Posts tagged “securities and exchange commission”

SEC: Accused Hedge Fund Fraudster Stole More Than $1.2M

February 28th, 2011

A Texas hedge fund manager was quite the storyteller, the Securities and Exchange Commission has alleged.

The regulator said that Christopher Blackwell misappropriated more than $1.2 million of the $4 million he raised, spending large sums on himself—including covering his child support payments and funding his fancy for “gentlemen’s clubs”—and some $500,000 on Ponzi scheme payments. More money went out in the form of payments to both himself and his associates.

A court has frozen Blackwell’s assets, HedgeFund.net reports. The SEC was led to his alleged scam by the Department of Homeland Security, which became concerned by large wire transfers made by Blackwell.

A DHS agent then met with Blackwell in the guise of a potential investor, and the lies continued, according to the SEC. Blackwell allegedly claimed, during a confab at a local Hooters restaurant, that he had studied at the University of Madrid and worked for the Bank of Madrid and Goldman Sachs. None of those claims are true, according to the regulator.

Blackwell allegedly told his victims, including an unidentified former member of the Dallas Cowboys football team, that his hedge fund invested in fixed-income, hedge funds and movie distribution deals.

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CFTC Proposes Joint Rule With SEC On Hedge, P.E. Disclosure

January 28th, 2011

A day after the Securities and Exchange Commission moved forward with plans to force hedge funds and private equity funds to increase their disclosures to regulators, the Commodity Futures Trading Commission followed suit.

The CFTC yesterday proposed a rule that would require private fund advisers to provide an array of information to it and the SEC for risk-monitoring purposes. The proposed new regulation, mandated by last year’s financial reform law, was written jointly by the two regulators. The SEC and CFTC would also share the information they collect with the Financial Stability Oversight Council.

Included in the information sought by the two agencies is data on leverage, counterparty risk and positions. While all funds would have to make some disclosures, the brunt of the new rule would fall on the largest managers, those with more than $1 billion, which will have to make more frequent and more detailed disclosures.

“What this does is bring more transparency to the regulators,” CFTC chief Gary Gensler said.

Both the CFTC and SEC are accepting comments on the proposal. Both will have to vote again to finalize the new rule.

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SEC Proposes Quarterly Reporting For Biggest Hedge, Private Equity Funds

January 25th, 2011

The biggest hedge funds in the U.S. will face the toughest regulatory burden under a new risk-reporting rule proposed today by the Securities and Exchange Commission.

The SEC unanimously voted to seek comment on the new rule, which would require hedge funds, private equity firms and other private investment fund advisers to maintain a wide range of information for sharing with regulators. The proposed joint rule with the Commodity Futures Trading Commission will be considered by that regulator tomorrow.

The new rule, required by the Dodd-Frank financial regulation reform law, will fall most heavily on firms managing more than $1 billion in assets. SEC Chairman Mary Schapiro notes that the 200 such firms in the U.S. control more than 80% of private fund assets under management.

“The information required would be ‘tiered’ so that we would receive more detailed information from larger private fund advisers, rather than imposing the same reporting requirements on all private funds,” Schapiro said. “While the group of large private fund advisers is relatively small in number, it represents a large majority of private funds’ assets.”

Those firms will be required to make quarterly reports on assets, leverage, positions, valuation and trading. That information will be shared by the SEC and CFTC with the Financial Stability Oversight Council.

Today’s vote opens a 60-day comment period.

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No New Money For SEC, CFTC In Temporary Budget Deal

December 24th, 2010

Two of the U.S.’s top regulators—already crying poverty prior to receiving new powers and oversight mandates earlier this year—will have to make do without any more money for the new two-and-a-half months. At least.

Congress on Tuesday passed a stop-gap funding measure to keep the federal government up and running through March 4, but without the big increases Democrats had sought for the Securities and Exchange Commission and Commodity Futures Trading Commission. Both have been charged by the Dodd-Frank financial regulation reform bill with many more responsibilities than before; the SEC alone must write more than 100 new rules and has said it needs more staffers and resources to do the job.

The Dodd-Frank bill had envisioned doubling the SEC’s budget by 2015.

“Operating under the continuing resolution is already forcing the agency to delay or cut back enforcement and market oversight efforts,” SEC spokesman John Nester said. “The longer we operate under significant budgetary restrictions, the greater the impact.”

