Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
New York (Hedge Co.net) – Hedge fund manager Douglas Whitman and his California-based firm have been charged by the SEC with illegally profiting from insider tips on Google and Polycom, making $980,000 in the process.
The SEC alleges in a complaint dated February 10, that Whitman and Whitman Capital obtained insider information on Google and Polycom from an individual investor named Roomy Khan. The two conducted their business on Skype to avoid detection, the SEC said. Whitman Capital hedge funds reaped approximately $980,000 in ill-gotten profits.
In addition to tipping Whitman, the SEC says that Khan also passed the material nonpublic information that she obtained concerning Polycom and Google to investment professionals at other hedge fund advisers, including Raj Rajaratnam of Galleon Management LP., and Jeffrey Yokuty and Robert Feinblatt of Trivium Capital Management LLC. Like Whitman and Whitman Capital, both Galleon and Trivium used this information to reap sizable profits for the hedge funds they managed.
The SEC seeks permanent injunctions against each of the defendants, enjoining them from engaging in the transactions, acts, practices, and courses of business alleged in the SEC complaint; disgorgement of ill-gotten gains or losses avoided from the unlawful insider trading activity, together with prejudgment interest and civil penalties.
“New York (HedgeCo.net) – Obama’s financial fraud task force yesterday unveiled a hedge fund fraud case involving a “club” of high profile NY men, charged with insider trading involving computer company DELL. Of those seven, three people have been arrested, one surrendered, and three others have not been arrested as they cooperated with authorities, according to the FBI.
“It was a club where everyone scratched everyone else’s back,” U.S. Attorney Preet Bharara said. Court documents, he added, “paint a stunning portrait of organized corruption on a broad scale.
The NY FBI reports that among the charged are:
“Hedge fund Level Global Investors LP’s co-founder Anthony Chiasson, Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC, Jon Horvath, a hedge fund analyst in New York, and Danny Kuo, a fund manager for Whittier Trust Co. in South Pasadena, California.”
Seattle Times:
“U.S. Attorney Preet Bharara said nearly $62 million was earned through tips provided by a Dell employee to a former Dell worker who spread the information among his friends at at least five investment houses, including three hedge funds. He called it “a stunning portrait of organized corruption on a broad scale” and said it raised to 63 the number of people arrested in a government crackdown on insider trading. So far, there have been 56 convictions.”
Business Week:
“The U.S. government vowed to continue its five-year investigation into insider trading on Wall Street as it charged a fourth ring of hedge-fund traders with using illegal information to make millions of dollars.”
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New York (HedgeCo.net) – Hartline Investment Corp is under fire for recommending a $550 million Florida hedge fund that is now subject to lawsuit filed by the SEC. Five investors followed the advisers advice and put $11.6 million into the failing hedge fund.
Lead plaintiff Marsha Serlin claims that William Hart advised her to invest in an LP called Founding Partners Stable Value Fund I and II, Courthouse News reports.
Serlin claims Hart told her and the co-plaintiffs that the hedge fund was a great investment and very difficult to get into, but that he was a good friend of William L. Gunlicks (president, founder, CEO and sole shareholder), and would be able to get the plaintiffs in as well.”
Serlin calls it a case of crony capitalism, “Defendant Hart admits to having a 30-year friendship and professional relationship with William Gunlicks. This relationship has been highly profitable for Hart and was incentive for him to breach his fiduciary duty and other duties complained of herein.”
The plaintiffs seek $11.6 million in damages for breach of fiduciary duty, negligent misrepresentation and fraud, according to Courthouse News Services.
New York (HedgeCo.net) – Thomas Repke, of Salt Lake City, Utah, pleaded guilty to conspiracy to commit fraud. His codefendant and former business partner, James Jeffery of Ontario, Canada, pleaded guilty in April 2011. The jury trial was scheduled to begin on January 3, 2012.
Repke and Jeffery were the principals of a Utah-based hedge fund operator known as Coadum Advisors, which drew hundreds of investors nationwide into a series of investment funds from 2005-2008. The defendants pleaded guilty to conspiring to defraud their investors by lying to them about how their money was invested, what returns were being earned, and what balances investors held.
