When the verdicts were read their wives burst into tears.
The case was seen as the first major litmus test of the U.S. effort to obtain convictions tied to the subprime mortgage crisis and subsequent recession. The trial was the first stemming from a federal probe of the collapse of the subprime mortgage-market, which cost investors as much as $396 billion. These two men were indicted in June 2008, by Brooklyn U.S. Attorney Benton Campbell a year after their hedge funds failed.
Last week a jury of eight women and four men deliberated less than a day before reaching a verdict of not guilty on all counts. Cioffi, 53, the portfolio manager for the hedge funds, and Tannin, 48, their chief operating officer, went on trial Oct. 13 in federal court in Brooklyn, New York. The charges were conspiracy, securities fraud and wire fraud. They faced as many as 20 years in prison if convicted. Although their wives were noticeably relieved, the two men remained stoic. Perhaps all too aware, that this was a major victory, but far from the end of the battle.
Experts agree, this acquittal makes it more difficult for the Justice Department to bring additional prosecutions for fraud related to the subprime market and the various financial instruments that were based upon it, as it should. A jury of their piers answered quickly as well as emphatically that these men are innocent, as we at The Cold Truth had predicted. The public will require more than simple scapegoats as signaled by this jury's public push for the end of this era of prosecutorial permissiveness. According to juror Serphaine Stimpson, “As the witnesses began to testify I had my doubts...the defense tore the government witnesses apart.... jurors just weren’t 100 percent convinced." She then added, the defendants, “were scapegoats for Wall Street.”
Another Juror commented, “When people are making money, they say anything, when people are losing money they want to put the blame on somebody." The juror, Hong, said that if she had money, she would invest it with Cioffi and Tannin.
Assistant U.S. Attorney James McGovern said during the trial, “There is evidence here of a conspiracy which is ‘Let’s not tell anybody about the problems we’re having,” It’s also about ‘Let’s not tell the investors about the level of redemptions we’re having, because then there will be a run on the bank.’” AUSA McGovern shows himself to be clearly uneducated when it comes to markets as preventing a run on the fund is not a fraudulent activity in fact nothing could be further from the truth. It is an imperative as a manager in such a situation. It is a managers fiduciary responsibility to do so, most especially when the facts are rapidly changing and it it is ones job to disseminate information on a moment to moment basis, even as that information is changing too rapidly for one to do so.
Larry Ribstein, a professor of law at University of Illinois completely agreed with our position at The Cold Truth when he stated, “This never should’ve been the subject of a criminal prosecution. It was a case of standard business dealings where the views of the markets were shifting rapidly and these guys were being criminally punished for expressing views on one day and acting differently another day,”
This battle has just begun as the SEC plans to sue the Cioffi and Tannin in civil court because the burden of proof is much lower than the criminal court- this is why the two remained unmoved upon their acquittal as they have many more legal challenges ahead, including answering the numerous client law suits that Tannin and Cioffi have face as an unfortunate bi-product of the US Attorneys criminal charges. “We of course respect the criminal verdict,” SEC spokesman John Nester said. “But at this time, we expect to go forward with litigating our civil action.”
More to follow.....
Monday, November 16, 2009
Wednesday, November 11, 2009
Yorkville Possible Subject of SEC Investigation
Yorkville Advisors, LLC- which has operated a PIPE (Private Investment in Public Equity) fund since 2001 -may be in hot water with the Securities and Exchange Commission. Sources indicate that the SEC may have already or is about to launch a formal investigation of this fund and its managers. Our sources confirm the commission has been contacted by several concerned Yorkville investors, though SEC representatives have not made any comment regarding the inquiry.
Clients may have been prompted to go to the SEC by what some could consider questionable investments, in addition to the onerous fees collected by Yorkville (YA Global Investments). Yorkville deal documents and their audit show the following:
* Yorkville and its funds take fees on all sides of their transactions- including structuring.
* They take their management fee as well as a healthy portion of the profits from their funds and then write-off all their costs against these fees. In simple terms – it would appear they have no costs of their own.
* 'Double Dipping' - Investors being charged twice.
Sources close to the SEC allege that Mark A. Angelo and Matthew Beckman – key people at Yorkville's PIPE fund– may soon be hit with inquires. Yorkville also operates under the name YA Global Investments. It is a complex structure many theorize is utilized to circumvent taxes, among other reasons. It is possible that there may be some irregularities on a deal announced October 19, 2009 with Finnish drug developer Biotie Therapies Oyj (HEL: BTH1V)
What is wrong here? The deal is as follows:
Oct 23, 2009 (M2 EQUITYBITES via COMTEX) -- 23 October 2009 - Finnish drug developer Biotie Therapies Oyj (HEL: BTH1V) said today the fund YA Global Master SPV Ltd committed to subscribe and pay up to EUR20m for ordinary no-par Biotie shares in the next 36 months, under a stand-by equity distribution agreement. The deal aims to secure the financing of Biotie's working capital in the short and medium-term. YA Global is entitled to a one-time commitment fee of EUR200,000 in shares and has already received customary structuring and due diligence fees. At any time during the 36 months Biotie may request YA Global to purchase shares. The maximum portion of the commitment amount to be used at a time is EUR50,000 for the first tranche, EUR100,000 for the second tranche and EUR300,000 for the subsequent tranches. The pricing of the shares will be determined as 95% of the lowest daily volume-weighted average price of the five days after the date on which Biotie shall have sent YA Global a notice to buy shares, but will be at least 85% of the volume-weighted average price of Biotie shares on OMX Nordic Exchange in Helsinki on the last trading day preceding the notice.
