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 (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 (HedgeCo.net) – The manager of the now defunct Chicago hedge fund, Lake Shore Asset Management, has pleaded guilty to a fraud scheme, Reuters reported today.
“Baker from 2002 to September 2007 obtained the $291.9 million from about 900 investors he fraudulently solicited to invest in commodity pools, for the purpose of trading futures.” The plea agreement states.
By admitting to one count of wire fraud, the hedge fund manager averted a trial scheduled to begin on September 19, Reuters said. Baker was arrested in Hamburg in July 2009.
Sentencing is scheduled for November 17, 2011, prosecutors will recommend the maximum 20 years in prison. The hedge fund manager will also be made to pay $154.8 million in restitution.
New York (HedgeCo.net) – Jason Goldfarb has been sentenced to three years in prison for passing information to a stock trader about mergers and acquisitions in exchange for $32,500 in cash bribes, Reuters reports.
Goldfarb pleaded guilty on Friday to “Participating in a scheme to trade on corporate secrets from a prominent law firm.” The hedge fund lawyer is among the roughly 50 people who have been charged in a wide-ranging probe focused on insider trading at hedge funds.
Reuters reported that the evidence showed that Goldfarb was one of the leaders of a “sophisticated scheme that was designed to steal privileged information, confidential information from its clients to be used by hedge fund managers and traders.”
New York (HedgeCo.net) – London hedge fund Rubicon Fund Management LLP have issued legal proceedings against two of its former fund managers, Santiago Alarco and Tim Attias. Also included in the legal action is Catherine Cripps, who was an Investment Director with a former Rubicon investor.
The claim includes allegations that Alarco and Attias conspired and acted in breach of contract regarding the launch a new global macro fund which was reported to be called SATA Partners.
“Aside from the legal proceedings we are keen to correct recent media reports about the historic management of our funds.” A Rubicon spokesman said, “Paul Brewer, the man who built Rubicon, is now very much back in the driving seat and is determined to protect the interests of investors and Rubicon’s reputation.”
The $1.4 billion hedge fund is seeking Declaratory Relief, Injunction, Damages and Account of profits and costs.
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New York (HedgeCo.net) – Irving H. Picard, the Trustee for the SIPA liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”), today announced that he has reached a settlement with more than a dozen domestic and foreign investment funds, their affiliates and a former chief executive associated with Rye, New York-based Tremont Group Holdings, Inc., the multi-billion-dollar money management company and operator of the second-largest Madoff “feeder fund” group, the Rye Select and Tremont families of funds.
The settlement also includes three co-defendants named in the suit, filed on December 7, 2010: Oppenheimer Acquisition Corp., an affiliate of the Oppenheimer family of mutual funds which acquired Tremont Group in 2001, and Oppenheimer’s parent corporations, MassMutual Holding LLC and the Massachusetts Mutual Life Insurance Company.
As part of the settlement agreement, the Defendants will deliver cash payments into escrow totaling more than $1 billion, which will ultimately be placed into the Customer Fund and distributed, pro rata, to BLMIS customers with allowed claims. The payments, combined with the approximately $2.6 billion already in the Customer Fund and the $5 billion settlement with the Picower estate (currently under appeal) brings the Trustee’s recoveries to more than $8.6 billion, or nearly 50 percent of the approximately $17.3 billion in principal that was lost in the Ponzi scheme by customers who filed claims.
According to the complaint, the Tremont Group and related entities were aware – through warnings in both internal communications and publicly available information – that BLMIS could be a fraud. “We believe this settlement – coupled with the Trustee’s recent settlements with the Fairfield Sentry, Greenwich Sentry and Greenwich Sentry Partners feeder funds – sends a strong message that the financial community cannot deliberately ignore indicia of fraud,” said David J. Sheehan, a partner at Baker & Hostetler LLP, the court-appointed counsel for the Trustee.
In the settlement agreement, both sides state their desire to avoid the risk, expense and delay associated with litigation. “While the Trustee believes that he would prevail at trial in recovering preferential transfers, fictitious profits and fraudulent transfers from BLMIS to the Rye Select Funds and the other Defendants settling with the Trustee, he also recognizes the benefits of avoiding protracted litigation,” said Marc D. Powers, a partner at Baker & Hostetler LLP. “We believe this settlement is in the best interests of the BLMIS customers with allowed claims.”
Upon the release of the settlement payments from escrow, the Trustee will allow customer claims related to the Rye Select and Tremont funds against the BLMIS estate of more than $3 billion, with four of the funds each receiving $500,000 in SIPC advances – a total of $2 million – which will be available for distribution to these feeder fund investors. “We have structured this settlement with the view that any future pro-rata distributions to Rye Select and Tremont funds will flow through to the investors and not the funds’ management,” said Thomas L. Long, counsel to Baker & Hostetler LLP.
A motion for approval of the settlement will be filed with the United States Bankruptcy Court for the Southern District of New York. The Bankruptcy Court hearing for approval of the settlement motion is scheduled for September 13, 2011 at 10:00 a.m.
In addition to Messrs. Sheehan, Powers, and Long, the Trustee acknowledges the contributions of the Baker & Hostetler attorneys who worked on the matter: Eric Fish, Dean Hunt, Marie Carlisle, Geraldine Ponto, Mark Kornfeld, and Marc Hirschfield.
