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August 4, 2007

Hedge Funds Plead Guilty in Scam Costing Victims $194 Million

Three hedge fund companies pleaded guilty to criminal conspiracy charges in a Florida Federal Court in a scheme that cost victims nearly $195 million. The defendants included KL Group LLC, Shoreland Trading LLC, and KL Triangulum Management LLC, U.S. Attorney R. Alexander Acosta said in a written statement.

These companies each admitted their role in running a hedge fund "scam" based out of West Palm Beach and Irvine, California, Acosta’s statement said. "The corporations admitted their complicity, through the attorney for their court-appointed receiver, in overseeing approximately $195 million in fraudulently obtained proceeds." The companies will be sentenced in November.

Claims were also filed against three principles of the funds describing a scheme in which approximately 250 clients invested between 2000 and 2005. Although much of the money was apparently lost, a large amount of the funds allegedly went to the individuals' personal use. Case documents say the defendants established opulent ocean-view offices in West Palm Beach with high-end furnishings and equipment. Prospective investors were given tours to view day trading purportedly using a proprietary system.

One of the three individuals has pleaded guilty to mail fraud and conspiracy and could be sentenced up to 25 years in prison. His brother faces trial in October on the related charges. The third defendant apparently remains a fugitive.

Shepherd Smith and Edwards represents investors nationwide in claims against members of the securities industry. If you, your firm or your pension fund has sustained losses as a result of fraud, negligence or other wrongdoing contact us to arrange a free consultation with one of our attorneys.

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Posted In: Crime , Hedge Funds

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July 9, 2007

As Bear Stearns Hedge Fund Faced Liquidation its Head Manager's Golf Game Did Not Suffer

As a sub-prime mortgage hedge fund managed by Bear Stearns encountered margin calls and was no the brink of liquidation, the situation apparently did not faze the golfing of its chief executive, John Cayne.

Weather permitting, Mr. Cayne hops a helicopter from Manhattan to a golf club in Ocean Township, N.J., landing on the grounds. According to posting on an online golf database, Cayne continued to golf through the weeks in June as one of his firm's hedge funds was evaporating.

On June 14, the day Bear Stearns reported a 10 percent drop in its operating earnings for the second quarter, Mr. Cayne played a round of golf, shooting a 96, according to the online database. The next day, he played again.

The following week, as Merrill Lynch and others pressured Bear Stearns to increase the collateral on loans they had made to its sinking fund, Mr. Cayne was back on the course. That day, he shot a 98. The next day, in the biggest rescue of a hedge fund in almost a decade, Bear Stearns committed $3.2 billion to bail out the fund (later revised to $1.6 billion) That day, Mr. Cayne did not miss his golf game and shot a 97.

A spokeswoman for Bear Stearns said that Mr. Cayne flies down after work on Thursdays and plays an evening round of golf. On Fridays, he plays a round and works from his New Jersey home, where he is in constant touch with the office, she said.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

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Posted In: Bear Stearns , Hedge Funds

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July 4, 2007

SEC Alleges that a Hedge Fund, Its Owner and Its Chief Trader Illegally Earned $57 Million in a Late-Trading Scam.

The Securities and Exchange Commission filed suit in a New York Federal Court contending that Simpson Capital Management Inc., its owner and its head trader entered into late-trades in hundreds of mutual funds, defrauding the funds and their shareholders of approximately $57 million.

The SEC claims that the defendants placed more than 10,000 unlawful mutual fund trade orders after the market closed, enabling them to take advantage of knowledge of after-market events while receiving the price previously established that day as the fund's closing net asset value. Simpson Capital is the investment adviser to two hedge funds, Simpson Partners L.P. and Simpson Offshore Ltd.

The SEC further charged that the firm's owner, who was also an investor in the Simpson Funds, "personally earned at least $19 million in fees and profits" as a result of the fraudulent transactions, adding that the head trader “received more than $996,000 in salary and bonuses during the late trading scheme." The SEC is asking the court to order permanent injunctions, disgorgement plus prejudgment interest, and civil penalties.

