Investors burned as project flames out Phil the Fire's money man in hiding; ex-partner is ruined'
Cleveland Plain Dealer
Sunday, March 26, 2006
By Alison Grant
The entertainment district around Cleveland's Gund Arena and Jacobs Field looked like a sure bet in 2003 for someone wanting to open a restaurant near star-power athletes. The Cavaliers had just landed the biggest basketball talent in decades, LeBron James, and the Indians were starting to re build with a roster of young and promising baseball players. For Atlanta hedge fund manager Kirk Wright, the neighborhood's proximity to two sports venues was a beacon.
The building that housed Wright's two restaurants in succession -- Phil the Fire Downtown and The Waterhouse -- still looks primed for customers. Tables with crisp white tablecloths, dinner settings and glasses suggest the dining room closed with full intent to open the next day. But it didn't.
The Waterhouse's last day of business was in late February, about the time Wright became a national story. He disappeared from his Atlanta hedge fund office amid claims by the Securities and Exchange Commission that he fraudulently operated International Management Associates LLC and several other funds.
Wright almost totally dissipated the funds' assets -- an estimated $115 million to $185 million, the SEC said in a lawsuit. Seven current and former National Football League players and other investors also sued, claiming Wright fleeced them of tens of millions of dollars.
Besides pro athletes, Wright's business grew by focusing on affluent black doctors and other professionals. Former NFL players Terrell Davis and Steve Atwater, and current Denver Bronco Rod Smith, are among the plaintiffs in one suit against Wright.
Wright is in hiding, and his lawyer, Jacob Frenkel, says he fears for his life because of threats from two former NFL players. Frenkel said he doesn't believe Wright has confided to anyone when he intends to present himself to the court.
The 36-year-old Harvard-educated money manager had emerged on the Cleveland busi ness scene in 2003 as the charismatic financier of Phil the Fire Down town. He teamed up on the Gateway restaurant with Phil Davis, who had popularized a chicken- and-waffles combo - the first Phil the Fire - two years earlier at a location on Shaker Square.
In 2005, Wright opened a second, fancier restaurant at the same location downtown with former New England Patriots safety Willie Clay as an investor. Like its predecessor, The Waterhouse hoped to cater to fans pouring into Gateway and the athletes they came to see.
But Phil the Fire Downtown and The Waterhouse were brief and troubled enterprises. Both closed within months of their launches. And both left a trail of angry business associates in their wake.
Now, Cleveland has approved hiring a special prosecutor to look into allegations by Davis that Kirk Wright forced him out of Phil the Fire Downtown with a false claim that Davis diverted money from it to his failing restaurant on Shaker Square.
The investigation is the latest in a barrage of lawsuits, counterclaims, tax liens, judgments and finger-pointing spawned by the two shuttered eateries...
Labels: Kirk Wright
Labels: Financial Services Authority
The study found that mutual fund firms, which own nearly a quarter of all U.S. publicly traded companies, voted 74 percent of the time to support management on compensation issues -- either by voting in favor of management's proposals or recommendations, or against shareholder proposals calling for executive pay reform.More from the CNN Money article here. Or you can download the full report here and here.
Labels: Gradient Analytics, Patrick Byrne
Bill Looks To Ban Insider Trading For Lawmakers and Their AidesClick on through to read the rest, here.
Posted by Peter Lattman
March 28, 2006, 8:58 am
Two Democratic lawmakers plan to introduce a bill that would prohibit members of Congress from trading stocks based on nonpublic information gathered on Capitol Hill, reports The Wall Street Journal’s Brody Mullins. Current securities law and ethics rules don’t prohibit congressmen or their staff from buying and selling securities based on information learned in the halls of Congress. The proposal would also require that lawmakers and their top aides publicly disclose stock trades within 30 days. Lastly, the bill also would require that firms that specialize in gathering “political intelligence” about the status of legislation on Capitol Hill to register with both houses of Congress.
If you’re asking yourself, “Wait a minute, members of Congress are allowed to commit insider trading?” you’re not alone. We asked the same question. But according to the WSJ story, here’s the current distinction between insider trading on Wall Street and Capitol Hill...
Labels: insider trading
Labels: Kirk Wright, Kroll
Labels: Apple
Labels: Joe Nacchio
I hate to be the one to throw cold water on the latest cool thing, but wikis and blogs — and all the other unwashed, untethered, so-called "new information" sources proliferating across the enterprise — are, all too often, just a lot of bunk masquerading as information...The flaw in Greenbaum's arugment seems to be the perpetuation of and extrapolation from misinformation - the idea that initially unchecked errors ripple outward corrupting an entire system. With the web's capacity of easy reproducibility and link-throughs these sorts of errors can proliferate as rappidly as transposed numbers on a spreadsheet can throw off calculations. The difference then, and this would seem to be in wiki's favor, is that human review and revision of wiki-data is constant and ongoing process. This is what separates wiki's from one-off websites - their facility for rapid peer review. It is a process that also separates wiki-data from that managed, maintained and dispersed by its more traditional counterparts.