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New York (HedgeCo.net) – Over the weekend there were hedge fund fraud related convictions in the US, Australia and Germany. All were sentenced to serious jail time.
US: Five employees for hedge fund manager A&O Resource Management Ltd were sentenced for their part in a $100 million fraud scheme.
“Brent Oncale (the founder) and his co-conspirators operated a sham investment company that turned fraud and deceit into a business model,” said Assistant Attorney General Breuer. “They stole millions from hundreds of unsuspecting investors, pocketing huge sums for themselves.”
Russell E. Mackert, 52, general counsel for A&O, was sentenced to 188 months in prison; Brent Oncale, 36, former owner and founder of A&O, was sentenced to 120 months in prison; David White, 41, the former president of A&O, was sentenced to 60 months in prison; Eric M. Kurz, 47, a wholesaler of A&O investment products, was sentenced to 60 months in prison; and Tomme Bromseth, 69, an A&O sales agent in the Richmond area, was sentenced to 36 months in prison.
Australia: A New South Wales Supreme Court has convicted Shawn Richard of Astarra Asset Management with fraud, insisting on up to 5 years of jail time, the sentencing is scheduled for the 12 August.
The Australian Securities and Investments Commission alleged that the hedge fund manager was placing investor monies in overseas hedge funds, in circumstances where he would personally receive a significant portion of the money.
“The monies Richard placed in the overseas hedge funds had been raised by the responsible entity of ASF, Trio Capital Limited (Trio).” The ASIC said, “Richard received in excess of $6.4 million in undisclosed payments.”
EU: Helmut Kiener, the founder of 345-million euro ($497 million) hedge fund K1 Group, was sentenced to 10 years and eight months in prison. The ”Mini Madoff” was found guilty of fraud, forgery and tax evasion by a court in Germany.
Also sentenced last week: Danielle Chiesi was sentenced to 30 months in federal prison for securities fraud.
New names in the Petters Ponzi: Frank Elroy Vennes, Jr., a business associate of and primary fundraiser for Thomas J. Petters was named in a superseding indictment last week, the indictment also charges James Nathan Fry, age 57, of Orono, Minnesota, with five counts of securities fraud, four counts of wire fraud, and three counts of making a false statement to the United States Securities and Exchange Commission during its investigation of investments in PCI by hedge funds under the management of Fry’s company, Arrowhead Capital Management.
New York (HedgeCo.net) – Walter Shimoon pled guilty yesterday to two counts of conspiracy to commit securities fraud and wire fraud and one count of securities fraud.
CNN Money says:
Shimoon, a fomer director at Flextronics, a Singapore-based company that supplies Apple with camera and battery components, was being paid up to $200 per hour to leak insider information to a shadowy group of hedge funds and so-called expert networks.
Reuters says:
Kingdom Ridge Capital, founded in 2008 by two former SAC Capital Advisors LP employees, had under $350 million invested in U.S. equities according to a recent regulatory filing.
In the ongoing investigation, a number of former SAC traders and analysts have either been implicated or investigated but no charges have been filed against SAC Capital’s founder, the billionaire trader Steven Cohen or any other SAC employees. Shimoon in court also admitted to being paid $27,500 by independent research firm Broadband Research.
Bloombery says:
Shimoon was arrested in December with three other defendants. Also charged with Shimoon were former Primary Global executive James Fleishman; Mark Anthony Longoria, who worked at Advanced Micro Devices Inc; and Manosha Karunatilaka, a former account manager at Taiwan Semiconductor Manufacturing Co. Longoria and Karunatilaka have pleaded guilty. Fleishman is scheduled to be tried next month on two counts of conspiracy.
In a parallel lawsuit, the U.S. Securities and Exchange Commission alleged Shimoon spoke with people from at least 11 hedge funds over 14 months and leaked stock tips to some of them. Winifred Jiau, a former Primary Global consultant, was convicted of securities fraud and conspiracy June 20 in Manhattan federal court.
In an Oct. 1, 2009 phone call secretly taped by the FBI, he gave his contact at a New York-based hedge fund called Kingdom Ridge Capital some third quarter iPhone sales figures that wouldn’t be released for another two and a half weeks.
CNN Money released the FBI wiretaps:
The iPhone 4: Apple, he told his contact, was “coming out next year” with a new iPhone that’s “gonna have two cameras … It’ll be a neat phone because it’s gonna have a five-megapixel auto-focus camera and it will have a VGA forward-facing videoconferencing camera.” Apple announced the iPhone 4 — with its two cameras — eight months later.
The iPad: “They [Apple] have a code name for something new … It’s … It’s totally … It’s a new category altogether… It doesn’t have a camera, what I figured out. So I speculated that it’s probably a reader. … Something like that. Um, let me tell you, it’s a very secretive program … It’s called K, K48. That’s the internal name. So, you can get, at Apple you can get fired for saying K48.” The iPad — code named K48 — was unveiled four months later.
According to Reuters, court documents unsealed Tuesday showed a New York-based hedge fund called Kingdom Ridge Capital made $560,000 in profits in October 2009 trading on secrets provided by Walter Shimoon. Sentencing is scheduled for July 8, 2013. He faces up to 30 years in prison.
Shimoon is the 13th of 14 charged with insider trading in what Manhattan U.S. Attorney Preet Bharara has described as “a corrupt network of insiders” serving as consultants “who sold out their employers by stealing and then peddling their valuable inside information.”
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.
