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.
Times Online – A group of banks that financed the £450 million leveraged buy-out (LBO) of car wash group IMO will take control of the struggling business leaving a rival group of hedge fund investors with nothing.
In a High Court decision that lawyers say will damage hedge funds’ interests in dozens of ailing private equity deals, a judge awarded 100 per cent of IMO’s equity to the banks, led by HBOS.
The hedge funds, which also lent money to back the 2006 buy-out, argued that they were entitled to some equity in the business, which is being restructured after defaulting on its debts in March.
Law.com – Federal prosecutors Thursday unsealed an indictment charging the chief executive of what used to be one of the world’s largest investment funds with constructing elaborate tax shelters for some of his wealthiest clients. The executive, Jeffrey Greenstein, the former head of the Seattle-based fund Quellos Group, and two lawyers face 18 counts related to tax evasion and fraud for a scheme that netted them $86 million in fees and allowed six clients to avoid paying about $400 million in federal taxes, according to the indictment.
What’s interesting for our purposes is that the indictment details how lawyers from Cravath, Swaine & Moore and Bryan Cave blessed the shelters with letters indicating to the taxpayers that they were legal and would withstand scrutiny from the Internal Revenue Service. (The firms are identified as "C.S.M." and "B.C." in the indictment, but two sources familiar with the matter confirm they are Cravath and Bryan Cave. In addition, a 2006 congressional investigation mentioned the role the two firms played in the Quellos tax shelters, and at least one lawyer, Lewis Steinberg, then of Cravath and currently at Linklaters, testified before a congressional subcommittee.)
Seattle Times – Federal prosecutors are expected to unseal indictments Thursday in a massive tax-evasion investigation involving the Seattle investment firm Quellos Group, accusing its officers of operating offshore tax shelters used to hide hundreds of millions of dollars from the government, according to lawyers familiar with the case.
Quellos has been under investigation for at least two years and in 2006 earned its own chapter in a report titled "Tax Haven Abuses: The Enablers, the Tools and the Secrecy" published by the U.S. Senate Permanent Subcommittee on Investigations.
MercoPress – US District Judge Thomas Griesa granted a contempt of court motion last week by bondholder Aurelius Capital Partners hedge fund, according to a transcript of a hearing in Manhattan federal court obtained over the weekend, reports Reuters.
Lawyers for Aurelius complained that they had not received documents the judge had ordered the agency, known as ANSES, to provide about transactions it made through a private brokerage.
Reuters – Two U.S. Securities and Exchange Commission enforcement lawyers are under investigation by federal criminal authorities for allegedly using insider information to trade stocks, a report by the SEC’s internal watchdog said.
The Federal Bureau of Investigation and U.S. Attorney’s Office are conducting an investigation of possible criminal and civil violations.
The report alleges the two lawyers traded in stock of a large financial services company even though another SEC employee became aware of three separate enforcement investigations of that company. That employee told the two enforcement lawyers that she could not buy more stock in this company because she had become aware of these investigations.
But the two lawyers did trade in the financial services company and denied they heard about the investigations, the report alleges.
BNET – A hedge fund Ponzi scheme scandal is breaking in the blogosphere – and it goes right to the top of political power. A little while ago, blogger John Hempton, who writes Bronte Capital, a finance blog, started sniffing around Connecticut-based hedge fund Ponta Negra.
Hempton didn’t like what he found. After legal threats from the fund’s lawyers, Hempton retreated until a court ordered a freeze on the assets of Ponta Negra fund manager Francesco Rusciano amid allegations he lied to investors to raise more than $30 million. After that, the blogger published his findings.
The press has been agog recently about Paradigm Capital, a fund-of-hedge-funds run by members of Joe Biden’s family, and its apparent connection with a hedge fund shut by the SEC called Ponta Negra. CJR’s Audit column has the full details on this remarkable scoop by a finance blogger named John Hempton.
Among other things, Hempton was threatened by lawyers for Ponta Negra, forcing him to withdraw a post, as he detailed in a post yesterday.
New York Daily News – Marc Dreier will plead guilty to all charges stemming from the $700 million investment fraud he is accused of carrying out, his lawyer said Monday.
Defense lawyer Gerald Shargel said Dreier will enter the plea May 11 to securities fraud, wire fraud and money laundering charges. He wants to accept responsibility and show his remorse, Shargel said.
Until December, Dreier had led a law firm with 250 lawyers and celebrity clients, including Jay Leno and ex-New York Giants star Michael Strahan. He was arrested after hedge funds complained he was stealing from them.
Times Online – Accountants and lawyers who are trying to sort out the European collapse of Lehman Brothers, the American investment bank, have charged more than £100million in fees in six months.
The bonanza shows no sign of abating. PricewaterhouseCoopers (PwC), the administrator, says that costs will accrue at a similar rate over the coming months as a team of nearly 1,500 people unwinds the complex financial web behind the world’s biggest bankruptcy.
PwC paid a further £114.8 million to 800 employees of the bankrupt bank who stayed on to help to unwind millions of trades between Lehman and other banks and hedge funds.
HedgeFund.Net – Samuel Israel III, the Bayou Group founder who led the FBI on a merry chase after failing to show up to serve his prison term, has recovered sufficiently to plead guilty to escape, a federal judge said last week.
But Israel still hasn’t pleaded guilty as the proceeding was delayed until March 16, to give the convicted ex-hedge fund manager more time to talk to his lawyers, according to news reports.