Maple Energy could be another target of the eagle eyes at the SEC as some believe that Yorkville Advisors artificially inflated the funds value with the goal of tidying up its balance sheet so its PIPE fund looked stronger to attract new investors.
November 05 2005- Maple Energy secures $30m funding facility for new opportunities
Peru-based oil and gas group Maple Energy has secured a US$30 million financing facility with American investment group Yorkville Advisors, which manages YA Global Master SPV Ltd.
As is usual with Yorkville – which funds numerous small cap natural resources companies – the package has been structured as a standby equity distribution agreement (SEDA). This means that Yorkville has agreed to subscribe for up to US$30 million of Maple’s shares as and when the company needs the cash over the next 30 months. Maple will use the proceeds from the SEDA as a means of raising additional working capital, including for its Ethanol Project, and for general corporate purposes.
Rex Canon, Maple’s chief executive, said the facility gave Maple certainty and flexibility of funding. “The capital can be accessed quickly and at attractive pricing enabling Maple to respond to new opportunities and funding requirements as and when they appear,” he said.
In addition some industry experts are speculating that the SEC may be looking at cases of possible manipulation by Yorkville in SEDAs or Standby Equity Distribution Agreements.
Also at issue is- Richard Y. Roberts - his activities believed to include influence peddling, on behalf of Yorkville, behind closed doors. Roberts served as a Commissioner of the U.S. Securities and Exchange Commission (SEC) 1990-1995. In addition to his service at the SEC, from 2002 to 2004 Mr. Roberts served as a member of the District 10 Regional Consultative Committee of the National Association of Securities Dealers, Inc., and from 1999 to 2001, he served as a member of the Market Regulation Advisory Board of the NASD and from 1996 to 1998 he served as a member of the Legal Advisory Board of the NASD. Currently Mr. Roberts is a partner at Roberts, Raheb and Gradler, a regulatory and legislative consulting firm he co-founded in March 2006, where he provides legal, consulting and advisory services to clients on issues relating to financial institution regulation and legislation. He is closely linked to Yorkville.
Lastly, on the Yorkville table at the may be a question of special inside knowledge utilized in the following deals:
www.secform4.com/insider-trading/1271849.htm
Clients may have been prompted to go to the SEC by what some could consider questionable investments, in addition to the onerous fees collected by Yorkville (YA Global Investments). Yorkville deal documents and their audit show the following:
* Yorkville and its funds take fees on all sides of their transactions- including structuring.
* They take their management fee as well as a healthy portion of the profits from their funds and then write-off all their costs against these fees. In simple terms – it would appear they have no costs of their own.
* 'Double Dipping' - Investors being charged twice.
Sources close to the SEC allege that Mark A. Angelo and Matthew Beckman – key people at Yorkville's PIPE fund– may soon be hit with inquires. Yorkville also operates under the name YA Global Investments. It is a complex structure many theorize is utilized to circumvent taxes, among other reasons. It is possible that there may be some irregularities on a deal announced October 19, 2009 with Finnish drug developer Biotie Therapies Oyj (HEL: BTH1V)
What is wrong here? The deal is as follows:
Oct 23, 2009 (M2 EQUITYBITES via COMTEX) -- 23 October 2009 - Finnish drug developer Biotie Therapies Oyj (HEL: BTH1V) said today the fund YA Global Master SPV Ltd committed to subscribe and pay up to EUR20m for ordinary no-par Biotie shares in the next 36 months, under a stand-by equity distribution agreement. The deal aims to secure the financing of Biotie's working capital in the short and medium-term. YA Global is entitled to a one-time commitment fee of EUR200,000 in shares and has already received customary structuring and due diligence fees. At any time during the 36 months Biotie may request YA Global to purchase shares. The maximum portion of the commitment amount to be used at a time is EUR50,000 for the first tranche, EUR100,000 for the second tranche and EUR300,000 for the subsequent tranches. The pricing of the shares will be determined as 95% of the lowest daily volume-weighted average price of the five days after the date on which Biotie shall have sent YA Global a notice to buy shares, but will be at least 85% of the volume-weighted average price of Biotie shares on OMX Nordic Exchange in Helsinki on the last trading day preceding the notice.
Maple Energy could be another target of the eagle eyes at the SEC as some believe that Yorkville Advisors artificially inflated the funds value with the goal of tidying up its balance sheet so its PIPE fund looked stronger to attract new investors.
November 05 2005- Maple Energy secures $30m funding facility for new opportunities
Peru-based oil and gas group Maple Energy has secured a US$30 million financing facility with American investment group Yorkville Advisors, which manages YA Global Master SPV Ltd.
