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
Tuesday, October 27, 2009
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.
Wednesday, August 5, 2009
Lancelot and the King
It has the makings of a TV movie. Hell, maybe a real movie. Its all in there. I can see it plain as day. Maybe a miniseries. Yeah, that’s it. A miniseries. It’s almost an unbelievable story, which is why it interested me. I did not follow the rest of the media pack and report on the story as they were. Because there had to be more to it right? A story behind the story. Which is the key to real journalism. Do not believe everything you hear or read…..
Unfortunately the media today is full of sensationalism. It used to be you would have to go to the news stand and look at US Magazine sitting there next to People or another like gossipy rag. One says Brad and Angelina are in love, the other claims a separation is imminent. Who is right? Who is wrong? Who knows and more importantly who cares? Well in the world of diminishing returns in newspaper and magazine reporting editors care and make reporters care even more. So a reporter will go for a story. Yes even a reporter from Forbes or the Wall Street Journal. It sounds sensational. It will produce followup articles, get picked up by other media and create, a feeding frenzy. Kind of like when you feed fish who haven’t been fed in a month. Or when you watch a special on the feeding of sharks. Yes I said it.. Sharks. We trample through a story never really looking or checking. There is no real journalism today there are just young people with laptops and cell phones oh, and of course blackberrys. They scower the world searching for the next big story. They will talk to anyone who will talk to them. I mean anyone. They do not really understand investigative journalism or what it takes to get a story right. All they know is there is a deadline, a story and they are going to wow the editor with it.
I have watched as reporters have said Donald Trump the King of the deal is defunct or is in trouble here or there.. As with anyone in business no one gets each thing they do right, but let’s not forget, he is Donald Trump is he not. You can say a lot about him, but he is after all, The Donald. The same goes for the Sage of Omaha, Warren Buffet. I giggled profusely when reporters were calling his demise in the market as even the most respected investor of our time had issues. Then there is the recent skewering of who some people have called The King of PIPEs, Corey Ribotsky. Who as interesting as a news story as it has become, really isn’t too interesting at all. Who really cares about a guy managing a larger Pipe fund. There are lots of those.
I watched in amazement as one simple torrid story begat another as if this guy was really larger than life. Who the hell is this guy? What had he done? Why was this happening? Was there truth to it all? Or was this another attempt by us, the reporter with a deadline to get a story done? As the story unfolded it almost sounded illogical or “made up”. So I decided to go to the heart of the matter. Look through the malaise and see for myself. I spoke to people familiar with the PIPE or Reg D investment space. I spoke to colleagues of the once great King. Here’s what I found……..
Let’s start by saying no one understands this investment space. That’s first and foremost on the list. The media loves to compare the King’s returns to other hedge fund returns. That’s like comparing thirty year old scotch to beer. Both are alcohol, but can you really compare the two? PIPE like funds come in all different shapes and sizes these days. Back when the King started it was a much smaller industry and he was one of a hand of funds that actually did these kind of financings. As the markets changed more and more came to the party until there were larger and more well known fund managers doing these kind of deals. (Some really, really large funds did it too although they may not want to openly discuss it. Household names, that you know. GLG. Highbridge. Fortress. Citadel to name a few) But in this space, the small or micro cap ok lets call it nanocap world, there are a few players. They will all tell you they are different they are bigger and they are better. Except one. The King. From all of our research and talking with people in the industry, the King is the only one who stayed true to his original strategy and never made excuses for what he was investing in. A colleague who declined to be named said “yeah all of the funds, especially Laurus and Yorkville always renamed themselves or reinvented themselves. Ribotsky was always true to the investment style and always said we are microcap pipe investors. That’s what we do”. We further went and looked at the returns of the King’s colleagues and competitors. Well, now that you lay it all out in front of you, a pattern emerges. All PIPE, ABL or Reg D like funds have something in common, a similar return profile. Why? Well gee let me see, they all invest in similar things whether they admit it or not. They all utilize similar valuation methodology that is accepted under GAAP accounting standards. They are all audited by a hand full of nationally recognized auditors. Some, like the King, use independent valuation while others do not. But from my research not one has had been skewered in the press for anything they have