This suit is one of many civil and criminal actions initiated by the SEC and other regulators for improprieties in the operation of hedge funds, as well as actions regarding the late trading of mutual funds by hedge funds, high profile Wall Street investment banks, mutual fund advisors and individuals.

Shepherd Smith and Edwards is committed to fighting for the rights of investors that are the victims of securities fraud. We have helped thousands of U.S. investors recover their financial losses. Call Shepherd Smith and Edwards at 1-800-259-9010 for your free consultation.

Related Web Resource:

SEC's Complaint filed in the NY Federal Court

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Posted In: Hedge Funds , Mutual Funds , SEC Enforcement

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June 21, 2007

Merrill Lynch Seizes $400 Million of Assets from a Bear Stearns Managed 'Subprime' Hedge Fund for Failing to Meet Margin Calls

A hedge fund managed by Bear Stearns that takes both bullish and bearish positions in subprime loans has been hit heavily by conditions in that market. Some of the fund's assets were held at Merrill Lynch, on margin. When the equity in the fund dropped, Merrill issued margin calls.

The hedge fund reportedly began with about $600 million in investor capital, $40 million of that from Bear Stearns and its executives, then borrowed $6 billion from Wall Street lenders, including Merrill, Goldman Sachs, Bank of America and Deutsche Bank.

As the fund's assets lost market value, the Bear Stearns managers scrambled to sell hundreds of millions of dollars in assets to satisfy demands for cash and assets from creditors to stave off liquidation of the fund. The managers auctioned almost $4 billion in mortgage bonds, and attempted to present a 30-day plan to sell more assets, but was unable to persuade Merrill to refrain from seizing assets.

An auction was then held by Merrill to liquidate these assets and the fund's fate remains in peril. It the hedge fund is dissolved it would become the second blowup of hedge funds dealing in the high risk home loans, known as "subprime" mortgages. UBS AG shut down Dillon Read Capital Management after bad trades in subprime-mortgage loans led to a $124 million loss.

Wall Street is concerned that the asset liquidations could cause values on other subprime pools to spiral downward causing additional pressure to liquidate other simliar portfolios. Sub-prime mortgages react to market conditions different than high-quality and liquid mortgage-backed bonds, and are more akin to "junk" corporate bonds in fluctuation and liquidity.

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Posted In: Bank of America , Bear Stearns , Deutsche Bank , Goldman Sachs , Hedge Funds , Morgan Stanley

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May 28, 2007

Proposed Act Requires SEC Registration of Hedge Fund Advisers

U.S. Senator Charles Grassley has introduced legislation that would require most hedge fund advisers to register with the Securities and Exchange Commission. Called the Hedge Fund Registration Act, the bill closes a loophole created by the U.S. Court of Appeals (DC) when it struck down a 2004 SEC rule requiring most hedge fund advisers to register with the agency.

That ruling lets hedge fund advisers count the different funds they manage as just one client, rather than noting the number of investors who have purchased into each fund. Because of this, the majority of hedge fund advisers do not have to register with the SEC because they fall under the 1940 Investment Advisers Act exemption.

Senator Grassley says that if the bill were passed, only advisers with less than 15 clients would be exempt from registering. An adviser exempted from registration would also have to oversee less than $50 million and could not publicly “hold himself out” as an adviser.

Senator Grassley also said the bill would allow the SEC to oversee these advisers and prevent them from “operating in secret.” He said that this type of oversight was important because hedge funds affect not just wealthy investors but regular investors and the market overall.

Because hedge fund assets have increased to over $1 trillion, requiring that hedge fund advisers register with the SEC has become a very controversial issue. While critics of registration say that being allowed to operate without the SEC’s oversight is has led to hedge funds' success, advocates of registration say this requirement would create the necessary transparency in a trillion dollar, and growing, field of intestments.

