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.
Mail on Sunday - From movie director Steven Spielberg to to Uma Thurman’s fiance Arpad Busson, the list of billionaire businessmen and Hollywood A-listers sucked into the world’s biggest financial fraud is growing.
Some of the best-known names in banking and business have been forced to admit failing to spot the outrageous deception which culminated in the arrest of Wall Street giant Bernard Madoff in a global con which could cost its victims £33billion.
British-based firms have lost at least £3.5billion – and it is feared that families will pay the price.
Post Chronicle - The SEC’s inability to uncover the scandal until Madoff’s sons went to authorities last week comes at a particularly bad time for the SEC and its Chairman, Christopher Cox. They have already been accused by some lawmakers and market experts of being asleep at the wheel while the credit crisis exploded on Wall Street.
The agency’s future existence as a separate agency is already under threat as Washington looks at overhauling the regulation of the financial services industry.
"This will be profoundly embarrassing for the SEC," said Columbia University law school professor John Coffee, who has been critical of the agency for failing to properly regulate the failed investments banks. "Congress will predictably give them little mercy."
Reuters - Three European banks on Sunday announced a total of about $3.8 billion in exposure to an investment fund run by Bernard Madoff, the U.S. investor accused of running a $50 billion "Ponzi" scheme.
The largest banks of both Spain and France, Santander and BNP Paribas, and Swiss private bank Reichmuth & Co became the latest parties to detail possible losses over investments made with Madoff, who was arrested in New York on Thursday in the alleged fraud.
Santander put its client exposure at over 2.33 billion euros ($3.09 billion). BNP Paribas said it could face a potential loss of 350 million euro from exposure to Madoff-linked investments. And Swiss private bank Reichmuth & Co said it had about 385 million Swiss francs at stake, around $325 million.
Ananova - Royal Bank of Scotland says it is facing a potential loss of £400m after a Wall Street banker was charged with a massive alleged fraud.
US prosecutors say Bernard Madoff has confessed to defrauding investors of $50bn (£33bn) in a giant pyramid scheme that collapsed in the global financial crisis.
RBS, in which the British government now has a majority stake, says it has exposure through investments in hedge funds that invested with Mr Madoff.
It is one of a number of banks that face big losses in the suspected fraud.
Santander, the Spanish bank that owns Abbey and Alliance and Leicester, said it had more than 2.3bn euros (£2.08bn) worth of exposure.
Law.com - As Marc S. Dreier was being arrested for attempting to defraud hedge funds of more than $100 million, some of the 10 affiliates of Dreier LLP were peeling off and others were trying to hold the firm together even as money for insurance and some operating expenses is frozen.
Declarations filed Monday by the Securities and Exchange Commission in connection with a civil case it brought against Dreier also indicated that some firm attorneys were concerned that escrow accounts, which Dreier controlled, had been depleted.
One named partner of an affiliated firm, Vincent Pitta of Pitta & Dreier, stated in a declaration that the firm could not meet its expenses. The reason, Pitta said, was that he and Dreier were the sole signatories to the firm’s operating account, and Pitta had only limited authority to approve spending.
Newsday - A federal judge has ordered a detailed physical and mental health evaluation for hedge-fund swindler Samuel Israel III before deciding whether he’s competent to plead guilty for skipping out on prison.
Judge Kenneth Karas accepted a joint recommendation from defense lawyer Barry Bohrer and prosecutor Sarah Krissoff to send Israel, 49, to a medical prison in Butner, N.C. He said the exam could take 90 days.
Israel, who appeared in court with a bandaged hand, is "on board" with the recommendation, Bohrer said.
He said Israel needs "a full medical and psychological evaluation." The judge said he hoped it would "get to the bottom of whatever it is that is ailing him."
New York (HedgeCo.Net) - Former hedge fund manager turned ponzi-schemer Tom Petters is being sued by so many parties that the Minneapolis federal judge actually had to call a “timeout” yesterday.