...For now, the effect is largely limited to the comic and the pitiful. I must get an e-mail message a day about some ridiculous piece of news, scandal or business opportunity that is either too absurd, too lucrative or just too stupid to be true. What's sad is how big the CC list is on the e-mail that delivers the latest in Internet silliness to my desk.
The many problems with these new information sources didn't trouble the enterprise as long as blogs and wikis lived outside the mainstream of the corporate world. But, with mainstream business use on the rise, it's time someone took aim at the problems of proliferating information that exists outside an expert-driven system of checks and balances...
...The integrity of all information — corporate or private — rests on the ability of users to judge the validity of the source. So heaven help us if no one calls the bloggers and wikites on the carpet when they mislead and misinform; degrading information on the Internet will globalize ignorance to an incredible degree. And the last thing anyone needs these days is more global stupidity. We have enough politicians contributing to that problem already...
...You can light up a hedge fund in a few ways. By giving it a trading idea or a piece of research that helps it to make money. By giving it first refusal on a sale of securities. Or, best of all from the perspective of alpha - the exceptional return that hedge funds seek to achieve - by giving it inside information about something that is likely to move markets.The article continues here.
Trading on the last is, of course, against the rules and the law in most countries. By placing its order before share and bond prices change, a fund illicitly takes money away from other investors, even if it feels like a victimless crime. Traders at hedge funds often put intense pressure on bankers to gain scraps of knowledge, but few who abuse inside information get caught and punished...
Inside information has always been leaked by crooked people to others for a profit. What makes hedge funds any more prone to it than others? Well, most crimes are committed by people who have a strong motive and a good opportunity to defy the risk of being caught. Hedge funds, particularly big ones, meet both of the criteria.
The hedge funds' motive is that they must get ahead of the crowd to survive. They can only command fees of 2 per cent of funds under management plus 20 per cent or more of profits by doing so. But competition is tougher and markets less friendly towards hedge fund investment styles such as short-selling and convertible arbitrage than in the past...
Ex-Refco Brokers Who Allegedly Poached Clients Settle SuitMore here.
Joseph Rebello
Dow Jones Newswires
March 22, 2006
A group of former Refco Inc. (RFXCQ) brokers moved to settle a lawsuit that accused them of defecting to a rival firm and poaching Refco's customers as the company was collapsing last October.
The eight brokers, all based in Chicago, pledged to return confidential documents allegedly taken from Refco's flagship business and to restrict the solicitation of former Refco customers, according to a proposed settlement filed with the U.S. Bankruptcy Court in Manhattan.
The lawsuit against the brokers was filed by the court-appointed administrator of Refco's former flagship unit, Refco LLC. It contended the brokers decamped with secret Refco customer lists just days after the company was engulfed by an accounting scandal.
Some of the brokers, the lawsuit said, then began calling Refco customers and urging them to transfer their business to the rival firm, Brewer Futures Group LLC. The pitch consisted of dire warnings about Refco's future, such as "Refco is going under," and "The level of service at Refco will decline. Service will be better at Brewer"...
Labels: Refco
State seeks to be lead plaintiff in class-action pension lawsuitMore here.
March 21, 2006
AP Newswire
Massachusetts would become the lead plaintiff in a class-action lawsuit seeking to regain $5 million in lost state pension funds, under a motion filed Tuesday by Attorney General Tom Reilly and Treasurer Timothy Cahill.
A securities class-action case, filed Jan. 20 in federal court in Virginia, accuses the Mills Corp. of defrauding investors by issuing false statements about its financial condition and the status of pre-development projects from Aug. 14, 2003, to Jan. 1, 2006, in violation of the Securities and Exchange Act...
School Districts Hire Investigators To Track Students' ResidencyThe original article appears here, at NewsNet5.com.
March 20, 2006
AP Newswire
School districts say they are paying more attention to making sure students live where they claim -- sometimes even hiring private investigators to verify names and addresses.
Illegal enrollment is a problem for district officials, who say students who attend their schools without living in the district cost them money. Officials say the number of students attending their schools illegally is growing.
Peter Riddle is a private investigator who tracked residency at Reynoldsburg schools in suburban Columbus for seven years. He says parents who cheat are trying to avoid schools with low test scores, unsafe environments or even pay-to-participate extracurricular programs.
Browder Barred as a Security Threat
By Catherine Belton
Staff Writer
The Moscow Times
William Browder, the outspoken CEO of Hermitage Capital Management, Russia's biggest foreign portfolio investor, has been denied entry to Russia under a rule that bars foreigners considered to pose a threat to national security, according to a Foreign Ministry letter obtained by The Moscow Times.
Browder has crusaded against corporate governance abuses, most notably at Gazprom and Surgutneftegaz, and the news that he has been barred since November is stirring up worries in the foreign business community that the state is extending its efforts to silence critics to foreign investors...