At Shepherd Smith and Edwards, our securities litigation attorneys are committed to helping investors that have been the victims of securities fraud recover damages. We represent clients from all over the United States and abroad, and we have offices located in cities throughout the United States, including Houston, New York, Dallas, Chicago, Phoenix, San Francisco, and New Orleans, as well as in Mexico City. To schedule a free consultation, contact Shepherd Smith and Edwards today.

Related Web Resources:

Sen. Grassley Introduces the Hedge Fund Registration Act of 2007, Grassley.Senate.gov, May 15, 2007

Investment Advisers Act of 1940, SEC.gov

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March 7, 2007

Former UBS Vice President Pleads Guilty To Conspiring With Hedge Fund Operator And Founder Of Capital Management Group To Bilk At Least $2.5 Million From Over 40 Investors

The U.S. Attorney’s Office says that Justin Paperny, a former account vice president at UBS Financial Services, Inc., has pleaded guilty to helping Capital Management Group founder Keith Gilabert bilk at least $2.5 million from investors.

Paperny pled guilty to wire fraud, securities fraud, and conspiracy to commit mail fraud, while admitting that he helped Gilabert fraudulently run GLT Venture Fund. Paperny also said that he lied to investors so that they would invest in the fund, took kickbacks from Gilabert, and conspired with him to mislead investors about the hedge fund’s performance history, the oversight of Capital Management Group by his brokerage firm, and any risks connected to investing in Capital Management Group.

That said, Paperny also says that he informed management at the brokerage firm that GLT had not been adhering to its investment strategy and that authorities at his firm knew of Gilabert’s fraudulent behavior. The investigation is pending. Paperny faces a possible 5-year federal prison term. He has agreed to cooperate with investigators as a condition of his guilty plea.

In 2006, Gilabert pled guilty to conspiracy charges for his role in the scheme. He said that for 4 ½ years (from September 2000 to January 2005), Capital Management Group collected over $7 million from over 40 clients and offered investments in GLT. He said he lost and misappropriated most of these funds.

Last year, the SEC had also filed a lawsuit charging Gilabert and Capital Management Group with offering and selling limited partnerships in GLT, in addition to raising $14.1 million from nearly 40 investors. Investors were told that a portfolio of stocks and options would be established and that GLT could generate average annual returns that ranged from 19% to 36%. Investors were also told that Gilabert and GLT would only receive compensation that was based on performance if the company became profitable. The company lost $7.8 million, with $1.7 million misappropriated for the company and Gilabert’s personal use. $4.6 was misused in new investor funds to pay current investors.

Shepherd Smith and Edwards represents investors who have sustained financial losses because of the inappropriate actions of brokers or their firms. Our law firm offers a free consultation to prospective clients who contact us via e-mail. Contact Shepherd Smith and Edwards today.

Related Web Resource:

Second Broker Enters Guilty Plea in Bogus Fund, The Signal.com, February 27, 2007

SEC Charges Southern California Hedge Fund Manager and His Firm in a Multi-Million Dollar Securities Fraud Scheme, SEC.gov, May 1, 2007

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Posted In: Hedge Funds , UBS

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March 1, 2007

The NASD Charges Two Former Prudential Brokers And A Branch Manager With Helping A Hedge Fund Manager Engage In Market Timing Through Variable Annuities

On February 15, the NASD announced that it was charging two former prudential brokers with helping a hedge fund manager to time the market through variable annuities. The former broker’s supervisor was also charged with failure to properly supervise them. Both brokers were registered with Prudential Securities Inc., now called Prudential Equity Group, during this time.

David Corn and Jeffrey Doerr allegedly helped Paul Saunders, a client, by opening 20 accounts for him under the names of a number of limited partnerships that had been created by Saunders. The limited partnerships had the same beneficial owners as James River Capital Corp., which was Saunders’s market timing hedge fund. The NASD says that the two brokers should have known their client would use the accounts for the purpose of market timing variable annuities and that the limited partnership had the same beneficial owners.