“Current funding is far less than what is required to properly fulfill our significantly expanded role,” CFTC Chairman Gary Gensler told a Congressional committee earlier this month.

While this week’s deal is temporary, it is unclear that a permanent budget bill will favor either agency. Republicans—who voted nearly unanimously against the Dodd-Frank law—are to take control of the House of Representatives next month and it is unclear that they will be willing to boost the regulators’ budgets.

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SEC Wants Judge To Force Rajaratnam To Hand Over Wiretaps

December 22nd, 2010

Rajaratnam and Chiesi

Having lost his fight to keep thousands of wiretaps out of his criminal trial, Galleon Group founder Raj Rajaratnam will now have to renew his fight to keep them out of the hands of the Securities and Exchange Commission.

The SEC yesterday demanded that Rajaratnam and former co-defendant Danielle Chiesi, both accused of insider-trading, turn over some of the 18,150 wiretaps that they received from prosecutors in the crimin

al case. And it seems likely that the two will lose at least the first round: The judge presiding over the civil case, U.S. District Judge Jed Rakoff, had ordered them to turn over the taps even before U.S. District Judge Richard Holwell, who is overseeing the criminal case, ruled on their legality.

received an at least temporary reprieve when a federal appeals court ruled that Rakoff erred by granting the SEC’s request before Holwell ruled. But now that Holwell has ruled that the wiretaps were, in fact, legal, it is unclear that Rajaratnam and Chiesi will still have the appeals court’s ear.

“Given that the legality of the wiretaps has now been established, and given that the SEC is only seeking relevant intercepts, the SEC’s ‘significant’ right to obtain the relevant intercepts outweighs whatever arguable remaining privacy interests defendants and others may have,” the agency said in its filing.

“The SEC’s significant right of access to relevant, legally intercepted communications relating to the defendants’ insider trading scheme, and the substantial prejudice it will suffer if deprived of these intercepts, clearly outweighs any remaining, diminished privacy interests implicated in disclosing the relevant intercepts. Without the recordings, the SEC likely will be deprived of important admissions and in many instances the best, most direct evidence of wrongdoing.”

Rajaratnam and Chiesi may reprise their earlier arguments against giving the SEC the taps, noting that the agency lacks the authority to use wiretaps.

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Prosecutors Win Right to Use Rajaratnam Wiretaps

November 26th, 2010

Raj Rajaratnam

The winning streak of Galleon Group hedge fund founder Raj Rajaratnam came to an end on Wednesday when federal prosecutors won their bid to present secret recordings in the upcoming insider-trading criminal trial.

U.S. District Judge Richard Holwell supported the use of wiretaps by prosecutors to uncover a fraudulent insider trading racket, even though the order does not specifically authorize wiretaps to investigate insider trading alone.

He rejected defense arguments that the wiretaps were poisoned because FBI agent B.J. Kang had misled a different judge who authorized them in March 2008 about their need, and were unnecessary because the U.S. Securities and Exchange Commission was pursuing its own civil fraud case without them.

While finding it “troubling” that prosecutors withheld details of the SEC probe, Holwell allowed the wiretaps of more than 2,000 conversations. He said that because much of the alleged scheme was conducted by phone, investigators were unlikely to fully uncover it by conventional means.

“Disclosure of all the details of the SEC’s investigation that the government recklessly omitted would ultimately have shown that a wiretap was necessary and appropriate,” Holwell wrote in his 68-page opinion.

Danielle Chiesi, a co-defendant and former trader with New Castle Funds LLC, had also sought to suppress the wiretaps.

Jim McCarthy, a spokesman for Rajaratnam, declined to comment. Alan Kaufman, a lawyer for Chiesi, declined immediate comment. A spokeswoman for U.S. Attorney Preet Bharara in Manhattan said that office does not discuss ongoing cases.

Rajaratnam and Chiesi face up to 20 years in prison if convicted on charges including securities fraud and conspiracy. A trial is scheduled for January 17.

“The ruling significantly increases the pressure on the defendants to consider whether to plead guilty,” said David Siegal, a partner at Haynes and Boone LLP in New York and a former federal prosecutor.

“Recordings of the precise words spoken by a tipper and tippee in an insider trading case can be powerful evidence to demonstrate criminal intent,” Siegal continued. “Nevertheless, a sentence arising from a guilty plea may be so severe that a defendant may choose to go to trial anyway.”