As is usual with Yorkville – which funds numerous small cap natural resources companies – the package has been structured as a standby equity distribution agreement (SEDA). This means that Yorkville has agreed to subscribe for up to US$30 million of Maple’s shares as and when the company needs the cash over the next 30 months. Maple will use the proceeds from the SEDA as a means of raising additional working capital, including for its Ethanol Project, and for general corporate purposes.
Rex Canon, Maple’s chief executive, said the facility gave Maple certainty and flexibility of funding. “The capital can be accessed quickly and at attractive pricing enabling Maple to respond to new opportunities and funding requirements as and when they appear,” he said.
In addition some industry experts are speculating that the SEC may be looking at cases of possible manipulation by Yorkville in SEDAs or Standby Equity Distribution Agreements.
Also at issue is- Richard Y. Roberts - his activities believed to include influence peddling, on behalf of Yorkville, behind closed doors. Roberts served as a Commissioner of the U.S. Securities and Exchange Commission (SEC) 1990-1995. In addition to his service at the SEC, from 2002 to 2004 Mr. Roberts served as a member of the District 10 Regional Consultative Committee of the National Association of Securities Dealers, Inc., and from 1999 to 2001, he served as a member of the Market Regulation Advisory Board of the NASD and from 1996 to 1998 he served as a member of the Legal Advisory Board of the NASD. Currently Mr. Roberts is a partner at Roberts, Raheb and Gradler, a regulatory and legislative consulting firm he co-founded in March 2006, where he provides legal, consulting and advisory services to clients on issues relating to financial institution regulation and legislation. He is closely linked to Yorkville.
Lastly, on the Yorkville table at the may be a question of special inside knowledge utilized in the following deals:
www.secform4.com/insider-trading/1271849.htm
Wednesday, November 4, 2009
SAC Capital Ensnared in Insider Trading Scandal
The recent financial crisis has led to many investigations of instances of malfeasance including the charge of insider-trading that has engulfed Raj Rajaratnams Galleon Group. Recently, several sources close to the investigation revealed that Choo Beng Lee, who is cooperating with authorities, admitted that his illicit trades began at SAC Capital in 1994. This revelation has far reaching consequences which include ensnaring another man considered to be a Wall Street darling as well as one of the biggest names in the hedge fund business- billionaire and SAC founder- Steven A. Cohen.
SAC is a multi-strategy, private asset management firm founded by Steven A. Cohen in 1992 with 9 employees and $25 million in assets under management. SAC's initial investment style was "trading" oriented. However, they have evolved into a multi-strategy, multi-disciplinary, investment management firm emphasizing rigorous research and risk management practices. SAC's investment strategies include, but are not limited to: Fundamental and Technical Long/Short Equity Portfolios, Global Quantitative Strategies, Fixed Income and Credit, Global Macro Strategies, Convertible Bonds, and Emerging Markets.
Lee has pleaded guilty to insider-trading charges in along with 19 others. According to his recently released cooperation agreement, he acknowledged that his illicit trading has been going on for over 15 years-since 1994,including while the entire decade he was working at SAC. In return for helping the government, Lee won’t be further prosecuted for any insider trading he may have committed at SAC, which oversees $14 billion, or at his next two employers, as long as he has disclosed the crimes, according to his Oct. 8 plea agreement. Although no one at the Stamford, Conn.-based hedge fund have been accused of any wrongdoing, authorities will certainly be searching further to see who knew what and very likely will have many questions for Cohen himself.
Investigators are expected to examine transactions at SAC, the Wall Street Journal reported on Nov. 7, citing people familiar with the matter. Cohen declined to rehire Lee because he was suspicious about the abrupt closing of San Jose, California-based Spherix, the newspaper said. Spherix Capital LLC, which Lee started in 2007 with Ali Far, closed in March after returning about 10 percent in 2009. Before Spherix, Lee worked for about three years at Stratix Asset Management LLC, a defunct hedge-fund firm in New York run by two former SAC traders.
The SEC has been quite vigilant in their investigation and have made it clear that they will pursue the case, no matter how long it takes or where it may lead. According to reports clients of the firm are being advised that SAC has reviewed its buying and selling of stocks cited in the Galleon Group LLC insider-trading cases and has found nothing suspicious. In addition, it is believed no subpoenas have been served as of yet, but cannot be ruled out as the investigation
is ongoing.
SAC is a multi-strategy, private asset management firm founded by Steven A. Cohen in 1992 with 9 employees and $25 million in assets under management. SAC's initial investment style was "trading" oriented. However, they have evolved into a multi-strategy, multi-disciplinary, investment management firm emphasizing rigorous research and risk management practices. SAC's investment strategies include, but are not limited to: Fundamental and Technical Long/Short Equity Portfolios, Global Quantitative Strategies, Fixed Income and Credit, Global Macro Strategies, Convertible Bonds, and Emerging Markets.