“Today, the lead defendant in a major international investment fraud scheme pleaded guilty to participating in a conspiracy that defrauded over 200 victims from across the country out of tens of millions of dollars, most of which was dissipated in overseas accounts.” United States Attorney Sally Quillian Yates said, “Like so many investment fraud schemes, this one was targeted at seniors, retirees, and others simply looking for safe and secure returns. The Financial Fraud Task Force will continue to root out fraud to restore faith and confidence in our investment system.”
Coadum Capital operated from 2005 through early 2008, which at its height attracted nearly 250 investors and nearly $40 million in investments. Coadum offered shares in hedge funds and advertised monthly returns often exceeding 5 percent.
Repke and Jeffery are said to have transferred over $20 million overseas to accounts in Switzerland and the Mediterranean island of Malta, paying themselves approximately $500,000 in cash over a two year period.
They each pleaded guilty to a conspiracy charge, which carries a maximum sentence of 20 years in prison and a fine of up to $250,000. Sentencing is scheduled for February 29, 2012.
New York (HedgeCo.net) – Two men claiming to run New Jersey-based hedge funds using a secret algorithm to invest in foreign currency have been charged for allegedly defrauding victims out of more than $3.5 million and spending the investments on high-end vehicles, luxury travel and five-figure bar tabs, The FBI reports.
George Sepero and Carmelo Provenzano, were arrested by FBI special agents on a criminal complaint charging them with wire fraud conspiracy.
“According to the complaint, Sepero and Provenzano used fake companies and phony reports to steal millions in real money from trusting investors,” the N.J. Attorney said. “With other people’s cash in their pockets, the defendants allegedly went on a spending spree involving luxury vehicles, international travel and extraordinary bar bills. Nobody asks to be defrauded, but those looking to invest should always be skeptical of rates of return that go so far beyond the norm.”
“I cannot stress enough the importance of investors exercising due diligence before trusting others with their money,” said Michael B. Ward, special agent in charge of the Newark, N.J., Division of the FBI. “The old adage ‘if it sounds too good to be true, it probably is’ remains constant. In this case, Sepero and Provenzano claimed to own a secret computer algorithm which would achieve returns of 170 percent or more at a time when financial markets were in flux. Instead, it was another of the many Ponzi schemes that have been uncovered in New Jersey wherein subjects are diverting money to support lavish lifestyles.”
According to the complaint unsealed in Newark federal court:
Beginning in 2009, Sepero and Provenzano claimed to run a series of hedge funds in New Jersey, luring investors with the prospect of extraordinary profits in foreign currency trading. The defendants made numerous misrepresentations and omissions to induce their victims to invest in “Pelt Capital,” “Caxton Capital Management,” “SP Investors Inc.” and “CCP Pro Consulting Inc.” Sepero and Provenzano claimed they owned and controlled a proprietary computer algorithm for trading foreign currencies; that they had used the algorithm to achieve returns of more than 170 percent in the prior two years; and that any investment funds would be highly liquid and could be withdrawn on days’ notice.
Sepero and Provenzano spent investor money on credit card bills averaging approximately $25,000 per month; bar tabs of approximately $18,241—including a $4,000 tip—and approximately $14,034 on separate nights at “Drai’s Hollywood” nightclub in Los Angeles; luxury hotel rooms for tens of thousands of dollars, including suites costing more than $4,000 at W Hotels in New York; and flights to Paris, Los Angeles, Chicago and elsewhere. Sepero also purchased a customized Ford F-350 “Harley-Davidson Edition” pickup truck costing more than $80,000 and Provenzano bought a luxury Range Rover Sport SUV costing more than $71,000, with a down payment of more than $65,000. The pair also spent victims’ money on other personal expenditures, including mortgage payments, home improvements, meals at high-end restaurants, jewelry and limousines.
The defendants furthered the scheme by e-mailing victims fake statements showing their principal had been invested in the foreign currency markets and was achieving substantial results. Many of these e-mails were purportedly sent by an individual named “Mel Tannenbaum,” a fictional character of Provenzano’s invention.
The defendants also e-mailed to several investors “screen shots” of a computer-based trading program, which they claimed represented the investors’ funds being traded in the currency markets. In reality, the shots reflected trading in fictional accounts set up by the coconspirators to dupe investors.