Judge Ann Montgomery called the cease-fire after court-appointed receiver Doug Kelley pointed out that the dozens of mounting civil legal actions are interfering with their attempts to salvage some of Petter’s enterprises.
“We’re seeking some amount of breathing room to fulfill the receiver’s responsibilities,” law partner Steven Wolter told Judge Montgomery.
Petters multiple businesses, many of which are in bankruptcy, have been reduced to a single case. U.S. Bankruptcy Judge Gregory Kishel gave the order to consolidate 10 companies into one bankruptcy petition so that they may be easily dealt with.
The civil suits against Petters are coming from multiple states, with the count now over 30. Wolter argued that both time and money are issues when it comes to trying to find legal representation for the companies.
Petters Group Worldwide filed for Chapter 11 bankruptcy earlier this month after feds launched a probe into the alleged $3 billion scam orchestrated by Tom Petters. He was arrested and sent to jail on charges on money laundering, wire fraud, mail fraud and obstruction of justice.
For now, all of the civil suits are frozen until further notice. No new suits can be filed at this time.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) - The Securities and Exchange Commission charged San Francisco-based MedCap Management & Research LLC and its principal Charles Frederick Toney, Jr. with defrauding investors via “portfolio pumping.”
“Fund investors relied on MMR and Toney to abide by their fiduciary duties and put the fund’s interests ahead of their own,” said San Francisco Regional Director of the SEC Marc J. Fagel in a press release yesterday. “Instead, Toney engaged in trading activity which hid his poor performance.”
Engaging in “portfolio pumping” in this case meant that Toney invested heavily at the quarter’s end with a thinly-traded penny stock, which in turn quadrupled the stock price and allowed him to inflate his quarterly results to investors. By doing this, the fund was able to hide what would have been a 40 percent quarterly loss for MedCap.
Instead, the scheme helped the company up its reported value by $29 million thanks to Toney’s four day buying frenzy which pushed the price of the stock from $.85 to $3.72. The fund was then able to charge higher management and performance fees that were based on the inflated numbers.
While MMR did not confirm or deny the allegations, the company has agreed to settle out of court by paying $100,000 in penalties and giving back the amount received in inflated management fees totaling over $70,000. Toney has also agreed not to act as an investment advisor for the next year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) - A year-long probe launched by a U.S. Senate Committee has discovered that numerous Wall Street banks have assisted offshore hedge funds in evading millions of dollars in U.S. taxes. The Permanent Subcommittee on Investigations has concluded that Lehman Brothers, Morgan Stanley, Merrill Lynch, UBS, Citigroup and Deutsche Bank created products to skirt a law that required them to withhold the 30 percent tax on stock dividends paid to offshore investors.
While the IRS apparently turned a blind eye, the actions taken by the bank allowed these funds to sell their shares to the bank while entering into a swap contract that paid a fee to the banks in exchange for the amount of the dividend plus any gains.
"Major financial institutions have devised complex financial structures to enable their offshore clients to dodge U.S. dividend taxes," Democratic Senator Carl Levin of Michigan said in a statement Wednesday. "We need legislation to take these abusive tax-avoidance gimmicks off the market, and we need to end the silence and inaction of the Treasury and IRS in the face of rampant dividend tax dodging."
Levin went on to say, ““We are going to press the IRS to go after what is obviously a scheme.” “The IRS should be going after this. They are not.”
The Committee found that Lehman Brothers clients were able to avoid about $115 million in taxes in 2004, while total losses to U.S. revenue are estimated to be around $100 billion a year. These dividend-enhancement products earned UBS about $5 million in 2005 and $4 million for Deutsche Bank in 2007, according to the report. Morgan Stanley also raked in $25 million in revenue from the products in 2004.
"We believe we acted in good faith when we advised our clients and believe we acted appropriately under existing tax law," said William Halldin, spokesman for Merrill Lynch.
IRS spokesman Frank Keith came to the defense, stating, “The IRS intends to aggressive pursue transactions that it believes to be abusive.”