Labels: Hermitage Capital, Russia
U.S. private eyes are snooping in ChinaMore here.
By Parija Bhatnagar, CNNMoney.com staff writer
March 16, 2006: 4:51 PM EST
Not all U.S. companies are bemoaning the potential for fraud that comes with doing business in China. Corruption is a good thing for the growing number of private eye firms setting up shop in the Far East. New York-based private investigations firm Fortress Global has been in China for less than two years but the region already accounts for up to 30 percent of the company's international business. Besides China, Fortress Global also has offices in South Africa, London and Canada.
"Many U.S. companies are looking to do business in the Far East, predominantly in China, and they're retaining our services to make sure that they won't lose money down the road," said Donald Leo, vice president of Fortress Global's operations in Asia. Leo said the nature of the firm's investigative work in China typically pertains to intellectual property and copyright violations, as well as vetting local business partners for joint venture proposals.
A typical background check involves investigating for any record of criminal activity either in China or in the United States, said Leo. "We also see that there are no U.S. sanctions imposed against the local company, or even if the company was cited by the Federal Trade Commission for shipping violations in the past," Leo said...
Labels: background checks, China
Spitzer Versus the PoorFor more vitriol, click here. For more on the story in more sedate language, click here.
New York Sun Editorial
March 17, 2006
"So the Lord High Executioner of Wall Street, Eliot Spitzer, now wants to make it "fraud" to help a poor person save for retirement. That's the message of the complaint filed this week in New York State court in Manhattan in The People of the State of New York against H&R Block. Those who have been following Mr. Spitzer for years now thought they'd pretty much seen it all, but for an example of leftist ideology run amok, this lawsuit sets a new standard of cynicism, denying those of modest means a first step into the system of capitalism and savings that is enjoyed with impunity by wealthy leftists such as Mr. Spitzer himself."
Labels: Eliot Spitzer
Labels: Enron
Fund manager says Delphi misrepresented its financial positionMore here.
March 16, 2006
Associated Press
Hedge fund manager David Tepper on Thursday accused managers of Delphi Corp. of misrepresenting the company's financial position and said he plans to nominate up to four candidates for the company's 12-member board of directors.
Tepper, who runs Appaloosa Management LP and lately has attracted attention with his investments in the stocks of troubled auto-parts suppliers, also demanded that Delphi, based in Troy, Mich., schedule its annual meeting "at the earliest possible time," and threatened to take legal action against company officials if the company doesn't do so itself.
Delphi spokeswoman Claudia Piccinin told The Associated Press Thursday that the company was aware of Tepper's accusation and was reviewing the matter...
The news of Grasso’s refusal-to-answer came from Avi Schick, a lawyer in Spitzer’s office, who made the claim during a pretrial hearing in New York state court yesterday pertaining to the a civil lawsuit alleging that Mr. Grasso’s $187.5 million pay package as Big Board chief was excessive. According to the WSJ, Spitzer might be able to use the disclosure in the compensation case to suggest that Mr. Grasso was an inadequate market regulator.More here on Grasso's four days of questioning by Spitzer's office.
Labels: Andy Fastow, Enron
Labels: Refco
Labels: Eliot Spitzer, New York AG
Labels: PIPES
" ...according to prepared testimony being given to the Senate Governmental Affairs Committee Tuesday by the Government Accountability Office (GAO), the auditing arm of Congress...more than 3,800 contractors that do business with the General Services Administration have tax debts totaling about $1.4 billion...More here.
The GAO review of Internal Revenue Service records and GSA contracts for 2004 and 2005 found that about 10% of the vendors under contract with the agency, or over 3,800, had cheated on their taxes. In most cases, the scofflaws didn't pay their corporate income tax or company owners lined their pockets with the IRS payroll taxes they'd collected from their employees for Social Security, Medicare and individual income taxes...
Labels: GAO
Ex-Atlanta Mayor Guilty of Tax EvasionRead more here.
Associated Press
March 11, 2006
Former mayor Bill Campbell was acquitted Friday of lining his pockets with payoffs while guiding Atlanta through a period of explosive growth that helped secure its place during the 1990s as a world-class city. The jury convicted him, however, on three counts of tax evasion.
Campbell, 52, could be sentenced to nine years in prison and $300,000 in fines, but legal experts have said it is doubtful he will get the maximum sentence. The judge did not immediately set a sentencing date...
Labels: bribery
Labels: Department of Justice, New York AG
Former Bank Director Embezzled 400 Million Yuan
The Epoch Times
Mar 11, 2006
A financial scandal occurred again recently in Heilongjiang branch of the Bank of China, According to the latest issue of Finance (Caijing) magazine, Hu Weidong, former director of Simalu sub-branch, Heilongjiang branch, Bank of China, colluded with a local private enterprise, and wrote 96 bank drafts with a total amount of 914.6 million yuan (US$113.6 million) to the enterprise in two years. To date, 432.5 million yuan ($53.7 millon) has not yet been repaid. All the suspects have been caught.