done like the King. Not one of their returns has ever been questioned? Why? All have gated. All have restructured as the King did in some form or fashion. So what is so special about that? I kept wondering and wondering. Do you know how many hedge funds put the gate down? Too many to mention and that this is certainly nothing new or unusual. Some of the largest to some of the smallest. In the PIPE space most haven’t even begun to give back cash, although we have confirmed that the King has. Maybe not as much as investors would want, but hey cash is cash right? The others have given back Payment in Kind (PIK) which is giving you a piece of the portfolio as I best understand it. (not sure investors really wanted that, but hey that’s what they signed up for) Some funds gave back individual positions others put investors into what is called an SPV. That’s a Special Purpose Vehicle for all of those who do not understand hedge fund talk. The fund tells you that it cannot redeem you in cash, and let’s face it with so many redemptions it is really a run on the bank for most of these funds. They invested using the investment style they proposed, none of which ever took into account these kind of market conditions. Look what happened to Bear Stearns when it was overwhelmed with client withdrawals a shorted stock and a lack of confidence. Look at Wamu. Over one weekend almost all of its depositors made a withdrawal. That’s the death knell. Bye, Bye. Game over. So what is so interesting about the King? His fund’s restructuring is no different than anyone else’s and he actually gave you cash back. That was the most interesting part to me. So I decided to try and understand it. I looked at some large Pipe, ABL or Reg D funds other than the King.
Laurus Funds was the topic of news in October 2008 as it closed its flagship fund under pressure from large investor Russell and decided to liquidate. There was some litigation involving the two in a Cayman court, although Laurus has done a fine job of suppressing that news. I haven’t seen it, have you? It then pulled investors and pieces of the Laurus portfolio off to a new fund that it had started sometime earlier. Valens. Instantaneously Valens had a nice size AUM and then went out and raised more money. I wonder if the people there explained that their AUM was really portfolio pieces of the original Laurus fund? I guess we will have to wait and see. Valens eventually gated too and the firm is now looking at launching a new fund. What is interesting in their SPV or redeeming classes is a certain deal called PetroAlge. Look at the deal and it has a structure even people in the PIPE industry I asked about it couldn’t understand. Seems like an awful lot of money to have in one deal. While I do not know the exact figures but some close to it said some $30,000,000 to $50,000,000 of actual investment was made. Wow that seemed large in a company that doesn’t really trade and seems to have had a stock price hit a high of $34.00 right before the end of a month and then drop back down. Interesting to say the least for the once $1,700,000,000 shop.
Yorkville has always been another firm in the space. Doing similar deals and seems to have done a much better job of remaining out of the news fray. They do Equity Lines of Credit. Which for those of you who do not know hedge fund speak is a transaction where the company registers stock and the fund then buys it, but has the chance to sell it before it buys it. Perfectly legal as I understand it, but hey sounds kind of maybe a little on the edge. Yorkville that was once Cornell (they changed the name several years ago and no one knows why) has been sued by a former employee. This litigation was reported on by the popular hedge fund media and then that media took it down. I wonder why? No one seems to want to discuss it which leads me to believe that certain media felt threatened by Yorkville or its counsel. The litigation is very interesting reading and describes exactly how their legions of “deal people” make tons of money that does not go to their shareholders in their fund. A look into this a little further suggests that Yorkville not only charges a management fee and an incentive fee like most hedge funds, but it takes deal fees on its transactions. The deal fees are used to compensate everyone including management. So if we have that straight, and from people I spoke to we do, they receive compensation on the deal side, a management fee to run the money and a piece of the profits. Well sign me up that seems like a great gig! How come no one has reported this I wonder. This seems a lot different than Laurus or the King. I am not sure why no one discusses this or Yorkville’s investors do not seem to have a problem with a Pipe manager getting extra compensation in order to provide a similar return as the King does. Wonder if the regulators have ever looked at that? Seems like a conflict of interest and double dipping to me. On a reported almost $1 billion in assets Yorkville that’s a lot of fees. Yorkville also restructured and put everyone into SPVs instead of giving back cash. People close to the situation say this was so the fund can preserve cash and pay its fees to the manager. Sounds like another conflict to me. Oh and by the way, this fund was up in 2008 and apparently was on Barron’s List of the top funds with the King.
