Appaloosa’s Tepper Adds Big Tech Names; Returns to Delta Air Lines, Bank of America - Focus on Funds - Barrons.com

Appaloosa’s Tepper Adds Big Tech Names; Returns to Delta Air Lines, Bank of America - Focus on Funds - Barrons.com:

Investor Alert - Owen Li crashes Canarsie Capital in New York

Owen Li, the manager of Canarsie Capital has apparently lost nearly 100 million dollars in what he calls overzealous investments, which caused devastating losses.

Fund managers who invest the funds assets in an inappropriate manner are liable to their investors for their losses. We are reviewing these events for possible claims by investors in Canarsie Capital. If you were an investor in the fund, please contact our office at 212-509-6544.

 My only hope is that you understand that I acted in an attempt—however misguided—to generate higher returns for the fund and its investors. But even so, I acted overzealously, causing you devastating losses for which there is no excuse

For more information, go to Manager 'truly sorry' for blowing up hedge fund

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

CALPERS Withdrawing Its Hedge Fund Investments - Too Expensive, Too Complicated

The California Public Employees' Retirement System, the largest U.S. pension fund, said on Monday that it will pull all $4 billion it has invested in hedge funds because it finds them too costly and complicated. The $300 billion fund, known as Calpers, invests with firms including Och-Ziff Capital Management , Deepak Narula's Metacapital Management and Bain Capital's Brookside Capital and plans to pull the money out over the next year. The fund will also exit from fund-of-funds Pacific Alternative Asset Management Co and Rock Creek Group.

For more information visit Calpers dumps hedge funds citing cost, to pull $4 billion stake - Yahoo News

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Securities Fraud Cases Can Be Criminal Cases

Defending a SEC securities fraud case is not simply about the civil charges and penalties. Most securities law violations are also criminal violations, and violators can be charged both civilly and criminally.

As securities litigators, we are aware of the issue, and sometimes the cases are not brought together. When resolving an SEC case, or even a FINRA enforcement case, we are always mindful of the potential for a criminal case, or  an enforcement proceeding from a state agency.

In the usual case, if a criminal case is going to be filed, it is filed at or about the same time as the civil charges. Or, there is at least notice that a prosecutor is interested in the case. However, not always.

Case in point -  as a result of the investigation of Bernie Madoff's massive fraud, the SEC found that a former deputy dean of MIT's business school and his son were running a Ponzi scheme of their own. The father-son team settled fraud charges with the SEC in 2012 for $4.8 million and a permanent bar.

Last week, over two years later,  federal prosecutors announced that the duo are going to plead guilty to criminal charges. According to CNN they face between two and five years in prison. They could also be forced to pay as much as $290 million in fines plus payments to victims.

According to the government the duo falsely told clients that their hedge fund was delivering annual returns between 16% and 23%, enticing investors to entrust more than $500 million with them. They also falsely claimed that the money would be invested using a complex trading model based on research they conducted at MIT. In fact, they placed investor money with Bernie Madoff and the Petters Group Worldwide, both of which were later found to be Ponzi schemes.

Nearly $5 million in fines with the SEC, and then, two years later, up to 5 years in jail plus $290,000,000 in fines, PLUS repayment to victims.

Most of these schemes do not start out at schemes - they become schemes when the manager, trader, owner suffers a loss and thinks he can trade it way out of it. Regardless of how the scheme evolves, or what the oringinal good motives were, securities fraud cases carry significant civil and criminal consequences, and  require representation by securities law attorneys, with the knowledge and skill that only decades of experience can provide.

One side note - I continue to be amazed at what defendants say in emails.  Sending emails can sometimes be worse than a phone tap. In this case, the government alleges that emails between the defendants included these two gems:

We have mislead [sic] a lot of people with a range of statements that were incorrect simply to increase our income. . .

We are certainly sharing equally in this dad … Lots of our problems were caused by my good intentions but very poor actions when it came to true honesty.

 If you have an issue, if you need to respond to a subpoena or "voluntary" request from the SEC, call us.

And don't send emails to your co-workers or friends discussing the case.

Related Articles:

Ex-MIT dean and son plead guilty to hedge fund scam - Aug. 12, 2014

SEC Charges Father-and-Son Hedge Fund Managers April 20, 2012


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If you are the victim of a Ponzi scheme or the subject of an SEC investigation, call our office. Our attorneys include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, We represent investors, financial professionals, and investment firms. For more information contact Mark Astarita at 212-509-6544 or email us.