This is the second scandal in China's banking system since 2005. In the previous one, Gao Shan, director of Hesong Street sub-branch, Bank of China in Harbin City of Heilongjiang Province, embezzled more than one billion yuan ($124 million) of enterprise deposits...
"...This drinks and canapé reception in an unassuming little room might have been entitled The Secret Policeman's Other Ball, if Monty Python and Rowan Atkinson hadn't thought of that name for Amnesty International events 25 years ago...Pithy, no? Read more.
...It's a private eye for an eye in a crowded room at the London nightspot Sketch, supposedly filled with corporate investigators. At least I think it is. I have been invited into this darkened space by Kroll, the world's largest corporate investigations firm, but, as I am about to discover, you can never tell anything in the mysterious world of private sleuths..."
Labels: Kroll
Labels: Department of Justice
Kenneth Lay knew of Enron's troubles, Fastow saysMore here.
By Alexei Barrionuevo and
Vikas Bajaj The New York Times
Via The International Herald Tribune
THURSDAY, MARCH 9, 2006
...Enron filed for bankruptcy in late 2001, setting off numerous investigations, including the four-year federal investigation that culminated in the trial of Lay and Jeffrey Skilling, Enron's former chief executive, now in its sixth week. The men are accused of fraud and conspiracy...
..Andrew Fastow [Enron's] finance executive, said he briefed Lay, who was then chairman, about the "serious problems" at the company in the summer and autumn of 2001, and the two jointly met with investment bankers to explore a restructuring, sale or merger of Enron...Fastow, who created the numerous off-balance-sheet partnerships designed to hide Enron's liabilities and bolster its reported earnings, is one of the government's star witnesses in the trial. On Tuesday, he strongly pointed the finger at Skilling, saying that he had approved of and directed Fastow's use of the partnerships to hide troubled projects and investments from investors.
Questioned for a second day by the prosecutor, John Hueston, Fastow detailed on Wednesday a series of meetings between himself, Lay and other executives in the late summer and autumn of 2001 after Skilling had left the company citing personal reasons. "I told Mr. Lay we had $5-to-$7 billion of embedded problems," Fastow said about a meeting a few days after Skilling left in August 2001. "Even if we are smart enough and don't make a mistake for five years, it would take us that long to work ourselves out of our problems."
Fastow said that he recommended hiring Goldman Sachs to help Enron pursue a restructuring, and that he and Lay met with bankers from the New York- based investment firm a few weeks later. Fastow said he recommended Goldman because the firm was not lending Enron money at the time, unlike many other Wall Street firms, which might have cut off their loans to Enron if they realized how severe its problems were.
Prosecutors displayed notes that Fastow made at the time listing the growing financial problems at the company's energy trading, broadband and international divisions. Fastow has pleaded guilty to fraud charges and agreed to a 10-year sentence in a plea deal with the government. By late 2001, reporters and Wall Street analysts had started raising pointed questions about the numerous partnerships that Fastow had created and profited personally from.
But in interviews, meetings with analysts and messages to employees, Lay deflected such questions and said the company was in fine health. "The company is fundamentally sound," Lay told employees in September 2001. "The balance sheet is strong." Fastow, however, testified that the company was scrambling to meet its earnings projections for the third quarter and had a shortfall of $826 million. The company covered a part of that gap by using accounting reserves, Fastow said...
Labels: Andy Fastow, Enron
...The Securities and Exchange Commission (SEC) has filed fraud charges against the owner of an "autosurf" Web site, accusing Charis Johnson, 33, of operating a $50 million Ponzi scam from which she snagged some $2 million to fill her own coffers.Filed in Los Angeles federal court, the suit alleges that Johnson, a resident of Charlotte, North Carolina, operated a Ponzi scheme via www.12dailypro.com. The scheme, according to the SEC complaint, netted Johnson a whopping $50 million from the more than 300,000 members who joined up since the middle of 2005.
"The defendants falsely represented that upgraded members earnings 'are financed not only [by] incoming member fees, but also with multiple income streams including advertising and off-site investments,'" the SEC alleges. "In fact, at least 95 percent of 12daily Pro's revenues have come from new investments in the form of membership fees from new or existing members."
The SEC has frozen $1.9 million that Johnson transferred to her personal bank account along with other 12daily Pro assets...
Read more of the article here.
-- MDT
Labels: ponzi scheme
...while the SEC has been chasing after wrongdoing by hedge funds that may not even have occurred, real examples of hedge-fund misconduct have gone ignored. Consider the Lancer hedge fund case, which has been rotting like a dead fish in the agency's own files for years.Read the full article here.
Two weeks ago, a federal judge in Miami unsealed more than 40 pages of internal e-mail, memos and similar materials produced in the Lancer hedge fund fraud case, which developed out of a series of articles that ran in The Post almost four years ago.