Then there is Vision Capital. A fund that has been reported in the press nicely but seems to have a valuation methodology that not even the best Pipe manager can understand. They have a Harvard schooled mathematician or MBA guy over there and after listening profusely to the explanation most have been so confused that it must sound right. One thing was certain, there was no independent valuation of the portfolio. They claim to have had pieces independently valued if they were hand picked by management. Well that doesn’t seem like independence to me, yet Vision runs some $600,000,000 in assets.
In the direct ABL space there is Stillwater Capital. Stillwater lends on real estate, lawsuits, special situations lending. Stillwater has reported a return in 2008 giving it a space on the Barron’s List as well. But yet, Stillwater which at its height managed $900,000,000 dollars of ABL investments still has yet to return a dollar back to investors. In its letter to investors it actually explains the same concepts that the King’s fund explained to investors. All of the same concepts. Yet Stillwater is not in the news. Stillwater is not being questioned or called a sham. Why? The returns are quite similar.
I then went and looked at each an every accusation made against the King. I dissected it like a real reporter is supposed to and analyzed it. It seems really simple. On the face reporters just went with the story which based on what we know now was the work of one upset investor who is suing and a disgruntled former employee. This is where the real story of the movie would be. The King, almost like Arthur of Camelot fame brings Lancelot to the round table. Calls him brother and makes him part of the kingdom. Lancelot as we know repays Arthur by stealing his bride and ultimately being tied to his demise. Sound familiar?
First we looked at the Tucci claim against the King. Well this site has reported on these people before but we looked at the deal the fund gave to Tucci more closely, Wellstar International, Inc. As with all stocks this one seems to have gotten battered maybe by Pipe financing, but who really knows. What we do know is during the time that the Tucci’s said it didn’t trade and was worthless it traded an average of over $1,000,000 a month and has ever since last November when this occurred. So if you were an investor and received a piece of the deal and only had to get out of $1,500,000 and change, why wouldn’t you? Maybe the Tucci’s were friends of Lancelot and wanted to try to dethrone the King? Maybe Wellstar is really a good company, even though it trades in the nanocap world? Maybe just maybe if Tucci’s son that was an investment banker really knew what these Pipe transactions were all about, he would have realized he made the wrong decision that cost his family money? The numbers do not lie. In six months to a year or so it seems you could have been out of this position with limited ease. With all of your money back. So doesn’t that mean that the value is there? I mean I looked at the actual deal documents that are available for all to see. They do not lie either. So its obvious that there was either incompetence or a desire to dethrone the King.
Second, we looked at the Mizel claim against the King. Which is really just a repacked Tucci claim. Well this is one for the record books. One must look into Steven Mizel and his past or present to understand this better. Sources close to it say Mizel is currently suing 100 investment managers. A person we spoke to said “Steve Mizel seemed to invest with us to sue. That is his business it seems”. Do a little research ladies and gentlemen and one can see it checks out. Mr. Mizel tries to make claims against the King that are just what they are “claims”. If any reporter worth their weight reads the actual pleadings, they will see that there is no evidence of any thing. None. Not a single statement or piece of evidence that shows the King did something other than what countless other funds around the world did, gate and restructure. So? There is certainly nothing wrong with it as each and every investor gives a fund manager the right to suspend redemptions. Did you not read that correctly Mr. Mizel? Certainly a man with the means to invest in 100 investment partnerships is a sophisticated investor capable of understanding the nuances and intracacies of hedge fund management or its terms and conditions. How can valuation be fanciful if it has been the same since the fund began? Independently audited by a nationally recognized firm? Independently valued by two separate nationally recognized firms? Sounds like something Lancelot would say to try to create fear in the hearts and the minds of the citizens of Camelot.
It is quite frankly absurd that any reporter, magazine or newspaper gave this airtime. How many companies are sued every day and are actually sued for things that were done? What was done here? A fund that went to protect all its members gated and restructured? Did Mr. Mizel try to get these stories written? To taint the world towards his story as we understand he is losing ground on many suits at the same time and will most likely lose this one legal pundits say? Was this done in conjunction with Lancelot? There is some interesting reading out there about Lancelot too. If the things mentioned there are true, then the plot thickens and our miniseries or movie gets better. When you left the kingdom and do not want to take responsibility for your own decisions or life you blame others. So some sue. Get articles published. Others like Lancelot try to dethrone the King in hopes of becoming the ruler of the kingdom.