SEC Charges Perpetrator of Washington-Area Ponzi Scheme

The SEC charged a Bethesda, Md. man, several family members and friends with conducting a multi-million dollar Ponzi scheme targeting investors in the Washington D.C. metropolitan area. The SEC alleges that middle-class residents were lured by false pretenses and powerpoint presentations to invest in promissory notes. Many were encouraged to refinance their homes and utilize their personal savings and retirement funds to come up with more to invest. They were promised returns as high as 20 percent per year and told their investments were protected. Instead, the companies issuing the notes were engaged in high-risk, speculative options trading and suffered massive losses. Money from new investors was used to pay the returns to earlier investors and also for personal expenses.

The SEC alleges that the Ponzi scheme defrauded more than $27 million from approximately 130 investors over a five year period. The scheme ultimately collapsed in the fall of 2010. The Bethesda man and five others have been charged.

SEC Charges Perpetrator of Washington-Area Ponzi Scheme

SEC Halts Scam Touting Access to Pre-IPO Shares of Facebook and Groupon

The SEC filed an emergency enforcement action to stop a fraudulent scheme targeting investors seeking coveted stock in Internet and technology companies like Facebook and Groupon in advance of a public offering.

Several individuals utilized a newly-minted hedge fund (The Praetorian Global Fund) to claim to own shares worth tens of millions of dollars in companies such as Facebook and Groupon. The companies targeted were expected to soon hold an initial public offering. Taking advantage of investor interest in pre-IPO shares that are virtually impossible for company outsiders to obtain, the individuals solicited funds and gave investors a false sense of comfort that their money was protected by telling them that an escrow service was receiving their funds.

Yet in reality the individuals never owned the promised pre-IPO shares in these companies. The escrow service only served to transfer investor funds to personal accounts controlled by two of the involved individuals. The funds were then used for lavish personal expenses (private jets, cars, art) and to pay off other individuals involved.

The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of the matter, filed criminal charges against the lead individual, a Florida resident. The Florida resident has been the subject of prior SEC enforcement action and several state criminal actions.

SEC Halts Scam Touting Access to Pre-IPO Shares of Facebook and Groupon

SEC Charges Feeders to Ponzi Scheme

The SEC charged two Minnesota-based hedge fund managers and their firm for facilitating a multi-billion dollar Ponzi scheme operated by a Minnesota businessman.

The SEC alleges that three parties (two individuals and a business) invested more than $600 million in hedge fund assets with the Minnesota businessman while collecting more than $42 million in fees. The Commission alleges that the three falsely assured investors and potential investors that the flow of their money would be safeguarded by the operation of collateral accounts when in reality the process did not exist as explained. When the Minnesota businessman was unable to make payments on investments held by the funds they managed, the three parties helped to conceal this by entering into secret note extensions with the Minnesota businessman. 

This is the fourth enforcement action that the SEC has brought against hedge fund managers that collectively fed billions of dollars into the Ponzi Scheme.

SEC Charges Feeders to Ponzi Scheme

Investment Adviser Charged With Fraud in NY Real Estate Funds

The SEC has charged a Monticello, N.Y.-based investment adviser with fraudulently offering and selling securities in two upstate New York real estate funds he managed.

The SEC alleges that the adviser told investors in the Gaffken & Barriger Fund (G&B Fund) that it was a relatively safe and liquid investment that generated a minimum return of 8 percent per year. However, the fund’s actual performance did not justify these performance claims. The SEC further alleges that he defrauded investors in Campus Capital Corp. by raising money from them to prop up the ailing G&B Fund without disclosing that was how their money was actually being used. The Commission also alleges that the adviser caused Campus to engage in other transactions that personally benefitted him, unbeknownst to Campus investors.

According to the SEC’s complaint filed in federal court in Manhattan, the G&B Fund raised approximately $20 million from January 1998 to March 2008, and Campus raised approximately $12 million from October 2001 to July 2008. Barriger froze the G&B Fund in March 2008 and disclosed its true financial condition to investors.

The press release contains a link to the complaint - SEC Charges Investment Adviser With Defrauding Investors in Two Upstate New York Real Estate Funds

 

2009 Good Year for Most Hedge Funds

Although more than 20% of hedge funds shut down in the past two years, as 1,500 funds were liquidated in 2008 and 900 more in 2009, the Morningstar 1000 Hedge Fund Index ended the year up an impressive 19.5%, just missing 2003’s 20.3% rise, according to preliminary data from Morningstar, and the currency-hedged Morningstar MSCI Hedge Fund Index, finished the year up 14.1%. Details are at Financial-Planning.com. More>>>

SEC Charges Father-Son Team in Hedge Fund Fraud

According to the lead paragraph in the SEC's press release, they are charging an investment adviser with securities fraud for misleading investors about the financial condition of their funds, and that they were controlling the investment decisions of the funds, when same were controlled by a third party.