Lee has pleaded guilty to insider-trading charges in along with 19 others. According to his recently released cooperation agreement, he acknowledged that his illicit trading has been going on for over 15 years-since 1994,including while the entire decade he was working at SAC. In return for helping the government, Lee won’t be further prosecuted for any insider trading he may have committed at SAC, which oversees $14 billion, or at his next two employers, as long as he has disclosed the crimes, according to his Oct. 8 plea agreement. Although no one at the Stamford, Conn.-based hedge fund have been accused of any wrongdoing, authorities will certainly be searching further to see who knew what and very likely will have many questions for Cohen himself.
Investigators are expected to examine transactions at SAC, the Wall Street Journal reported on Nov. 7, citing people familiar with the matter. Cohen declined to rehire Lee because he was suspicious about the abrupt closing of San Jose, California-based Spherix, the newspaper said. Spherix Capital LLC, which Lee started in 2007 with Ali Far, closed in March after returning about 10 percent in 2009. Before Spherix, Lee worked for about three years at Stratix Asset Management LLC, a defunct hedge-fund firm in New York run by two former SAC traders.
The SEC has been quite vigilant in their investigation and have made it clear that they will pursue the case, no matter how long it takes or where it may lead. According to reports clients of the firm are being advised that SAC has reviewed its buying and selling of stocks cited in the Galleon Group LLC insider-trading cases and has found nothing suspicious. In addition, it is believed no subpoenas have been served as of yet, but cannot be ruled out as the investigation
is ongoing.
Tuesday, October 27, 2009
Mack Subject of Possible Indictment?
In September and under pressure of a report prepared by the New York State’s Attorney General Andrew Cuomo David S. Mack had to resign from his post with the New York State Police. On September 9, 2009 The New York Times reported that Mr. Cuomo found “that a previous superintendent, James W. McMahon, had been pressured to appoint David S. Mack, a real estate developer and Pataki fund-raiser, to the uniformed post of deputy superintendent, though Mr. Mack had no law enforcement experience. Mr. Mack went on to appear at official functions in a full dress uniform, angering rank-and-file troopers.
http://www.scribd.com/doc/19557665/EXCERPT-OAG-Report-State-PolicePolitical-MACK-DAVID-S
So what now? Sources in Albany and close to the State Police say that David Mack is suspected of having used his influence on behalf of friends to “manipulate” official investigations and, in one case, stop or derail an investigation by The New State Insurance Department into a questionable insurance business run by Kenneth D. Yellin. Yellin has worked with MassMutual Life among others. It is believed New York State is reviewing an investment in which Yellin may have worked on credit insurance to enhance investments. Mack is well known for his influence on the Nassau Police Department. Rumors from inside that department are that he has in the past intervened on behalf of friends, some of whom were suspected of drug use far beyond just casual. Having spent much money on police causes locally, he remains influential in Nassau County.
On Septmber 11, 2009 the Times reported also: “Republican fund-raiser and real estate executive who repeatedly took the Fifth Amendment during a state investigation of political interference at the State Police said on Friday that he would resign from his seats on the boards of the Metropolitan Transportation Authority and the Port Authority of New York and New Jersey. The executive, David S. Mack, had refused to cooperate with investigators from the office of Attorney General Andrew M. Cuomo during Mr. Cuomo’s ongoing investigation of the police agency.”
So what is Mack hiding? Sources close to the New York Attorney General say that Mack may have abused his power to award contracts to cronies while also serving on the board of the MTA. He served as Vice Chairman for Procurements. Under investigation, according to sources, is that Mack used his influence to award a $735,000.00 contract to Conti of New York, LLC at a board meeting on April 29, 2009. This is a subsidiary of the Conti Group which has been linked to organized crime in the past. http://www.silive.com/southshore/index.ssf/2009/07/cleanup_of_staten_islands_broo.html
Another area that is also under review is to what extent Mack has used contact with the Securities and Exchange commission of initiate investigations of companies disliked by him. He may also have been able to stop an investigation into Mack Cali Realty Corporation and The Apollo REIT run by family members.
What will happen next is not certain yet. According to some contacts in Albany the New York State Police is now reviewing all actions taken by Mack. What’s more, some sources say that Mack may become subject of an indictment before the end of the year for influence peddling and corruption.
http://www.transitblogger.com/mta-board/the-mack-strikes-again.php
http://www.scribd.com/doc/19557665/EXCERPT-OAG-Report-State-PolicePolitical-MACK-DAVID-S
So what now? Sources in Albany and close to the State Police say that David Mack is suspected of having used his influence on behalf of friends to “manipulate” official investigations and, in one case, stop or derail an investigation by The New State Insurance Department into a questionable insurance business run by Kenneth D. Yellin. Yellin has worked with MassMutual Life among others. It is believed New York State is reviewing an investment in which Yellin may have worked on credit insurance to enhance investments. Mack is well known for his influence on the Nassau Police Department. Rumors from inside that department are that he has in the past intervened on behalf of friends, some of whom were suspected of drug use far beyond just casual. Having spent much money on police causes locally, he remains influential in Nassau County.
On Septmber 11, 2009 the Times reported also: “Republican fund-raiser and real estate executive who repeatedly took the Fifth Amendment during a state investigation of political interference at the State Police said on Friday that he would resign from his seats on the boards of the Metropolitan Transportation Authority and the Port Authority of New York and New Jersey. The executive, David S. Mack, had refused to cooperate with investigators from the office of Attorney General Andrew M. Cuomo during Mr. Cuomo’s ongoing investigation of the police agency.”