All that has really happened is a good man’s name has been smeared and tarnished. Calling this guy Madoff on steroids is really offensive if you ask me as there is nothing remotely like Madoff here. If I were this guy I would be steaming mad. Madoff didn’t trade a thing for anyone. Stole people’s money completely. You may not like what this guy does or that he is successful at it. But Madoff this guy isn’t. Hell people are talking all over about this deal and that deal. Don’t you all realize that this means the funds were really invested ???? So sorry all, no Ponzi scheme.
Unfounded accusations are all we see. All of these funds are similar and all have had similar issues, why is this one so special. I guess it is really Lancelot in the long run. Too scorn about not getting Guenevere or the kingdom for himself. But the damage has been done and may continue to be done to all the other investors who are indirectly damaged by Lancelot’s sick trick.
This reporter is convinced that the King will make it through and be able assist the citizens of Camelot if they let him do what he does best. Because like Mr. Mizel’s litigation, these allegations are fanciful and sell papers. But there is not one piece of substance to them.
Unfortunately the media today is full of sensationalism. It used to be you would have to go to the news stand and look at US Magazine sitting there next to People or another like gossipy rag. One says Brad and Angelina are in love, the other claims a separation is imminent. Who is right? Who is wrong? Who knows and more importantly who cares? Well in the world of diminishing returns in newspaper and magazine reporting editors care and make reporters care even more. So a reporter will go for a story. Yes even a reporter from Forbes or the Wall Street Journal. It sounds sensational. It will produce followup articles, get picked up by other media and create, a feeding frenzy. Kind of like when you feed fish who haven’t been fed in a month. Or when you watch a special on the feeding of sharks. Yes I said it.. Sharks. We trample through a story never really looking or checking. There is no real journalism today there are just young people with laptops and cell phones oh, and of course blackberrys. They scower the world searching for the next big story. They will talk to anyone who will talk to them. I mean anyone. They do not really understand investigative journalism or what it takes to get a story right. All they know is there is a deadline, a story and they are going to wow the editor with it.
I have watched as reporters have said Donald Trump the King of the deal is defunct or is in trouble here or there.. As with anyone in business no one gets each thing they do right, but let’s not forget, he is Donald Trump is he not. You can say a lot about him, but he is after all, The Donald. The same goes for the Sage of Omaha, Warren Buffet. I giggled profusely when reporters were calling his demise in the market as even the most respected investor of our time had issues. Then there is the recent skewering of who some people have called The King of PIPEs, Corey Ribotsky. Who as interesting as a news story as it has become, really isn’t too interesting at all. Who really cares about a guy managing a larger Pipe fund. There are lots of those.
I watched in amazement as one simple torrid story begat another as if this guy was really larger than life. Who the hell is this guy? What had he done? Why was this happening? Was there truth to it all? Or was this another attempt by us, the reporter with a deadline to get a story done? As the story unfolded it almost sounded illogical or “made up”. So I decided to go to the heart of the matter. Look through the malaise and see for myself. I spoke to people familiar with the PIPE or Reg D investment space. I spoke to colleagues of the once great King. Here’s what I found……..