Overstating your asset values by as much as $160 million certainly smells like a fraud, but not telling investors who is actually managing the investments is a fraud? It certainly can be, but is it.

If the person controlling the investments has been charged with securities fraud, and has had his assets frozen, that omission may very well be fraud. It could be a material part of an investor's decision to invest, and depending on the circumstances; a fraud.

We will have to see if the SEC can prove its allegations, but for now, the complaint is linked at its press release.  More>>>

Hedge Funds On Wall Street Talent Hunt

From Financial Planning.com - Less than a year after the credit crisis forced the closure of some 1,000 hedge funds, these firms are back out looking for capital and hiring professionals from Wall Street firms. In addition to poaching from investment banks, the funds are bringing in professionals from endowments, foundations, and traditional asset managers, according to a recent report More>>>

Fund Blames US Regulators for Losses

You gotta love the Madoff Middlemen. Now they are blaming the regulators for their own failures, even from overseas. A British investment fund, which apparently lost something like 30 million dollars, is screaming about the "systemic failures" in the US regulatory system.

The SEC and FINRA certainly blew this. (Why does no one talk about FINRA's culpability here? They are the primary regulator for Madoff's broker-dealer, not the SEC). However, the SEC was not created to protect 300 million dollar hedge funds, and is certainly not in the business of protecting hedge funds that are located in foreign countries.

Those investment institutions are considered to be experienced enought, and financially educated enough to protect themselves, to conduct their own due diligence and to make their own investment decisions. The US securities statutes recognize the ability of investment professionals to make their own decisions, as do the investors who give these managers their money to invest.

The SEC blew this, but that does not excuse, or even address, the failure of these well paid "investment managers" to recognize a Ponzi Scheme when it was staring them in the face. And, it is comments like this, and the fact that other professionals did spot the fraud, that leads to the question

"What the heck did you do for your 2% plus 20%?"

If the fraud was so easy to spot that the SEC should have stopped it, let's take a look at the fund's due diligence file when it investigated, recommended, and maintained its investment in Madoff.

That is where the blame lies.

Investment fund slams US regulators

Investors To Sue Madoff's Introducing Advisers?

I blogged about the issue this morning. According to press reports, there were a number of investment advisers who were managing client's money, who in turn invested that money with Madoff.

Those advisers get paid based on the assets in the account, including the assets given to Madoff to invest. Now, investors are questioning those advisers as to how, and why, their funds wound up in a Ponzi scheme.

Add to the mix the other investment advisers and hedge fund managers who are now claiming that they reviewed Madoff's investments or investment strategy and did not believe that anyone could generate the returns that he did.

Investors are going to start asking their advisers, if this adviser understood that the investment was a fraud, why didn't you?

This Is Not "Hedge Fund Fraud"

Can we please get off the hedge fund bandwagon when talking about Madoff. There is absolutely nothing in the indictment or the SEC complaint, or any of the main stream press or Madoff's filings (as reflected in the press) that would lead one to the conclusion that Madoff's investors money was in a hedge fund.

In fact, there reports are the opposite; that Madoff's clients had their own individual accounts at his brokerage firm. According to the WSJ reporter who reviewed Madoff's Form ADV (which is the registration form for an investment advisor) Madoff had less than 25 clients and 17 billion under management in January 2008. Other reporter have reviewed individual customer account statements.

A lot of this is still unclear, and perhaps won't be clear for a while. Quite frankly, some reporters are simply misinformed and confusing the advisory business with the brokerage business. Or maybe not, and maybe it doesn't make any difference.

However, if the fraud extends to brokerage clients, this will be a whole 'nother ball game, with lots of defendants and lots of investors involved. As shocking as the complaints are, that magnitude of fraud would involve so many people and entities as to make it truly earth shattering.

But, it is clear, this is not the case of an unregulated hedge fund committing a fraud. If these allegations are true, the fraud was committed by a REGISTERED investment advisor, clearing customer accounts through a REGISTERED broker dealer.

And while I am at it, there is a lot of blame to go around here. While everyone is jumping on the SEC, no matter how well deserved that criticism is, lets not forget that the PRIMARY regulator is FINRA, not the SEC, and FINRA is apparently too busy reviewing the books and records of small broker dealers to find $10,000 bookkeeping errors to possibly uncover a 50 BILLION dollar fraud.