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
New York (HedgeCo.Net) - Hamilton Alan Bird, formerly of XL Capital Partners, who headed the scheme that swindled over $7.5 million of investors’ money, has been sentenced to 24 years in prison. The Colorado Springs resident received his fate on Friday, six months after pleading guilty to one count of securities fraud and another count of theft.
According to the original indictment, Bird, along with partners David Edward Newton and Douglas Alan Scott, took money from about 350 individuals and set up their own “personal piggy bank.” From October 2002 to December 2004, the three men withdrew millions of dollars for personal usages including residences and private jets.
While Bird’s felonies only carried a maximum sentence of 12 years, he was eligible to be charged as a habitual criminal, meaning that his sentence could have been three times his maximum.
Newton, in exchange for testifying against Bird and Scott, was sentenced to 15 years probation and 200 hours of community service. Scott, a former Pastor for the now collapsed River of Life Church, was sentenced to 15 years probation and ordered to pay back $1.4 million in restitution.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Bloomberg - The brother of former Bayou Group LLC finance chief Daniel Marino, who is serving 20 years in prison, pleaded guilty to a federal charge that he helped conceal a $400 million fraud at the bankrupt hedge-fund firm.
Matthew Marino entered his guilty plea yesterday in U.S. District Court in White Plains, New York, federal prosecutors said. Marino faces as long as three years in prison when he’s sentenced on Dec. 4, according to prosecutors.
Marino admitted “that he knew a fraud was being perpetrated on Bayou investors,” U.S. Attorney Michael Garcia said yesterday in a statement.
Daniel Marino was sentenced in January to 20 years in prison for defrauding investors. Bayou co-founder Samuel Israel is serving a 20-year prison term.
Bayou, based in Stamford, Connecticut, was among the biggest hedge-fund firms to come under federal scrutiny for missing money. Bayou filed for bankruptcy in May 2006, prompting lawsuits claiming it operated a Ponzi scheme that paid off old investors with money from new ones.
Defense attorney Eugene Riccio said yesterday in a phone interview that Matthew Marino pleaded guilty to misprision of a felony for failing to report the crime. Marino faces as long as 27 months in prison under federal sentencing guidelines, Riccio said. He declined to comment further.
New York (HedgeCo.Net) - A published author and notable hedge fund manager has seen his charade finally come to a halt. Mark Boucher of Portola Valley, California, who wrote “The Hedge Fund Edge,” has agreed to pay $100,000 in penalties after misleading investors in a $20 million real estate scam. In addition to the monetary penalties, he is barred from acting as an investment advisor for the next five years.
According to reports by the SEC, Boucher pushed two investments supposedly backed by real estate onto his investors via his monthly newsletter, garnering around $20 million from 1999 to 2005. The two companies, however, had little to do with the real estate sector. One company had no property in its portfolio, while the other company owned a single property that was mired in debt. Neither firm was known for successfully developing any real estate.
The money was apparently going to Gary P. Johnson and John Brake, owners of the two companies. The pool of investor money afforded the three men their own home mortgages, luxury cars and start up capital for other business ventures. Johnson agreed to return $1.8 million from commissions he received, as well as pay over $820,000 in penalties and interest, all while denying the allegations brought against him. Brake, who has also been accused of securities fraud, has not reached a settlement yet with the SEC.
"Boucher lured clients into these fraudulent real estate deals by exploiting his reputation as a successful hedge fund manager," stated Marc Fagel, Director of the SEC’s San Francisco regional office. "Johnson and Brake failed to develop the projects, instead diverting millions of dollars of investor money to finance their lavish lifestyles."
An editorial review of his book states, “The Hedge Fund Edge melds market timing, vehicle selection, risk management techniques, economic insight and understanding, and tactical asset allocation into a totally new philosophy and approach that has been proven to produce spectacular gains with relatively low risk.”
Clearly, that formula needs to be reworked.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