This latest round of Lancer documents had been produced, under a court-ordered subpoena, by the fraud-drenched fund group's administrative and record-keeping firm, Citco Fund Services. The Citco brass had fought tooth and nail to keep the documents sealed, and it's not hard to see why...
...This is all happening because, as I have argued many times in this space, the SEC is a poorly led, bureaucratic anachronism from the New Deal that lacks a mission relevant to the times and the enforcement tools to get the job done...
Labels: Patrick Byrne
Labels: Kroll
Sleuths step out of the dustbins and into the limelightCheck out the full article here.
By Liz Chong
The Times
March 04, 2006
Companies may not admit using them, but private investigators have gained acceptance. Their clients include governments, leading investment banks, hedge funds, private equity houses and FTSE 100 companies, but few would admit that they have ever hired corporate detectives, let alone met any. It would be too embarrassing to reveal that a company had enlisted the help of a private investigator to dig up the dirt on an opponent or client, or disclose that they had been duped by an employee or partner...
...business investigation and intelligence is on the rise, driven by an array of legislation introduced by the US Congress in an attempt to clean up corporate America. The laws impose heavy duties on directors, accountants and lawyers. Directors, perhaps not surprisingly now that they are personally liable for any financial scandals, want to avoid falling foul of prosecutors, who have zealously pursued white-collar crime in recent years, with the open backing of the Bush Administration.
...The plethora of bribery and corruption legislation has made it common practice for investors to hire investigators to look at the hedge funds they may invest in, or for private banks to hire companies that examine the background of a new client from Eastern Europe...
...Increasingly aggressive business tactics make it standard practice for private equity houses to use investigators to examine the curriculum vitae of the chief executive of a potential target. Similarly, investment banks advising well-known businessmen on mergers and acquisitions have been known to conduct due diligence on their past by hiring corporate sleuths. Lawyers are also a steady stream of revenue for the industry...
...The willingness to hire private investigators can be partly attributed to the success of the industry in shedding its threatening image. The credit for this lies with Jules Kroll, the enigmatic grandfather of the industry, who spent much of the 1980s absorbed in high-profile takeover investigations for Wall Street. Mr Kroll’s success was cemented in 1992 when he was featured in The New York Times as Wall Street’s “gumshoe”...
...The industry is characterised by a handful of larger companies, with some smaller boutiques. These include GPW, headed by Patrick Grayson, a former Irish Guards officer who previously ran Kroll’s London office. Another recent breakaway is the good governance group, known as G3. The marketplace has even attracted interest from the Big Four accounting companies, which have set up specialist units within their forensic sections. Yet they are all dependent on the web of contacts accumulated through networking.
...The companies all say that they have strict ethics policies, which require them to observe the laws of the country they are working in. But it is not uncommon for investigators to distance themselves from surveillance work or bugging by hiring smaller agencies.
Labels: background checks, bribery, Kroll
Adelphia founder's son sentencedThe original article appears here. For more on the sentencing of the other Rigas boys, click here.
March 4, 2006
San Diego Union Tribune
Michael Rigas, son of Adelphia Communications Corp. founder John Rigas, was sentenced to 10 months home confinement by a judge who said he was “close to being a pawn” in a family-run cable television business portrayed as a house of fraud.
The 52-year-old Rigas was sentenced in U.S. District Court in Manhattan after pleading guilty to a charge of making a false entry in a company record, eliminating the need for his retrial on much more serious securities fraud and bank fraud charges.
The judge said he had no doubt that Michael Rigas's misconduct “pales in comparison to that of his father and brother.” Last year, John Rigas and another son, Timothy, were sentenced after they were convicted of using the company's funds like a bank teller machine as they hid more than $2 billion in company debt.
Wall Street life - New breed of young blade emergesRead the full piece here.
By David Litterick
March 4, 2006
Daily Telegraph
As centre of the US fashion scene, New York has never been short of beautiful people. Glamorous women in designer clothing. High-powered executives in neatly tailored suits and spotless brogues. It's hard to walk far without passing a salon or boutique selling the kind of clobber you'd need a second mortgage to afford.
There are times though when the clothes no longer maketh the man, only the knife will do. Once the preserve of ageing Hollywood stars, cosmetic surgery has become a booming industry on the East Coast where more Wall Street executives are turning to their surgeons...
Labels: background checks, FOIA
Investors to stick with hedge fund GLG
By Pratima Desai
and Alistair MacDonald
Reuters (London)
March 3, 2006
Fines imposed on hedge fund GLG, for charges related to market abuse, will not enhance public opinion of hedge funds but unfazed investors said they would not pull money from the firm.
The hedge fund, which has around $11.5 billion (6.6 billion pounds) under management and is Europe's largest non-listed hedge fund, makes too much money to be cold shouldered by investors, they say.
The Financial Services Authority is set to find GLG senior trader Philippe Jabre guilty of market abuse and violating market conduct, according to a source. GLG is expected to share the blame for not properly monitoring Jabre's activities...