The wire fraud conspiracy count with which Sepero and Provenzano are charged carries a maximum potential penalty of 20 years in prison and a fine of $250,000 or twice the gain or loss from the offense.
New York (HedgeCo.net) – William Shternfeld and Benjamin Koifman have been sentenced in a NY court to 63 months each in prison for participating in a conspiracy to defraud investors of more than $18 million through a fraudulent hedge fund, the FBI reports.
Both men pled guilty to one count of conspiring to commit mail and wire fraud. Manhattan United States Attorney Preet Bharara said: “William Shternfeld and Benjamin Koifman preyed on the elderly to entice them into investing in their so-called fund.”
The fund in question is the AR. Capital Global Fund, LP. (“ARC Global Fund”), a purported hedge fund. Investor funds were wired to various bank accounts in Eastern Europe. The FBI said that the pair were expert cold-callers who solicited the vast majority of the funds from the ARC Global Fund’s victims, many of whom were elderly and lost most, if not all, of their retirement savings.
The ARC Global Fund received more than $18 million in investments before being shut down in September 2006.
In addition to their prison terms, the Judge sentenced Shternfeld and Koifman, both of Marlboro, New Jersey, to three years of supervised release each. He also ordered each to forfeit $7 million, which constitutes proceeds from their crime.
Five defendants were previously convicted and sentenced for their involvement in the ARC Global Fund fraud. Yevgeny Shvartsshteyn and Igor Levin were each sentenced to 87 months in prison. Daniel Ledven, Edward Veisman, and Alan Fishman were sentenced to 57, 46, and 37 months in prison, respectively.
New York (HedgeCo.net) – One of Goldman Sachs’ former directors, Rajat Gupta, has been arrested on charges of insider trading as a co-conspirator in the criminal case against hedge fund manager Raj Rajaratnam.
The New York Times reports:
“Rajat K. Gupta, a former director at Goldman Sachs and Procter & Gamble, pleaded not guilty Wednesday to insider trading charges, setting the stage for a courtroom battle that will extend the government’s broad crackdown on Wall Street to the corporate boardroom.”
Bloomberg reports:
“The prosecution is built on circumstantial evidence that may be less persuasive than the wiretaps that sealed the fate of his friend Raj Rajaratnam. Prosecutors will seek to convict Gupta based on the timing of his phone calls and the Rajaratnam trades that immediately followed.”
The Economic Times says:
“Regardless of the case’s outcome, the charges punctuate a stunning fall from grace for Gupta, whose personal story reads like a caricature of a Horatio Alger tale.
Orphaned at 18, Gupta, a native of Kolkata, received an engineering degree from the elite Indian Institute of Technology. He earned a scholarship to Harvard Business School, graduating at the top of his class and securing a prized posting at McKinsey & Co.”
Gupta has been freed on $10 million bail, pending trial. He faces a sentence of over 100 years and a $25 million fine if found guilty.
New York (HedgeCo.net) – The SEC yesterday obtained an asset freeze against a Massachusetts hedge fund manager and his investment advisory firm.
Andrey C. Hicks and Locust Offshore Management LLC are charged with misleading investors in a supposed quantitative hedge fund and diverting portions of investor money into his personal bank account.
“Hicks lied to investors about virtually every aspect of his fictitious hedge fund. This brazen web of lies to investors constituted an outright fraud,” David P. Bergers, Director of the SEC’s Boston Regional Office, said.
Hicks is alleged to have raised at least $1.7 million from several investors for the hedge fund. Among the false claims made to investors were that the hedge fund manager obtained undergraduate and graduate degrees at Harvard University, and that he previously worked for Barclays Capital, and that the hedge fund held more than $1.2 billion in assets.
At the SEC’s request, Judge Richard Stearns of the U.S. District Court in Massachusetts issued a temporary restraining order that freezes the assets of Hicks, his firm, and the hedge fund.
“Hicks and Locust Offshore Management created this intricate scheme in order to gain credibility with investors,” Robert Kaplan, Co-Chief of the Asset Management Unit in the SEC’s Division of Enforcement, said. “Even hedge fund managers who claim affiliations with well-known institutions should be thoroughly researched before making an investment.”
New York (HedgeCo.net) – One of Goldman Sachs’ former directors, Rajat Gupta, is turning himself over to the FBI today, the Guardian reports.