So what is Mack hiding? Sources close to the New York Attorney General say that Mack may have abused his power to award contracts to cronies while also serving on the board of the MTA. He served as Vice Chairman for Procurements. Under investigation, according to sources, is that Mack used his influence to award a $735,000.00 contract to Conti of New York, LLC at a board meeting on April 29, 2009. This is a subsidiary of the Conti Group which has been linked to organized crime in the past. http://www.silive.com/southshore/index.ssf/2009/07/cleanup_of_staten_islands_broo.html
Another area that is also under review is to what extent Mack has used contact with the Securities and Exchange commission of initiate investigations of companies disliked by him. He may also have been able to stop an investigation into Mack Cali Realty Corporation and The Apollo REIT run by family members.
What will happen next is not certain yet. According to some contacts in Albany the New York State Police is now reviewing all actions taken by Mack. What’s more, some sources say that Mack may become subject of an indictment before the end of the year for influence peddling and corruption.
http://www.transitblogger.com/mta-board/the-mack-strikes-again.php
Tuesday, October 20, 2009
Gethner's Special Interest Aides
Treasury Secretary Timothy Geithner chose the best possible talent available to be his aides. Many of them came directly from Wall Street’s most well known banks including Citibank and Goldman Sachs. This group, chosen for their economic prowess was hand picked by the Secretary to help advise on how to correct the greatest economic debacle of our era, ironically, they came directly from the same firms that are being partially blamed for the markets collapse. At issue is the fact that these advisors have access and strong influence behind closed doors at the Treasury department but require no confirmation.
The amount of money they wield control over is staggering, however the oversight for these aides is underwhelming and suspect. These six aides whose official title is, ‘Counselor to Geithner’, oversee and determine policy on $700 billion in banking rescue and are heavily involved in crafting executive pay rules as well as revamping financial regulations. Yet they haven’t faced the public scrutiny given to Senate-confirmed appointees, nor are they compelled to testify in Congress to defend or explain the Treasury’s policies.
Defending the policy of appointing advisors Treasury spokesman Andrew Williams said, “the department needs people with a deep understanding of markets and the financial system, especially as it works to fend off the worst recession in half a century. The secretary thought that the best way to utilize their talents was to allow these individuals to provide advice to the secretary on policy issues through appointments as counselor,” He added, “All of Geithners’s counselors are subject to federal ethics rules, including a pledge to avoid contact with their former firms for at least a year.” Many feel that despite these ethics rules this will lead to cronyism and back room deals as the largest banks erstwhile employees form economic policy at the highest levels. In addition, many mock the ethics clause, as it is simply implausible.
The advisors list is a virtual who’s who of Wall Street including: Chief of Staff Mark Patterson the former chief economist at Citigroup and lobbyist for Goldman Sachs. Deputy assistant secretary Mathew Kabaker, worked with private equity firm Blackstone Group LP on domestic finance policy and helped build the Treasury plan to push banks to sell their toxic assets, earned $5.8 million working on private equity deals at Blackstone in 2008 and 2009 before joining the Treasury at the end of January. Much of the compensation was in stock. Other advisors include Gene Sperling, who earned $887,727 from Goldman Sachs last year and over $2.2 million in total and Lee Saks a partner of New York hedge fund Mariner Investment Group, who earned over $3 million in salary and partnership fees last year. Sources on the street think there is no way this group can remain objective when it comes to issues, one in particular that seems glaringly obvious is executive compensation.
The President has promised to change Washington by keeping lobbyists for special interests at a distance and by making decisions in the open. In September, while speaking to financial executives, President Obama warned, “We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.” The unfortunate fact is that this list of Geithner advisors seems very much like its own special interest group for the top tier of American banking firms. They have access, they have influence, they are setting policy and they are doing it all unchecked, behind closed doors. This is far from the promise of the President and makes you wonder, ‘what happened to the transparency we were promised?’
The amount of money they wield control over is staggering, however the oversight for these aides is underwhelming and suspect. These six aides whose official title is, ‘Counselor to Geithner’, oversee and determine policy on $700 billion in banking rescue and are heavily involved in crafting executive pay rules as well as revamping financial regulations. Yet they haven’t faced the public scrutiny given to Senate-confirmed appointees, nor are they compelled to testify in Congress to defend or explain the Treasury’s policies.
Defending the policy of appointing advisors Treasury spokesman Andrew Williams said, “the department needs people with a deep understanding of markets and the financial system, especially as it works to fend off the worst recession in half a century. The secretary thought that the best way to utilize their talents was to allow these individuals to provide advice to the secretary on policy issues through appointments as counselor,” He added, “All of Geithners’s counselors are subject to federal ethics rules, including a pledge to avoid contact with their former firms for at least a year.” Many feel that despite these ethics rules this will lead to cronyism and back room deals as the largest banks erstwhile employees form economic policy at the highest levels. In addition, many mock the ethics clause, as it is simply implausible.