The SRO says that, between October 2001 and September 2003, Saunders executed about 900 variable annuity sub-account transactions with the brokers’ help. These transactions earned about $5.2 million, while violating the restrictions set up by insurance companies that offered annuities. The two brokers made about $45,000 each from these trades and their commissions.

The NASD says that insurance companies sent notices to Corn and Doerr asking them to restrict their clients market timing activities. The SRO claims that the two men used several deceptive practices to help Saunders evade these restrictions. The NASD says that Darrel Trost, the brokers’ manager, should have been aware of these activities. Trost is accused of failing to respond to the insurance companies and Prudential’s compliance department. The NASD also says that seven months went by where the three men did not update forms to indicate they were being investigated.

Last August, Prudential Equity Group reached a deferred prosecution agreement with the Department of Justice. The Group admitted to criminal wrongdoing related to market timing and, in a global settlement involving seven regulators, agreed to pay $600 million.

Saunders agreed to pay $2.5 million to settle NASD charges against him related to the alleged market timing activity.

Shepherd Smith and Edwards is a securities litigation law firm dedicated to help investors who have been the victims of securities fraud recover their losses. Contact us online, and your first consultation is free. Contact Shepherd Smith and Edwards today.

Related Web Resource:

NASD Charges Two Former Prudential Brokers with Facilitating Hedge Fund Manager's Deceptive Market Timing in Variable Annuities, NASD, February 15, 2007

Prudential Equity Group

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Posted In: Hedge Funds , Prudential

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February 28, 2007

U.S. Bankruptcy Court Says Bear Stearns Must Pay More Than $125 Million for Collapsed Hedge Fund Fiasco

Bear Stearns Securities Corp. is being ordered to pay over $125 million to a bankruptcy trustee because of Manhattan Investment Fund, a collapsed hedge fund used by hedge fund principal Michael Berger to run a large scale fraudulent investment scam. The ruling was issued on February 15 by the U.S. Bankruptcy Court for the Southern District of New York.

Berger, who was a fugitive and a convicted felon, had created and used the fund through his company, Manhattan Capital Management Inc., to engage in fraud—an action that led to a number of regulatory and criminal actions. The SEC had even filed a securities fraud complaint against MCM, Berger, and Manhattan Investment Fund in January 2000, even obtaining an asset freeze. Two months later, Helen Gredd, the fund’s receiver, filed for Chapter 11 bankruptcy on the fund’s behalf.

According to the court, the fund made 18 transfers, worth approximately $141.4 million in total, in the year before filing for bankruptcy. Funds were transferred from Bank of Bermuda to a Bear Stearns-maintained account with Citibank. The funds were then transferred to a Bear Stearns account and used for securities trading.

Bear Stearns had put the fund on “closing only” status in January 2000-which meant that no new positions could be opened, until existing positions were closed out, and no money could be withdrawn. After Berger confessed to fraud, Bear Stearns closed out any remaining short positions in the account, using money in the accounting to complete the process.

In acting as the fund's main broker, said Judge Borton Lifland last January, Bear Stearns had facilitated short-selling activities over the last several months of the fund's operations. Lifland granted the motion by the trustee for summary judgment in her efforts to recover $141.4 million in margin payments that were deposited into Manhattan Investment Fund’s account at Bear Stearns. Lifland says that Bear Stearns clearly was “on inquiry notice of Berger's fraud" before the fund's collapse” and neglected to act diligently and in a timely fashion. Lifland also says that Bear Stearns made about $2.4 million in revenues for services to the fund.

Because Bear Stearns had complied with the trustee’s request to wire $16,288,846.46, which was what remained in the fund’s account, to the fund’s bank account with Chase Manhattan, the final judgment earlier this month was directed that amount, which Bear Stearns had given back to the trustee prior to litigation be subtracted from the $141 million amount so that there would be no double recovery.

Shepherd Smith and Edwards represents clients who have been the victim of securities fraud. To schedule a free consultation, contact Shepherd Smith and Edwards today. We have offices in New York, Phoenix, San Francisco, Chicago, Dallas, New Orleans, Houston, and Mexico City.