Let’s start by saying no one understands this investment space. That’s first and foremost on the list. The media loves to compare the King’s returns to other hedge fund returns. That’s like comparing thirty year old scotch to beer. Both are alcohol, but can you really compare the two? PIPE like funds come in all different shapes and sizes these days. Back when the King started it was a much smaller industry and he was one of a hand of funds that actually did these kind of financings. As the markets changed more and more came to the party until there were larger and more well known fund managers doing these kind of deals. (Some really, really large funds did it too although they may not want to openly discuss it. Household names, that you know. GLG. Highbridge. Fortress. Citadel to name a few) But in this space, the small or micro cap ok lets call it nanocap world, there are a few players. They will all tell you they are different they are bigger and they are better. Except one. The King. From all of our research and talking with people in the industry, the King is the only one who stayed true to his original strategy and never made excuses for what he was investing in. A colleague who declined to be named said “yeah all of the funds, especially Laurus and Yorkville always renamed themselves or reinvented themselves. Ribotsky was always true to the investment style and always said we are microcap pipe investors. That’s what we do”. We further went and looked at the returns of the King’s colleagues and competitors. Well, now that you lay it all out in front of you, a pattern emerges. All PIPE, ABL or Reg D like funds have something in common, a similar return profile. Why? Well gee let me see, they all invest in similar things whether they admit it or not. They all utilize similar valuation methodology that is accepted under GAAP accounting standards. They are all audited by a hand full of nationally recognized auditors. Some, like the King, use independent valuation while others do not. But from my research not one has had been skewered in the press for anything they have done like the King. Not one of their returns has ever been questioned? Why? All have gated. All have restructured as the King did in some form or fashion. So what is so special about that? I kept wondering and wondering. Do you know how many hedge funds put the gate down? Too many to mention and that this is certainly nothing new or unusual. Some of the largest to some of the smallest. In the PIPE space most haven’t even begun to give back cash, although we have confirmed that the King has. Maybe not as much as investors would want, but hey cash is cash right? The others have given back Payment in Kind (PIK) which is giving you a piece of the portfolio as I best understand it. (not sure investors really wanted that, but hey that’s what they signed up for) Some funds gave back individual positions others put investors into what is called an SPV. That’s a Special Purpose Vehicle for all of those who do not understand hedge fund talk. The fund tells you that it cannot redeem you in cash, and let’s face it with so many redemptions it is really a run on the bank for most of these funds. They invested using the investment style they proposed, none of which ever took into account these kind of market conditions. Look what happened to Bear Stearns when it was overwhelmed with client withdrawals a shorted stock and a lack of confidence. Look at Wamu. Over one weekend almost all of its depositors made a withdrawal. That’s the death knell. Bye, Bye. Game over. So what is so interesting about the King? His fund’s restructuring is no different than anyone else’s and he actually gave you cash back. That was the most interesting part to me. So I decided to try and understand it. I looked at some large Pipe, ABL or Reg D funds other than the King.
Laurus Funds was the topic of news in October 2008 as it closed its flagship fund under pressure from large investor Russell and decided to liquidate. There was some litigation involving the two in a Cayman court, although Laurus has done a fine job of suppressing that news. I haven’t seen it, have you? It then pulled investors and pieces of the Laurus portfolio off to a new fund that it had started sometime earlier. Valens. Instantaneously Valens had a nice size AUM and then went out and raised more money. I wonder if the people there explained that their AUM was really portfolio pieces of the original Laurus fund? I guess we will have to wait and see. Valens eventually gated too and the firm is now looking at launching a new fund. What is interesting in their SPV or redeeming classes is a certain deal called PetroAlge. Look at the deal and it has a structure even people in the PIPE industry I asked about it couldn’t understand. Seems like an awful lot of money to have in one deal. While I do not know the exact figures but some close to it said some $30,000,000 to $50,000,000 of actual investment was made. Wow that seemed large in a company that doesn’t really trade and seems to have had a stock price hit a high of $34.00 right before the end of a month and then drop back down. Interesting to say the least for the once $1,700,000,000 shop.
Yorkville has always been another firm in the space. Doing similar deals and seems to have done a much better job of remaining out of the news fray. They do Equity Lines of Credit. Which for those of you who do not know hedge fund speak is a transaction where the company registers stock and the fund then buys it, but has the chance to sell it before it buys it. Perfectly legal as I understand it, but hey sounds kind of maybe a little on the edge. Yorkville that was once Cornell (they changed the name several years ago and no one knows why) has been sued by a former employee. This litigation was reported on by the popular hedge fund media and then that media took it down. I wonder why? No one seems to want to discuss it which leads me to believe that certain media felt threatened by Yorkville or its counsel. The litigation is very interesting reading and describes exactly how their legions of “deal people” make tons of money that does not go to their shareholders in their fund. A look into this a little further suggests that Yorkville not only charges a management fee and an incentive fee like most hedge funds, but it takes deal fees on its transactions. The deal fees are used to compensate everyone including management. So if we have that straight, and from people I spoke to we do, they receive compensation on the deal side, a management fee to run the money and a piece of the profits. Well sign me up that seems like a great gig! How come no one has reported this I wonder. This seems a lot different than Laurus or the King. I am not sure why no one discusses this or Yorkville’s investors do not seem to have a problem with a Pipe manager getting extra compensation in order to provide a similar return as the King does. Wonder if the regulators have ever looked at that? Seems like a conflict of interest and double dipping to me. On a reported almost $1 billion in assets Yorkville that’s a lot of fees. Yorkville also restructured and put everyone into SPVs instead of giving back cash. People close to the situation say this was so the fund can preserve cash and pay its fees to the manager. Sounds like another conflict to me. Oh and by the way, this fund was up in 2008 and apparently was on Barron’s List of the top funds with the King.