Labels: Philippw Jabre
Overstock.com boss mulling resignation? Chairman John Byrne says disagreement with son Patrick could cause him to step down from post, newspaper says.More here.
March 3, 2006: 7:17 AM EST
Reuters
CNNMoney
John Byrne said he is considering stepping down as chairman of Overstock.com Inc., the online retailer, The Wall Street Journal reported Thursday.
Among the issues Byrne said could cause him to leave his post is a disagreement with one of his sons -- Overstock (Research) Chief Executive Patrick Byrne -- over the amount of time the younger Byrne is spending on a highly public battle with short-sellers and analysts. The son contends they are conspiring to damage the company's stock, the newspaper reported in its online edition.
"After the shareholder meeting (in April) this year, I'm going to give some serious consideration of whether I'm going to stay as chairman of the board," the elder Byrne said in a phone interview with the Journal, speaking from Park City, Utah.
"Patrick and I have had some wonderful times together on Overstock, but we've also had some stormy times. I'd rather keep my relationship with my son than be the chairman of the board of another company," the 74-year-old said...
Labels: Patrick Byrne
Fund investors turn to private investigatorsThe full article appears here.
Risk Magazine
November 2005
By Jayne Jung
The recent to turn to private investigators to dig deeper into fund managers and to conduct due diligence
A spate of hedge fund-related scandals in recent months has increased concern among investors about fraud, and is prompting many to turn to private investigators to dig deeper into fund managers and to conduct due diligence. "What's going on with Bayou, Refco and Man Financial makes people nervous. And nervous people call investigators," says Michael Thomas, a partner at Caveat, a Washington DC-based corporate investigation firm...
...Caveat's Thomas says investors' focus is broader than the financial markets when making investment decisions, and with good reason. Something as simple as a driving under the influence of alcohol or drugs charge might cause investors to withdraw cash from a fund manager, he says. Investors don't want there to be any kind of question mark hanging over the integrity, or principles, of a manager.
Labels: Bayou Group, Kroll, Refco
Private eye to help search for hedge fund millionsMore here.
By Svea Herbst-Bayliss
February 28, 2006
Investors, who funneled millions into an Atlanta hedge fund firm, will hire private detectives to help find a missing manager who has been accused of cheating clients out of $100 million or more, a lawyer said on Tuesday...
..."We plan to hire Kroll, the international investigations, security, and risk consulting services group, today to help the FBI and local authorities who have not located Mr. Wright," said Glenn Delk, a lawyer who represents several dozen of the fund's estimated 500 investors. There are a lot of folks here who want to talk to him"...
Labels: Kroll
"The checks and balances weren't there ... There are a number of fraudsters there who simply use hedge fund vehicles ... as a method to extract money from their victims and our industry gets tarred with the same brush."Read the rest here.
Corporate reform dead; SEC chief should resign
By LOREN STEFFY
Houston Chronicle
February 28, 2006
Corporate governance reform is dead. Its last gasp was stifled by the subpoenas issued last month by the Securities and Exchange Commission against several news organizations and writers.
Last week, Marketwatch.com columnist Herb Greenberg and Dow Jones Newswires columnist Carol Remond acknowledged receiving the subpoenas, which involved stories about Internet retailer Overstock
.com.
Late Monday, the financial Web site TheStreet.com said it and columnist Jim Cramer, who also hosts the wacko stock-picking show Mad Money on CNBC, also were subpoenaed.
The SEC's investigation apparently involves claims that short-sellers conspired with the media to drive down Overstock's price. It's worth noting that Overstock's chief executive, Patrick Byrne, is far from the voice of clarity and reason. He has, for example, claimed in a public conference call that Wall Street is controlled by a mysterious "Sith Lord." That's right, as in Star Wars.
After a blistering column in the New York Times by Joe Nocera over the weekend, SEC Chairman Christopher Cox offered a scathing rebuke of his agency's enforcement staff.
"Until the media reports this weekend, neither the chairman of the SEC, the general counsel, the office of public affairs, nor any commissioner was apprised of or consulted in connection with a decision to take such an extraordinary step," Cox said in a prepared statement issued Monday.
It's tempting to cast Cox as another bad manager, too detached to know what his subordinates were doing, or too spineless to take the blame.
Or he could be something worse: a political hack masquerading as a market watchdog...
Labels: Patrick Byrne
...The San Francisco office of the SEC took the unusual step of issuing subpoenas to two Dow Jones & Co. columnists, Carol Remond and Herb Greenberg, to demand telephone records, e-mails and other documents related to Overstock.com...Check out the full article here. And, as reported earlier this morning, SEC Chair Chris Cox has since re-called the hounds.
...Byrne acknowledged speaking to SEC officials about the probe, but dismissed the notion that the subpoenas were related to a lawsuit Overstock filed in August against hedge fund Rocker Partners and research firm Gradient Analytics...
..."It's my sense that the SEC was onto Herb's scent long before we came along," Byrne said. "I have not orchestrated the SEC investigation."...