The advisors list is a virtual who’s who of Wall Street including: Chief of Staff Mark Patterson the former chief economist at Citigroup and lobbyist for Goldman Sachs. Deputy assistant secretary Mathew Kabaker, worked with private equity firm Blackstone Group LP on domestic finance policy and helped build the Treasury plan to push banks to sell their toxic assets, earned $5.8 million working on private equity deals at Blackstone in 2008 and 2009 before joining the Treasury at the end of January. Much of the compensation was in stock. Other advisors include Gene Sperling, who earned $887,727 from Goldman Sachs last year and over $2.2 million in total and Lee Saks a partner of New York hedge fund Mariner Investment Group, who earned over $3 million in salary and partnership fees last year. Sources on the street think there is no way this group can remain objective when it comes to issues, one in particular that seems glaringly obvious is executive compensation.
The President has promised to change Washington by keeping lobbyists for special interests at a distance and by making decisions in the open. In September, while speaking to financial executives, President Obama warned, “We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.” The unfortunate fact is that this list of Geithner advisors seems very much like its own special interest group for the top tier of American banking firms. They have access, they have influence, they are setting policy and they are doing it all unchecked, behind closed doors. This is far from the promise of the President and makes you wonder, ‘what happened to the transparency we were promised?’
Tuesday, October 6, 2009
Enough Scapegoats: Where Were The Rating Agencies?
In just one week, the trial will begin for two former Bear Stearns hedge fund managers- Ralph Cioffi and Mathew Tannin accused of fraud. However, yesterday, U.S. District Judge Fredric Block denied prosecutors’ request to allow jurors specific information regarding the managers personal spending habits.
“No, I’m not going to allow it,” Block said. “They will know this person made $20 million a year.”
The prosecutors had hoped to introduce the exact membership fee's of the country clubs the manager belonged to as well as Ralph Cioffi's three exotic Ferrari's. Their intent is to persuade the jury that the manager spent significant sums of money on an expensive lifestyle which would have ended once the sub-prime markets crashed and in order to perpetuate this lifestyle, Mr. Cioffi & Mr. Tannin intentionally misled their clients about the health of the sub-prime market.
Cioffi and Tannin are accused of misleading investors in the two hedge funds, the Bear Stearns High-Grade Structured Credit fund and more highly-levered sister fund, about the health of the funds just prior to their collapse, which cost investors $1.6 billion. Cioffi also faces an insider-trading charge. The failure of the two hedge funds, in July 2007, helped precipitate the collapse of Bear Stearns less than a year later, in March 2008.
But many believe that these men and the case itself are being used as scapegoats by regulators and prosecutors both of whom are under tremendous pressure to provide the public with individuals to hold accountable for a systemic collapse. Trillions of dollars have been lost world wide, some of the worlds largest insurance companies, banks, auto makers and financial services titans have been bankrupted. It's glaringly obvious that these men cannot possibly be personally accountable for an international economic crisis.
At the center of the prosecutions case is an email from Tannin, the funds CFO to his friend Ray McGarrigal. According to prosecutors, in an April 22, 2007 e-mail, Tannin lamented the state of his hedge funds, which were heavily invested in subprime mortgage securities.
“The entire sub-prime market is toast,” Tannin wrote. “There is simply no way for us to make money—ever.” A few days later, according to prosecutors, he was lauding the both his funds and the subprime market during a conference call with investors. he commented, that in fact he was, “very comfortable with exactly where we are,” and of regarding the subprime problems, “there’s no basis for thinking this is one big disaster.”
It was an extremely poor choice of words Tannin chose to lament to his friend, but in the end, this is just one friend complaining to another about his dead end job. Imagine their surprise when only a few days later, incompetent regulators befriended by over-zealous prosecutors scouting high and low for scapegoats to sacrifice to the angry, poor huddled masses, gathered a grand jury and turned Tannin's e-mail gripe session with a former colleague, into a massive scenario of fraud.
That's how easily it happens. On Monday, you're a frustrated fund manager complaining about business (perhaps to vehemently) to a colleague. On Tuesday, you do your best to adjust your attitude realizing as always, your fiduciary responsibilities come first. On Wednesday on a conference call you do your best to keep investors calm during an unforeseen and as of yet undefined crisis. Thursday, you are doing your best to gather information on the crisis and on Friday, you've been indicted for committing fraud while becoming the worlds poster-child for the collapse of Bear Stearns.
Perhaps it is time we took a step back and remember before this is all behind us and it's too late, the rating agencies are all clearly at fault. They all failed miserably at their jobs. In fact, failing miserably at their jobs may not be a strong enough term as implies that they did their jobs at all. S&P, Moody's and their cohorts are directly responsible for this crisis. Investors and managers both utilize the ratings agencies in order to gauge the value of their investments. The agencies ratings were wrong which led to investor confusion and over-valuation, which led to the ratings cuts that were deemed too little, too late. the rating agencies couldnt have blundered more if they had tried. This is a fact and is undisputed, yet there have been no arrests, no indictments and it is business as usual for the agencies.