Related Web Resources:

Bear Stearns

Hedge Funds, Hedge World

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Posted In: Bear Stearns , Hedge Funds

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February 9, 2007

Securities Officials In Massachusetts File Charges Against Bulldog Investors And Principal, Phillip Goldstein

The Massachusetts Division of Securities has filed an administrative complaint against Bulldog Investors General Partnership and the company’s principal, Phillip Goldstein. Bulldog Investors and Goldstein, as well as other individuals and firms, are being charged with offering unregistered securities for the purpose of selling them in Massachusetts.

The securities officials claim that the hedge funds allegedly failed to restrict prospective investors from accessing general advertising and offering content on their web site. The securities division says that while hedge fund offerings do not have to be registered with the Massachusetts Division of Securities, there are SEC guidelines for making private offerings online. This includes making sure that private offerings are password-protected so that only the potential investors that the issuer has assessed as sophisticated enough or properly accredited can view the materials. According to the complaint, Bulldog did not control access to the information, which “constitutes an unregistered, non-exempt public offering of securities in Massachusetts.”

Goldstein allegedly told the division that anyone who agreed to view the offering content online had to agree that the information was not a solicitation. The complaint however, claims that , "A disclaimer such as the one on the Bulldog web site does not constitute an appropriate or adequate control over a publicly accessible Web site that displays advertising and/or offering materials for securities."

Goldstein is is the co-founder of Bulldog Investors and the president of Kimball & Winthrop. He is also the man who was successful in filing a legal challege against the SEC’s rule mandating that hedge fund advisors must register with an agency.

Other parties named in the complaint include Full Value Partners Limited Partnership, Opportunity Partners Limited Partnership, Kimball & Winthrop Inc., Opportunity Income Plus Fund Limited Partnership, Spar Advisors LLC, Full Advisors LLC, Bulldog Investors Co-founder and Principal Steven Samuels, and Bulldog Investors principals Rajeev Das and Andrew Dakos.

The complaint says that securities officials want the parties that are named to make sure that their offerings are in compliance with the law. They are also seeking an administrative fine, as well as a cease-and-desist order.

Shepherd, Smith, and Edwards is committed to representing investors who have been the victims of unsuitable investments, unauthorized transactions, and other wrongful acts. If you are one of these investors, you are entitled to certain legal remedies, and we are here to help you. To schedule a free consultation, contact Shepherd, Smith, and Edwards today.

Massachusetts charges Bulldog Investors, Investment News, January 31, 2007

Secretary Galvin Charges Phillip Goldstein and Bulldog Investors for unregistered securities offering, Securities Division, January 31, 2007

Related Web Resource:

Goldstein v. Securities and Exchange Comm'n, No. 04-1434, DC Circuit, June 23, 2006

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Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith & Edwards

Hedge Funds Plead Guilty in Scam Costing Victims $194 Million

As Bear Stearns Hedge Fund Faced Liquidation its Head Manager's Golf Game Did Not Suffer

SEC Alleges that a Hedge Fund, Its Owner and Its Chief Trader Illegally Earned $57 Million in a Late-Trading Scam.

Merrill Lynch Seizes $400 Million of Assets from a Bear Stearns Managed 'Subprime' Hedge Fund for Failing to Meet Margin Calls

Proposed Act Requires SEC Registration of Hedge Fund Advisers

Former UBS Vice President Pleads Guilty To Conspiring With Hedge Fund Operator And Founder Of Capital Management Group To Bilk At Least $2.5 Million From Over 40 Investors

The NASD Charges Two Former Prudential Brokers And A Branch Manager With Helping A Hedge Fund Manager Engage In Market Timing Through Variable Annuities

U.S. Bankruptcy Court Says Bear Stearns Must Pay More Than $125 Million for Collapsed Hedge Fund Fiasco

Securities Officials In Massachusetts File Charges Against Bulldog Investors And Principal, Phillip Goldstein

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