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Identity Revealed: “Tipper X” Filed Guilty Plea Last Year in Galleon Case

November 16th, 2010

Tipper X filed guilty plea last year. He is Thomas Hardin.

We can never seem to go long before reporting another development in the fascinating insider trading case of Galleon Partners and its founder Raj Rajaratnam. We have now learned the identity of the infamous “Tipper X”: he is Thomas Hardin, a former trader at hedge fund Lanexa Global Management and the link between the two alleged interlocking insider-trading rings in the case.

Hardin and a second defendant, Franz Tudor, entered their pleas last year. Tudor is one of the cooperating witnesses who wore a wire for prosecutors. Hardin pleaded guilty on Dec. 21; Tudor entered his plea on Oct. 29 last year.

“When greed leads hedge funds and other market professionals to illegally trade on inside information, the SEC will take aggressive action,” Robert Khuzami, enforcement director at the agency, said.

Hardin and Tudor, whose agreement to plead guilty was first reported earlier this year, bring to 14 the number of people who have pleaded guilty in the case, which has ensnared 23 people, including Galleon founder Raj Rajaratnam. Both men face up to 25 years in prison on the conspiracy and securities fraud counts, although prosecutors plan to ask for leniency on account of their cooperation.

Both men—and Hardin’s former employer Lanexa —have also been sued by the Securities and Exchange Commission. According to the SEC, Hardin’s illegal trades on behalf of Lanexa earned the hedge fund more than $1 million. Lanexa fired Hardin in January 2009, it said.

According to prosecutors, Hardin received insider tips about Hilton Worldwide, Google and Kronos Worldwide both from Roomy Khan, the former Galleon employee and Intel Corp. executive linked to Rajaratnam and his alleged side of the insider trading rings, as well as from Gautham Shankar, a former trader at Schottenfeld Group and an alleged member of the insider-trading ring prosecutors say was led by former Galleon trader and Incremental Capital founder Zvi Goffer. That makes him the only known link between the two alleged circles.

Raj Rajaratnam

Tudor is a former trader at Galleon and also worked at Schottenfeld and Goffer’s Incremental Capital. Tudor reportedly wore a wire to record conversations he had with Goffer and Michael Kimelman, also of Incremental. Both Goffer and Kimelman, and five other linked to the so-called Goffer circle, have pleaded not guilty in the case, as has Rajaratnam.

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PAAMCo Plays the Gender Card, Flushed by SEC

October 31st, 2010

Women are no doubt outraged tonight as they learn, once again, how they have been taken advantage of by The Man.  In this case, Pacific Alternative Asset Management (PAAMCO).  Seems the fellows over there set themselves up, misleadingly, as  a “women-owned business” and structured a loan on that basis.

U.S. District Judge Richard Sullivan’s ruling that PAAMCo “may have been designed to mislead” about its woman-owned status, got the boys at the Securities and Exchange Commission a little curious about the fund-of-hedge-funds firm. PAAMCo admitted the scrutiny had sparked SEC interest in a letter to investors.

In the letter, PAAMCo disclosed that Sullivan in August granted Paloma Partners founder and PAAMCo backer S. Donald Sussman a 40% stake in PAAMCO Founders, the fund of funds’ parent company. Sullivan wrote in his decision that PAAMCo had structured Sussman’s investment as a loan so that it would “qualify as a women-owned business,” possibly misleading “a number of observers, from the tax authorities to the SEC to entities wishing to invest in women-owned businesses.”

PAAMCo has denied Sussman’s take on the situation, noting that it has never pursued mandates designed specifically for women- or minority-owned firms. However, there are reports the Susan B. Anthony is turning in her grave.

The fund of funds said it was cooperating with the SEC after it “determined it was important to proactively reach out to the SEC about the decision.” PAAMCo said it had met with SEC representatives in Los Angeles and “answered all of their questions about the case.”

Whether or not the SEC finds any wrongdoing on PAAMCo’s part, the Sullivan ruling has already cost it a $36 million mandate. The Los Angeles Water and Power Employees’ Retirement Plan fired the firm on Wednesday due to the uncertainty raised by the Sussman case.

“PAAMCo has made it clear that Donald Sussman’s equity ownership in PAAMCO Founders is a passive position and that he has no controlling interest,” Neil Rue of the pension’s consultant, Pension Consulting Alliance, wrote in a report to LAWPERP’s board. “However, after further review with staff and PAAMCo, PCA feels that the long-term implications of Mr. Sussman and the subsequent loss of expected revenue will detract from the value of the WPERP portfolio.”