These events, coupled with our current financial crisis, Marc Dreier and even Blagojevich are going to have a significant impact on investor confidence.

We don't need to add new groups or investment vehicles to the mix.

Bear Stearns, Deloitte Sued Over Hedge Fund

The problems for Bear Stearns seem to keep on coming. After its fire sale to JP Morgan, today's news is that the liquidators of two of its hedge funds that collapsed last year, have filed suit against the company and its auditor, Deloitte & Touche seeking to recover over $1 billion in losses.

The suit, filed in U.S. District Court in Manhattan, accuses Bear, the managers of the hedge fund, and Deloitte, of not living up to assurances that the funds were relatively safe and conservative investment vehicles.

According to the Reuters article, the plaintiffs allege that the funds were not designed to withstand even a "slight downtick" in the housing market and that Bear Stearns "conceived, marketed and managed hedge funds that they knew would be viable so long as - but only so long as - the U.S. housing market continued to rise," the suit said.

The suit charges that the company, the fund managers, and Deloitte violated their fiduciary and professional duties. The suit said Deloitte's preparation of the funds' audits was "at a minimum negligent."

An interesting series of allegations against Bear - do the plaintiffs really believe that they created a hedge fund that would fall apart if the housing market fell apart?

Down Markets a Blessing For Some

According to Reuters - Hedge funds see big gains in distressed investing. Quoting managers of some of the larger hedge funds, they are buying, and there is not enough capital to take all of the opportunities that they have found.

IRS Looking At Hedge Funds

The IRS is looking at hedge funds for tax abuse - is there really a significant number that do not even file returns? Institutional Investor

The SEC Sharpens its Investigative Focus

While everyone has issues with the SEC's policy decisions at one time or another, I believe most securities defense attorneys agree that the SEC Staff does a good job at its job....given its very high turnover and budget restraints.

However, a recurring criticism of the SEC has a whole is that while it is very good at closing the barn doors after the horses are long gone, it is not so good at understanding that the doors are unlocked and wide open.

The Commissioners and senior staff are undoubtedly aware of this. Under budget and under staffed, we can't expect the Staff to conduct enough audits at broker-dealers, public companies, mutual funds, investment advisers, and other registrants, to have a meaningful impact on discovering on going fraud. (Oh, and they want to add hedge funds to the already massive list?).

However, the SEC is focusing on enforcement. The SEC has announced that it has created four special "working groups" to sharpen its enforcement process and bring cases of suspected fraud more quickly and efficiently. The four groups are focuing on subprime issues, hedge funds, insider trading and option back-dating.

I am not quite sure what an investigative focus on hedge funds represents, but we have long suspected an increased focus on hedge funds through back door methods since the SEC's disasterous attempt to regulate hedge fund managers. Insider trading has always been a focus of the Staff, and one would have thought that all of the option backdating cases that could be brought have already been brought.

But subprime? There is an issue that needs investigation, and which will only increase in focus, as investors realize the drubbing they have taken in subprime related investments and start complaining to the regulators and filing arbitrations.

BNP freezes $2.2 bln of funds over subprime

France's biggest listed bank, BNP Paribas froze 1.6 billion euros ($2.2 billion) worth of funds on Thursday, citing the U.S. subprime mortgage sector woes that have rattled financial markets worldwide.

The move could add to the disasters that are looming for investors in the underlying hedge funds, whose ability to liquidate their holdings has been removed. While the ultimate impact will depend on the terms of the underlying investment, having your ability to sell your investment suspended can never be viewed as a good thing.

Bear Stearns Hedge Fund Sued

And here we go.........investor claims against brokerage firms, hedge funds and banks are going to start rolling in. Reuters is reporting that Bear Stearns has been hit with its first arbitration over the losses in two of its hedge funds.

According to Reuters, the claimant lost $500,000 and is blaming Bear for misleading him about its exposure to subprime mortgages.

While it appears that investor losses from subprime lending are going to be significant, the mere fact that an investor lost money in funds investing in such vehicles does not necessarily mean that there is a viable claim against the broker or the brokerage firm.

Investors who are contemplating filing claims would be wise to first have their case reviewed by a financial professional, or an experienced securities attorney, before pouring additional funds into the litigation process. Brokers who have recommended funds with significant subprime exposure should be reviewing those investments and, if necessary, consulting with outside counsel regarding potential exposure.

The brokerage firms are already gearing up for these cases.