Labels: Gradient Analytics, Patrick Byrne
£40m seized from London criminalsMore on Operation Payback here.
Local London
March 1, 2006
Police confiscated almost £40 million in cash and assets from London criminals in the past year. More than £10 million in cash was seized from 231 criminals, averaging £30,000 a day in 2005, up from £20,000 a day in 2003. In addition to the cash seized, assets totaling more than £28 million was also confiscated, which is three times more than two years ago. The figures represent 30 per cent of the total amount of cash and assets seized nationally in the past year.
Economic and Specialist Crime Command head detective superintendent Trevor Shepherd said there had been "a staggering increase in the number of seizures carried out" and that even more criminals in the capital can expect to "discover that crime doesn't pay"...
Selling the SEC ShortRead the full Sun editorial here.
March 1, 2006
The New Sun
The chairman of the Securities and Exchange Commission, Christopher Cox, this week shut down the subpoenas the agency's enforcement division had issued to journalists, and not a moment too soon. He acted after Dow Jones & Company Inc. announced that it would fight subpoenas requiring two of its journalists to testify about their sources for columns they had written about Overstock.com. On Monday, word emerged that the SEC was also going after James Cramer and his web site, TheStreet.com. It turns out that the SEC is investigating whether short sellers manipulated research firms and journalists to drive down Overstock.com's share price...
Fall of an investment adviser - William Marston sold his clients millions of dollars worth of promissory notes. When Mount Real went down, they discovered their savings were goneFor on Marston's history and the allegations he is now facing, click on over to the full article.
By Don MacDonald
The Gazette
February 25, 2006
William Marston has built one of the largest investment advisory businesses in Quebec over the last 17 years, catering to a mostly middle class, mostly English-speaking clientele. By last year, Marston's business had grown to almost $100 million in client assets under advisement - a figure that instantly impresses other industry professionals. But that was before a major scandal erupted over the activities of a Ville-Emard company called Mount Real Corp.
Quebec's financial watchdog, the Autorite des marches financiers (AMF), closed down Mount Real in November and said it had serious doubts about the worth of tens of millions of dollars in promissory notes issued to small investors by its affiliated companies...Now Marston, 58, is in danger of losing his right to work in the financial industry. This month, the AMF suspended his license to sell insurance and provide financial planning advice...Pending the outcome of the case, he's also been suspended by his new firm, Industrial Alliance Securities Inc...
"I didn't get the subpoena because I'm corrupt...I got it because I tried to get people out of a stock that we said was going lower, and went lower."More via BusinessWeek.com:
TheStreet.com subpoenaed in SEC probeCheck out the full article at here. For further details on Overstock's financial restatements and accounting overhaulin', check out this Contra Costa Times article.
The Associated Press/WASHINGTON
By MARCY GORDON
AP Business Writer
February 28, 2006
A second financial news organization was subpoenaed for records in an investigation by the Securities and Exchange Commission, whose chairman has now put the subpoenas on hold amid controversy.
Financial news Web site TheStreet.com and its co-founder and major shareholder, James Cramer, were served subpoenas by the SEC about two weeks ago in connection with an inquiry into allegations of stock manipulation. Two columnists for Dow Jones online publications, Herb Greenberg of MarketWatch and Carol Remond of Dow Jones Newswires, also received subpoenas in the SEC investigation related to online retailer Overstock.com.
Jordan Goldstein, general counsel of New York-based TheStreet.com, said Tuesday in a telephone interview that the company had objected to the subpoenas dated Feb. 6 demanding records of communications. He declined further comment...
Labels: Patrick Byrne
In a June 23, 2003, e-mail to Oberlin city manager Rob Dispirito, Sustainable Community Associates (SCA) president Josh Rosen extolled the virtues of "a very successful minority-owned business in Cleveland" identified as Phil the Fire. Relating SCA’s bilateral negotiations, Rosen drooled:
"They are interested in opening up a location in our building. This would become a real destination point for folks in Lorain County and be a major score for Oberlin. He asked me what programs or incentives Oberlin offers given he is looking at other locations in Lorain County. I was wondering if either the City or OCIC had a low interest loan pool or some other incentive program that can be explored. I was also curious as to what if any programs existed for minority businesses and minority business recruitment. We expect to meet with the owner sometime next week, and I think it would greatly improve Oberlin’s prospects of landing this business if we could discuss potential incentives with him."
On March 14 and March 29, 2003, Ben & Jerry’s co-founder Jerry Greenfield, Oberlin College class of ‘73, executed two $20,000 promissory notes to Phil B. Davis, Phil the Fire’s flamboyant proprietor, at prime plus 200 basis points, collateralized by an equity stake in Phil the Fire. Mr. Davis, a former deodorant salesman, failed to make a single payment on the bargain-rate loans. On October 31, 2003, the well-heeled ice cream czar and the wannabe waffle king consummated a Halloween wing-and-a-prayer loan consolidation through a $100,000 line of credit issued by Shore Bank. Mr. Davis subsequently defaulted on every facet of the original loans.