Gupta faces insider trading charges as an unindicted co-conspirator in the criminal case against hedge fund manager Raj Rajaratnam. So far he denies any wrongdoing.
“Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless.” Gupta’s attorney, Gary Naftalis, said, “The facts demonstrate that Mr Gupta is an innocent man and that he has always acted with honesty and integrity. He did not trade in any securities, did not tip Mr Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo.”
The SEC originally brought civil fraud charges against Gupta in March for allegedly tipping Rajaratnam off to insider information in the SEC vs. Galleon case.
Gupta is alleged to have told Rajaratnam of a $5 billion investment by Warren Buffett in Goldman Sachs before the information became public.
Rajaratnam was taken into custody in New York on Oct. 16, 2009 in what is being called the USA’s largest hedge fund insider-trading scheme. He is being accused of insider trading and securities fraud, generating as much as $49 million in profit. The majority of the stocks involved are in technology, including, IBM, Intel, Akamai Technologies Inc, Polycom Inc, Hilton Hotels Corp, Google Inc, Sun Microsystems Inc SUNW.TI, Clearwire Corp, Advanced Micro Devices, ATI Technologies Inc and eBay Inc.
New York (HedgeCo.net) – Hedge fund founder Raj Rajaratnam has been sentenced to 11 years in prison on Thursday by Manhattan Judge Richard J. Holwell.
The judge also imposed a $10 million fine and ordered a forfeiture of $53.8 million. Since his October 2009 arrest, more than two dozen people were arrested in the investigation, nicknamed Perfect Hedge, and all were convicted, according to AP.
In Feburary, Rajaratnam attacked the U.S. government’s wiretap evidence saying he would file a motion to suppress the telephone recordings which were used to arrest Rajaratnam and more than a dozen other people in the Galleon raid. Rajaratnam then won an emergency order relieving him from having to turn over wiretap recordings because of legal hurdles in obtaining the 14,000 wiretap intercepts.
The hedge fund millionaire was taken into custody in New York on Oct. 16, 2009 in what is being called the USA’s largest hedge fund insider-trading scheme.
New York (HedgeCo.net) – Former Samsung manager Suk-Joo Hwang has admitted to leaking early information on the iPad to representatives from an “expert network” firm and a hedge fund, according to Apple Insider.
In exchange for immunity, Hwang testified in federal court that he had spoken to Primary Global Research executive James Fleishman and a hedge fund manager over lunch about the product launch.
“One particular thing I remember vividly was that I talked about the shipment numbers of Apple, it was about iPad,” Hwang said. “This is in December 2009, before it came out with the tablet PC, they didn’t know the name then, so I talked to them about the tablet shipment estimates in that meeting.”
Fleishman faces 25 years in prison if convicted. He was arrested last December as part of a wide-ranging Securities Exchange Commission probe investigating the practice of expert networks, which charge a fee to connect investors with employees of companies. Hwang made $38,000 for his work as a consultant.
New York (HedgeCo.net) – According to regulatory filings a former Sino-Forest Chief Executive Officer and other insiders sold C$81 million ($83 million) of shares since the end of 2006, Bloomberg reported this morning. Hedge fund firm Paulson & Co., said they have sold their shares after loosing C$462 million in June.
“Former CEO, Allen Chan, who stepped down Aug. 28 after the Ontario Securities Commission suspended trading in Sino-Forest, sold C$3 million of stock, the filings show. Kai Kit Poon, with whom Chan founded the tree-plantation company in 1992, sold more than C$30.1 million. Chief Financial Officer David Horsley sold C$11.2 million of shares. Simon Murray, a director and also chairman of Glencore International Plc, sold $10.8 million.” Bloomberg reported.
Canada’s securities regulators said that Sino-Forest, “knew or should have known” that their actions perpetuated a fraud.
“The company no longer qualifies to be a constituent of the benchmark S&P/TSX Composite Index. Sino-Forest will be removed from the index at zero price after the close of trading on Sept. 16.” S&P said.
New York (Hedge Co.net) – Hedge fund manager Douglas Whitman and his California-based firm have been charged by the SEC with illegally profiting from insider tips on Google and Polycom, making $980,000 in the process.