Cioffi and Tannin, like most of those investigated in the aftermath of the credit crisis, are simply scapegoats. Low dangling fruit. Easy to pick and easy to point to. Instead of scapegoats, we should be investigating and then initiating a complete overhaul of the ratings industry. Ratings agencies need to be far more highly scrutinized and in all likely hood far more regulated. We need to weed out those responsible for the financial collapse and replace them with new analysts and new agencies. We must rebuild the portion of the system that failed. Nobody is more responsible and nobody failed more than the rating agencies.
“No, I’m not going to allow it,” Block said. “They will know this person made $20 million a year.”
The prosecutors had hoped to introduce the exact membership fee's of the country clubs the manager belonged to as well as Ralph Cioffi's three exotic Ferrari's. Their intent is to persuade the jury that the manager spent significant sums of money on an expensive lifestyle which would have ended once the sub-prime markets crashed and in order to perpetuate this lifestyle, Mr. Cioffi & Mr. Tannin intentionally misled their clients about the health of the sub-prime market.
Cioffi and Tannin are accused of misleading investors in the two hedge funds, the Bear Stearns High-Grade Structured Credit fund and more highly-levered sister fund, about the health of the funds just prior to their collapse, which cost investors $1.6 billion. Cioffi also faces an insider-trading charge. The failure of the two hedge funds, in July 2007, helped precipitate the collapse of Bear Stearns less than a year later, in March 2008.
But many believe that these men and the case itself are being used as scapegoats by regulators and prosecutors both of whom are under tremendous pressure to provide the public with individuals to hold accountable for a systemic collapse. Trillions of dollars have been lost world wide, some of the worlds largest insurance companies, banks, auto makers and financial services titans have been bankrupted. It's glaringly obvious that these men cannot possibly be personally accountable for an international economic crisis.
At the center of the prosecutions case is an email from Tannin, the funds CFO to his friend Ray McGarrigal. According to prosecutors, in an April 22, 2007 e-mail, Tannin lamented the state of his hedge funds, which were heavily invested in subprime mortgage securities.
“The entire sub-prime market is toast,” Tannin wrote. “There is simply no way for us to make money—ever.” A few days later, according to prosecutors, he was lauding the both his funds and the subprime market during a conference call with investors. he commented, that in fact he was, “very comfortable with exactly where we are,” and of regarding the subprime problems, “there’s no basis for thinking this is one big disaster.”
It was an extremely poor choice of words Tannin chose to lament to his friend, but in the end, this is just one friend complaining to another about his dead end job. Imagine their surprise when only a few days later, incompetent regulators befriended by over-zealous prosecutors scouting high and low for scapegoats to sacrifice to the angry, poor huddled masses, gathered a grand jury and turned Tannin's e-mail gripe session with a former colleague, into a massive scenario of fraud.
That's how easily it happens. On Monday, you're a frustrated fund manager complaining about business (perhaps to vehemently) to a colleague. On Tuesday, you do your best to adjust your attitude realizing as always, your fiduciary responsibilities come first. On Wednesday on a conference call you do your best to keep investors calm during an unforeseen and as of yet undefined crisis. Thursday, you are doing your best to gather information on the crisis and on Friday, you've been indicted for committing fraud while becoming the worlds poster-child for the collapse of Bear Stearns.
Perhaps it is time we took a step back and remember before this is all behind us and it's too late, the rating agencies are all clearly at fault. They all failed miserably at their jobs. In fact, failing miserably at their jobs may not be a strong enough term as implies that they did their jobs at all. S&P, Moody's and their cohorts are directly responsible for this crisis. Investors and managers both utilize the ratings agencies in order to gauge the value of their investments. The agencies ratings were wrong which led to investor confusion and over-valuation, which led to the ratings cuts that were deemed too little, too late. the rating agencies couldnt have blundered more if they had tried. This is a fact and is undisputed, yet there have been no arrests, no indictments and it is business as usual for the agencies.
Cioffi and Tannin, like most of those investigated in the aftermath of the credit crisis, are simply scapegoats. Low dangling fruit. Easy to pick and easy to point to. Instead of scapegoats, we should be investigating and then initiating a complete overhaul of the ratings industry. Ratings agencies need to be far more highly scrutinized and in all likely hood far more regulated. We need to weed out those responsible for the financial collapse and replace them with new analysts and new agencies. We must rebuild the portion of the system that failed. Nobody is more responsible and nobody failed more than the rating agencies.
Friday, September 25, 2009
Vicis Suspends Withdrawals
PIPE investor Vicis Capital suspended redemptions after investors requested $550 million in withdrawals for its Sept. 30 redemption period, Bloomberg News reported. Vicis has invested $177.5 million in 74 PIPEs since 2004, according to DealFlow Media. Investors stepped up redemption requests after learning that the Vicis Capital Fund, which has assets of about $2.5 billion, was down 12% for the year through August. Investors are showing an extremely low threshold for losses and volatility which has directly led to billions in redemptions and a host of funds suspending withdrawals.