According to Cuyahoga County Court records, Phil the Fire’s tax returns, prepared by leading public accounting firm SS & G, show a loss of nearly $50,000 in 2002. In an amended July 19, 2004, brief attached to the extensive litigation spawned by Phil the Fire’s demise, Phil B. Davis declares on line #93, "Defendant never claimed that the operations of Phil the Fire on Shaker Square had yielded a profit after its first year of operations." The Ohio Department of Taxation affixed eight liens totaling $69,555.63 to Phil the Fire’s Shaker Square carcass. The Ohio Bureau of Workers Compensation weighed in with unpaid claims of $7,265.37.
Mr. Davis’ Shaker Square operation inherited the retail storefront formerly occupied by Hungarian strudel purveyor Lucy’s Sweet Surrender, a 49-year Buckeye neighborhood fixture employing a bevy of elderly, veteran strudel kneaders. On assuming the balance of Lucy’s ten-year lease, Mr. Davis seized $75,000 in specialized bakery equipment belonging to Lucy’s proprietor Michael Feigenbaum. Lucy’s never fully recovered and, according to Mr. Feigenbaum’s Hotel Bruce web posting, is "living on fumes."
On Sunday, March 26, 2006, the Cleveland Plain Dealer ran a front-page expose detailing the implosion of both the Shaker Square and downtown Phil the Fire and Waterhouse Restaurants, established with the financial backing of fugitive Atlanta hedge fund manager Kirk Wright. I, not any member of this body [Oberlin City Council], was the original source for that story.
Wanted on state and federal mail and securities fraud warrants for allegedly absconding with $185 million in investor assets, Wright targeted novice minority investors, particularly professional athletes with significant discretionary income. Equipped, according to the New York Post, with "a materialistic streak that would make Madonna blush," Wright’s illicitly acquired auto collection included a Bentley, a Jaguar, an Aston Martin, a BMW and a Lamborghini. A March 9, 2006, Wall Street Journal article reported Mr. Wright’s financial seductions occurred in "suites he rented at Atlanta Falcon football games." Since February 2002, SCA’s financial patron, Home Depot co-founder Arthur Blank, has owned the Atlanta Falcons. According to Phil B. Davis’ Cuyahoga County court filings, Davis "met twice with Wright in Plaintiff’s Atlanta office."
In a short, tumultuous five-month life-span, Phil the Fire’s illiquid downtown Cleveland gravy train racked up well in excess of a million dollars in unpaid debts and forfeitures — including over $15,000 in Ohio workers compensation liens — was on a C.O.D. basis with vendors and, according to Phil Davis’ July 28, 2004, court filings, had a chronic negative cash flow. Channel 19 reporter Scott Taylor ran an investigative piece broadcast March 14, 2004, on Phil the Fire Gateway’s imminent meltdown. On March 23, 2004, the IRS slapped a $226,259 tax lien on Phil the Fire for failure to pay federal withholding taxes. On April 15, 2004, Phil the Fire employees picketed outside the swank downtown eatery to protest their untendered paychecks. Although Phil Davis’ initial capital contribution to the Gateway Phil the Fire restaurant was a nominal $100, as set forth in the operating agreement, Mr. Davis retained a 60% ownership stake. On March 31, 2004, as the downtown Phil the Fire hemorrhaged cash and the chickens came home to roost, Mr. Davis borrowed $20,000, via a promissory note, from Phil the Fire’s talented chef, Alexander Daniels. Despite receiving $50,000 from Mr. Wright on April 26, 2004, in an impetuous, global out-of-court settlement, Mr. Davis defaulted on the bulk ($15,000) of Mr. Daniels’ unsecured loan and a contracted $11,000 culinary consultant’s fee.
SCA’s failure to properly vet potential vendors is a classic example of the inevitable pitfalls of delegating substantial operational control of a major development project to irresponsible, inept neophytes. This is the Rubicon where the insufficient rubber check meets the incandescent yellow brick road. Last time I inquired, despite legions of tree-huggers, Oberlin wasn’t blessed with a biodegradable bond rating. SCA’s profligate, pedigreed opportunists treat Oberlin’s municipal reserves like Paris Hilton’s trust fund. Since March 25, 2005, these insufferable mendicants have squandered over $154,000 in HUD EDI Special Projects Funds — in addition to cannibalizing the city’s legal budget to the tune of $67,300 and inflicting economic development costs of $8,800 — on a poorly designed, fiscally untenable, perennially altered boondoggle that has yet to be formally submitted to the city planning board. This convoluted "reverse brain drain" Wrong Way Corrigan albatross deserves rapid embalmment, a cryogenic freeze or serious Freudian analysis.
-Mark Chesler
Oberlin, OH
http://ouch.blog-city.com/sustainable_community_associates_stone_soup_1.htm