Then there is Vision Capital. A fund that has been reported in the press nicely but seems to have a valuation methodology that not even the best Pipe manager can understand. They have a Harvard schooled mathematician or MBA guy over there and after listening profusely to the explanation most have been so confused that it must sound right. One thing was certain, there was no independent valuation of the portfolio. They claim to have had pieces independently valued if they were hand picked by management. Well that doesn’t seem like independence to me, yet Vision runs some $600,000,000 in assets.
In the direct ABL space there is Stillwater Capital. Stillwater lends on real estate, lawsuits, special situations lending. Stillwater has reported a return in 2008 giving it a space on the Barron’s List as well. But yet, Stillwater which at its height managed $900,000,000 dollars of ABL investments still has yet to return a dollar back to investors. In its letter to investors it actually explains the same concepts that the King’s fund explained to investors. All of the same concepts. Yet Stillwater is not in the news. Stillwater is not being questioned or called a sham. Why? The returns are quite similar.
I then went and looked at each an every accusation made against the King. I dissected it like a real reporter is supposed to and analyzed it. It seems really simple. On the face reporters just went with the story which based on what we know now was the work of one upset investor who is suing and a disgruntled former employee. This is where the real story of the movie would be. The King, almost like Arthur of Camelot fame brings Lancelot to the round table. Calls him brother and makes him part of the kingdom. Lancelot as we know repays Arthur by stealing his bride and ultimately being tied to his demise. Sound familiar?
First we looked at the Tucci claim against the King. Well this site has reported on these people before but we looked at the deal the fund gave to Tucci more closely, Wellstar International, Inc. As with all stocks this one seems to have gotten battered maybe by Pipe financing, but who really knows. What we do know is during the time that the Tucci’s said it didn’t trade and was worthless it traded an average of over $1,000,000 a month and has ever since last November when this occurred. So if you were an investor and received a piece of the deal and only had to get out of $1,500,000 and change, why wouldn’t you? Maybe the Tucci’s were friends of Lancelot and wanted to try to dethrone the King? Maybe Wellstar is really a good company, even though it trades in the nanocap world? Maybe just maybe if Tucci’s son that was an investment banker really knew what these Pipe transactions were all about, he would have realized he made the wrong decision that cost his family money? The numbers do not lie. In six months to a year or so it seems you could have been out of this position with limited ease. With all of your money back. So doesn’t that mean that the value is there? I mean I looked at the actual deal documents that are available for all to see. They do not lie either. So its obvious that there was either incompetence or a desire to dethrone the King.
Second, we looked at the Mizel claim against the King. Which is really just a repacked Tucci claim. Well this is one for the record books. One must look into Steven Mizel and his past or present to understand this better. Sources close to it say Mizel is currently suing 100 investment managers. A person we spoke to said “Steve Mizel seemed to invest with us to sue. That is his business it seems”. Do a little research ladies and gentlemen and one can see it checks out. Mr. Mizel tries to make claims against the King that are just what they are “claims”. If any reporter worth their weight reads the actual pleadings, they will see that there is no evidence of any thing. None. Not a single statement or piece of evidence that shows the King did something other than what countless other funds around the world did, gate and restructure. So? There is certainly nothing wrong with it as each and every investor gives a fund manager the right to suspend redemptions. Did you not read that correctly Mr. Mizel? Certainly a man with the means to invest in 100 investment partnerships is a sophisticated investor capable of understanding the nuances and intracacies of hedge fund management or its terms and conditions. How can valuation be fanciful if it has been the same since the fund began? Independently audited by a nationally recognized firm? Independently valued by two separate nationally recognized firms? Sounds like something Lancelot would say to try to create fear in the hearts and the minds of the citizens of Camelot.