According to a letter sent to clients, the firm received “higher-than-anticipated” requests for a Sept. 30th distribution from its
Vicis Capital Fund. In a PIPE strategy, exiting investments typically takes a longer time than a long-short equity fund, so when a large percentage of investment capital is redeemed at once, it could have cataclysmic results on the remaining investors. It is akin to a run on the bank, only there is no SIPC or Federal government to bail you out. The New York-based hedge fund will resume withdrawals if clients approve a plan to separate hard-to-sell assets into another pool, the letter said. The managers believe the separate pool is necessary as it is one of the only ways to retain value while eliminating toxic assets.
The firm said it plans to start a fund that mirrors the strategy of the Vicis Capital Fund. According to the letter investors can withdraw their money on an annual basis after giving 90 days notice so that the firm can seek to profit from longer-term investments. This is a strategy often employed by many funds these days. While this is one possible solution- there are many investors who will disagree with such a strategy. It may lead to investor law suits in which investor funds are used to fight investors who disagree with each other on how exactly each separate class of fund member should be treated.
According to people familiar with the firms - hedge funds including New York-based Fortress Investment Group LLC and Harbinger Capital Partners, last year, limited investor withdrawals to avoid raising cash by selling off holdings at distressed prices. Many managers are still faced with these tough decisions. The investors that wish to redeem- expect cash proceeds,
while the investors who wish to continue, expect cash to be used for further investment. The irony is, separate classes of investors in the same fund now have distinctly different goals and are at odds with the manager over how to appropriately deploy cash proceeds. Deploying depleting assets, while battling investors on both sides of the table has led to a tremendous increase in unfounded investor law suits. Defending suits further frustrates an already volatile situation, not to mention the six-seven figure price-tag, per suit which is paid for by the management fees, or in other words, by the investors.
The time has come to awaken and remember that there is risk involved in the stock market. The goal is to mitigate such risk while achieving upside potential. In fact, that is precisely what all hedge funds attempt to do. From the early nineties through 2007 many hedge funds succeeded because they mitigated the risk and therefore showed a strong return which led the average investor into the sector. It allowed the industry to proliferate. Unfortunately, we all forgot about the risk. Vicis Capital Fund is just one cautionary tale about a PIPE fund, its investors, its manager and the way of the world. Everyone made so much for so long, that risk and due diligence became an afterthought. The PIPE market has always had many risks which have been brilliantly navigated by most successful managers. The unforeseen risk in this case was the investors demanding their money back from everyone, everywhere all at once. It had never happened before in our lifetime, so no one was prepared for it, but it was an irrational reaction based on fear which has led investors down a prim rose path of selfishness and righteousness which is lined with man, many thorns.
According to a letter sent to clients, the firm received “higher-than-anticipated” requests for a Sept. 30th distribution from its
Vicis Capital Fund. In a PIPE strategy, exiting investments typically takes a longer time than a long-short equity fund, so when a large percentage of investment capital is redeemed at once, it could have cataclysmic results on the remaining investors. It is akin to a run on the bank, only there is no SIPC or Federal government to bail you out. The New York-based hedge fund will resume withdrawals if clients approve a plan to separate hard-to-sell assets into another pool, the letter said. The managers believe the separate pool is necessary as it is one of the only ways to retain value while eliminating toxic assets.
The firm said it plans to start a fund that mirrors the strategy of the Vicis Capital Fund. According to the letter investors can withdraw their money on an annual basis after giving 90 days notice so that the firm can seek to profit from longer-term investments. This is a strategy often employed by many funds these days. While this is one possible solution- there are many investors who will disagree with such a strategy. It may lead to investor law suits in which investor funds are used to fight investors who disagree with each other on how exactly each separate class of fund member should be treated.
According to people familiar with the firms - hedge funds including New York-based Fortress Investment Group LLC and Harbinger Capital Partners, last year, limited investor withdrawals to avoid raising cash by selling off holdings at distressed prices. Many managers are still faced with these tough decisions. The investors that wish to redeem- expect cash proceeds,
while the investors who wish to continue, expect cash to be used for further investment. The irony is, separate classes of investors in the same fund now have distinctly different goals and are at odds with the manager over how to appropriately deploy cash proceeds. Deploying depleting assets, while battling investors on both sides of the table has led to a tremendous increase in unfounded investor law suits. Defending suits further frustrates an already volatile situation, not to mention the six-seven figure price-tag, per suit which is paid for by the management fees, or in other words, by the investors.
The time has come to awaken and remember that there is risk involved in the stock market. The goal is to mitigate such risk while achieving upside potential. In fact, that is precisely what all hedge funds attempt to do. From the early nineties through 2007 many hedge funds succeeded because they mitigated the risk and therefore showed a strong return which led the average investor into the sector. It allowed the industry to proliferate. Unfortunately, we all forgot about the risk. Vicis Capital Fund is just one cautionary tale about a PIPE fund, its investors, its manager and the way of the world. Everyone made so much for so long, that risk and due diligence became an afterthought. The PIPE market has always had many risks which have been brilliantly navigated by most successful managers. The unforeseen risk in this case was the investors demanding their money back from everyone, everywhere all at once. It had never happened before in our lifetime, so no one was prepared for it, but it was an irrational reaction based on fear which has led investors down a prim rose path of selfishness and righteousness which is lined with man, many thorns.
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