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California Hedge Fund Manager Gets 14 Months For “Side Pocket” Investments

Larry_Goldfarb2New York (HedgeCo.Net) – Former Bay Area hedge fund manager and philanthropist Lawrence Goldfarb has received a sentence of over a year behind bars for concealing more than $12 million in investment proceeds that was owed to investors in his fund. In 2011 Goldfarb agreed to pay more than $14 million to settle the charges, however, he failed to make the payments.

The FBI said: “The Court determined that instead of paying the agreed upon restitution and disgorgement, Goldfarb spent hundreds of thousands of dollars on various personal indulgences, including Golden State Warriors season tickets, private air travel, and vacations.”

The SEC says that Goldfarb and his company Baystar Capital Management LLC (BCM) diverted cash to other entities he controlled, ultimately funding a real estate venture and a San Francisco record company.

The SEC also alleged that Goldfarb comingled investor funds in a bank account that he used to pay for unauthorized personal expenses including charitable donations.

According to the SEC’s complaint filed in federal district court in San Francisco, Goldfarb and BCM maintained some investments in a “side pocket” into which investors in the hedge fund – Baystar Capital II, L.P. – had limited visibility.

“Hedge fund managers may not use side pockets to obscure their activities from investors.” Robert Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, said, “Hedge fund managers need to honor their obligations to investors, and investors should pay close attention to the discretion that managers wield over side pocketed investments.”

Alex Akesson
Editor For HedgeCo.net
alex@hedgeco.net
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