Rue counseled the pension to launch a search for a new fund of hedge funds manager, but WPERP Chairman Javier Romero would not confirm that one had been authorized.

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The Prosecutors Strike Back in Galleon Case

October 29th, 2010

Raj Rajaratnam

For months now, Galleon Group founder Raj Rajaratnam has been fighting the government’s attempts to admit wiretaps into evidence in its never-ending insider-trading case. Now, Federal prosecutors have struck back, justifying the tapes in a strongly-worded brief to the court.

In early October, John Dowd, a lawyer for Rajaratnam, wrote to U.S. District Judge Richard Holwell, who is overseeing the trial, that “falsehoods and critical omissions pervade this affidavit.” Dowd also maintained that if prosecutors or the Federal Bureau of Investigation had given a more complete description of the Securities and Exchange Commission investigation that preceded the criminal probe, it “would have resulted in the denial of the wiretap application.”

The court filing from Assistant U.S. Attorneys Jonathan Streeter and Avi Weitzman alleged that Rajaratnam’s lawyers had shown no reason to exclude the 2,400+ taped conversations from the criminal trial. “Rajaratnam failed to prove that any Government representative deliberately decided” the federal judge who approved the wiretaps in March 2008, Gerald Lynch, “or had reckless disregard for whether they were deceiving the judge.”

According to Streeter and Weitzman, “Rajaratnam has not and cannot make this showing,” they wrote, noting that Lauren Goldberg, a former prosecutor who worked on the wiretap affidavit testified at a hearing earlier this month that the SEC probe had “hit a bit of a wall” and that the regulator had “developed largely ‘weak or nonexistent’ circumstantial cases involving stocks it was investigating.”

The prosecutors said they used the SEC’s best evidence to win the cooperation of former Galleon employee Roomy Khan, an alleged member of the insider-trading circle that has -ensnared 21 people, including Rajaratnam. Khan appears on many of the wiretaps. Streeter and Weitzman said their case would include testimony from some of the participants in the taped conversations in addition to the taps themselves.

It is unclear when Holwell will rule on the legality of the wiretaps. Rajaratnam’s trial is set to begin in January; he faces decades in prison if convicted.

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SEC Suddenly Pulls Plug on Corruption Settlement

October 15th, 2010

Steven Rattner

Steven Rattner was on verge yesterday of settling charges for his role in a pension corruption scheme when the Securities and Exchange Commission suddenly postponed the vote to accept the settlement. Rattner, the former head of the U.S. Auto Task Force, was facing a $6 million settlement and a two-year disbarment from the securities industry when the vote of the five commissioners was dropped from the SEC’s calendar.

Neither the reason for the postponement nor a new date for the vote are known.

Rattner is still the target of a probe by New York Attorney General Andrew Cuomo for his role in a kickback scheme at private equity giant Quadrangle Group LLC. Rattner left the auto task force as Cuomo’s probe intensified.

So far, Cuomo’s long-running investigation has prompted other states to begin similar probes and crackdown on placement agents, brokers who exploit political ties to reap millions of dollars of fees from investment companies that want to manage the public’s money.

Cuomo has recouped more than $100 million for the New York pension fund and captured seven guilty pleas, most recently from the former state comptroller Alan Hevesi.

The former Democratic comptroller pleaded guilty to a felony for getting the benefit of hundreds of thousands of dollars of political donations and fees paid to a lobbyist and free luxury trips to Italy and Israel.

New York’s comptrollers are the sole trustees of the state’s $132 billion pension fund.

The SEC and Cuomo have suggested that Rattner improperly paid off a political operative to win the lucrative business of investing some of New York’s pension fund.

The practice of making political contributions to pension fund officials to win investment contracts is also known as “pay-to-play.”

Investigators alleged that Quadrangle won a $100 million investment from the state pension fund by engaging in improper “quid pro quo” arrangements.

They said this involved agreements to pay more than $1 million in “finder” fees to Henry “Hank” Morris, a former top adviser to Hevesi, and distribute a DVD of the film “Chooch,” produced by former Common Retirement Fund chief investment officer David Loglisci, who later plead guilty.

In April, Quadrangle agreed to settle with the New York attorney general and the SEC.

At the time, Quadrangle said: “We wholly disavow the conduct engaged in by Steve Rattner… That conduct was inappropriate, wrong and unethical.”

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