It is quite frankly absurd that any reporter, magazine or newspaper gave this airtime. How many companies are sued every day and are actually sued for things that were done? What was done here? A fund that went to protect all its members gated and restructured? Did Mr. Mizel try to get these stories written? To taint the world towards his story as we understand he is losing ground on many suits at the same time and will most likely lose this one legal pundits say? Was this done in conjunction with Lancelot? There is some interesting reading out there about Lancelot too. If the things mentioned there are true, then the plot thickens and our miniseries or movie gets better. When you left the kingdom and do not want to take responsibility for your own decisions or life you blame others. So some sue. Get articles published. Others like Lancelot try to dethrone the King in hopes of becoming the ruler of the kingdom.
All that has really happened is a good man’s name has been smeared and tarnished. Calling this guy Madoff on steroids is really offensive if you ask me as there is nothing remotely like Madoff here. If I were this guy I would be steaming mad. Madoff didn’t trade a thing for anyone. Stole people’s money completely. You may not like what this guy does or that he is successful at it. But Madoff this guy isn’t. Hell people are talking all over about this deal and that deal. Don’t you all realize that this means the funds were really invested ???? So sorry all, no Ponzi scheme.
Unfounded accusations are all we see. All of these funds are similar and all have had similar issues, why is this one so special. I guess it is really Lancelot in the long run. Too scorn about not getting Guenevere or the kingdom for himself. But the damage has been done and may continue to be done to all the other investors who are indirectly damaged by Lancelot’s sick trick.
This reporter is convinced that the King will make it through and be able assist the citizens of Camelot if they let him do what he does best. Because like Mr. Mizel’s litigation, these allegations are fanciful and sell papers. But there is not one piece of substance to them.
Monday, July 20, 2009
FORMER TYCO EXECUTIVES L. DENNIS KOZLOWSKI AND MARK H. SWARTZ SETTLE SEC FRAUD ACTION
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21129 / July 14, 2009
On July 14, 2009, the Securities and Exchange Commission (the Commission) filed settled Final Judgments against L. Dennis Kozlowski, the former Chairman and Chief Executive Officer of Tyco International Ltd. (Tyco), and Mark H. Swartz, the former Chief Financial Officer of Tyco, in the Commission's action arising from their violations of the federal securities laws while officers of that company. The Final Judgments permanently enjoin Kozlowski and Swartz from violating, or aiding and abetting violations of, the antifraud, proxy statement, periodic reporting, books and records, and lying to auditors provisions of the federal securities laws and permanently bar each of them from serving as an officer or director of a public company.
The Commission's complaint alleges that, from 1996 until June 2002, Kozlowski and Swartz failed to disclose hundreds of millions of dollars in executive indebtedness, executive compensation, and related party transactions that they received while at Tyco. As alleged in the complaint, Kozlowski and Swartz granted themselves undisclosed low interest and interest-free loans from the company that they regularly used for personal expenses and other unauthorized purposes. They repeatedly arranged to have many of these loans forgiven by Tyco. They also engaged in undisclosed related party transactions. In violation of the federal securities laws, Kozlowski and Swartz failed to disclose their indebtedness, loan forgiveness, and related party transactions and caused Tyco to fail to disclose those items in its proxy statements and annual reports.
Without admitting or denying the allegations in the Commission's complaint, Kozlowski and Swartz consented to the entry of Final Judgments that will permanently enjoin each of them from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 14a-9. The proposed Final Judgments also bar Kozlowski and Swartz, pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act, from serving as officers or directors of a public company. The proposed Final Judgments are subject to the approval of the United States District Court for the Southern District of New York.
In 2005, a New York State court sentenced Kozlowski and Swartz to prison terms of 8 1/3 to 25 years for their roles in the Tyco fraud. Pursuant to their criminal convictions, Kozlowski and Swartz also paid approximately $134 million in restitution to Tyco and criminal fines of $70 million and $35 million, respectively. On October 16, 2008, the New York Court of Appeals affirmed Kozlowski's and Swartz's convictions. On June 8, 2009, the United States Supreme Court denied a petition by Kozlowski and Swartz for a writ of certiorari.
