors in MCI, he asked Mr. Harris, ''I'm thinking of starting a hedge fund -- what do you think?''

S27 Mr. Harris, who recalled the conversation, said Mr. Breeden told him, ''The one thing I don't want to do is fail.''

S28 Mr. Breeden's right-hand man at Breeden Partners is his friend Steven J. Quamme, a one-time mergers-and-acquisitions lawyer with whom Mr. Breeden once worked at Baker Botts, the Washington law firm.

S29 When asked who was running the hedge fund -- in other words, picking companies in which to invest, Mr. Harris replied, ''I don't think you can actually separate Richard and Steve -- they're joined at the hip.''

S30 Mr. Quamme did not return calls requesting comment.

S31 An entrepreneur as well as an investor, Mr. Quamme has picked some winners in his past jobs, including a chain of video stores that was sold to Blockbuster Video early last decade and a chunk of the Einstein Brothers Bagels franchises.

S32 Mr. Quamme, whom Mr. Breeden also nominated to serve on the Applebee's board, has also endured some setbacks.
S33 His 50 percent stake in Boston Chicken, through Mayfair Partners, an investing partnership that he ran in the mid-1990s, went stale in 1998 when the restaurant and the partnership both filed for bankruptcy.

S34 It is, of course, far too early to tell whether Mr. Breeden's knowledge and experience will make his hedge fund, whose philosophy is to invest in American companies with fixable problems in policy and governance, a winner.

S35 Some analysts do not see his fund making an impact on Applebee's.

S36 ''We do not see a dramatic shift near-term in the company's strategic direction that would lead to the 'value creating' programs proposed by the activist,'' Andrew Barish, an analyst with Banc of America Securities wrote earlier this month.

S37 Applebee's declined to comment on Mr. Breeden's proposals.

S38 The fund sought to raise $1.25 billion but has so far brought in only around $500 million, including $400 million from Calpers, the California pension fund.
S39 The hedge fund earned 7.73 percent in the third quarter of 2006, according to the most recent available data from Calpers.

S40 To some, Mr. Breeden's leap into the hedge fund business on the heels of serving as a court-appointed monitor for so many large companies raises questions.

S41 ''It's an appearances problem, and it bothers me,'' said Michael Feiner, an ethics professor at Columbia Business School, adding that he thought government officials should be required to wait two years before working at hedge funds or lobbying groups.
S42 ''I'm disappointed that he is doing this.''

S43 Mr. Breeden's spokesmen declined to answer questions on whether Breeden Partners would prohibit itself from investing in companies for which Mr. Breeden had served as a court-appointed monitor.

S44 And the transparency that Mr. Breeden championed at the troubled companies he has overseen may go by the wayside with his new venture.
S45 Like many hedge funds, Breeden Partners has affiliated entities registered in the Cayman Islands, to take advantage of generous offshore tax benefits.

S46 STREET SCENE

S47 Correction:  January 23, 2007, Tuesday  An article on the Street Scene page of Business Day on Friday about Richard C. Breeden, the former top securities regulator who is started a hedge fund aimed at troubled companies, misstated his former position at the accounting firm Coopers & Lybrand.
S48 He was a co-chairman of the firm's international business; he did not run the firm.