Litigation Release No. 21129 / July 14, 2009
On July 14, 2009, the Securities and Exchange Commission (the Commission) filed settled Final Judgments against L. Dennis Kozlowski, the former Chairman and Chief Executive Officer of Tyco International Ltd. (Tyco), and Mark H. Swartz, the former Chief Financial Officer of Tyco, in the Commission's action arising from their violations of the federal securities laws while officers of that company. The Final Judgments permanently enjoin Kozlowski and Swartz from violating, or aiding and abetting violations of, the antifraud, proxy statement, periodic reporting, books and records, and lying to auditors provisions of the federal securities laws and permanently bar each of them from serving as an officer or director of a public company.
The Commission's complaint alleges that, from 1996 until June 2002, Kozlowski and Swartz failed to disclose hundreds of millions of dollars in executive indebtedness, executive compensation, and related party transactions that they received while at Tyco. As alleged in the complaint, Kozlowski and Swartz granted themselves undisclosed low interest and interest-free loans from the company that they regularly used for personal expenses and other unauthorized purposes. They repeatedly arranged to have many of these loans forgiven by Tyco. They also engaged in undisclosed related party transactions. In violation of the federal securities laws, Kozlowski and Swartz failed to disclose their indebtedness, loan forgiveness, and related party transactions and caused Tyco to fail to disclose those items in its proxy statements and annual reports.
Without admitting or denying the allegations in the Commission's complaint, Kozlowski and Swartz consented to the entry of Final Judgments that will permanently enjoin each of them from violating Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 14(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 14a-9. The proposed Final Judgments also bar Kozlowski and Swartz, pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act, from serving as officers or directors of a public company. The proposed Final Judgments are subject to the approval of the United States District Court for the Southern District of New York.
In 2005, a New York State court sentenced Kozlowski and Swartz to prison terms of 8 1/3 to 25 years for their roles in the Tyco fraud. Pursuant to their criminal convictions, Kozlowski and Swartz also paid approximately $134 million in restitution to Tyco and criminal fines of $70 million and $35 million, respectively. On October 16, 2008, the New York Court of Appeals affirmed Kozlowski's and Swartz's convictions. On June 8, 2009, the United States Supreme Court denied a petition by Kozlowski and Swartz for a writ of certiorari.
Tuesday, July 7, 2009
Fund Pays SEC $17.8 Million To Settle Market Timing Scheme
July 7, 2009
The SEC claims Headstart Advisers LTD., which had at least $500 million in funds at its height, would trade mutual funds after the market closed but still receive the current day's net asset value, profiting on post-market events. The trades in question, took place between September 1998-September 2003. The scheme entailed engaging in late trading through Headstart's accounts at two broker-dealers. The commission alleges the fund earned about $198 million through the process.
As for its part in the scheme, Chief Investment Officer Najy Nasser, who was personally fined $600,000 commented, "Headstart is very pleased to have reached a settlement." He added, " We responded to U.S. concerns about market timing and immediately ceased this element of Headstart's business in September 2003." Given the CFO's statement, it is somewhat ironic that Headstart is neither admitting nor denying the allegations.
In total Headstart Advisers Ltd., its chief investment officer and the hedge fund itself will pay $17.8 million. Although Headstart Fund is now defunct, the adviser said the settlement will allow them to concentrate on its business as an investment adviser to offshore hedge funds and expand the core business with the launch of new funds.
The SEC claims Headstart Advisers LTD., which had at least $500 million in funds at its height, would trade mutual funds after the market closed but still receive the current day's net asset value, profiting on post-market events. The trades in question, took place between September 1998-September 2003. The scheme entailed engaging in late trading through Headstart's accounts at two broker-dealers. The commission alleges the fund earned about $198 million through the process.
As for its part in the scheme, Chief Investment Officer Najy Nasser, who was personally fined $600,000 commented, "Headstart is very pleased to have reached a settlement." He added, " We responded to U.S. concerns about market timing and immediately ceased this element of Headstart's business in September 2003." Given the CFO's statement, it is somewhat ironic that Headstart is neither admitting nor denying the allegations.
In total Headstart Advisers Ltd., its chief investment officer and the hedge fund itself will pay $17.8 million. Although Headstart Fund is now defunct, the adviser said the settlement will allow them to concentrate on its business as an investment adviser to offshore hedge funds and expand the core business with the launch of new funds.
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