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3/31/2006
Kirk Wright...Hedge Fiend....and Shady Restauranteur?
The Cleveland Plain Dealer ran an excellent piece on Sunday detailing the further details from the life America's favorite on-the-lam hedge fund manager, Kirk Wright. Apparently Mr. Wright has a colorful past as a purveyor of fine chicken and waffles - and wouldn't you know it, a proper backgrond review would have revealed a variety of restaurant-related schenanigans suggesting that there might be better places to put your money than with Mr. Wright. Like a bonfire. From the Cleveland Plain-Dealer:
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...

Much more here, courtesy of the Plain Dealer.

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2 Comments.
Anonymous Anonymoussaid...
It's over. He got away with it and there's not a damned thing anyone can do about it. It's all gone. There's nothing left. It's all over with.
Anonymous Anonymoussaid...
Corruption in Sustainable Community Associates Oberlin Review (April 21, 2006):

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
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3/30/2006
Guidant Pulls Stents Citing Manufacturing Defects
Medical device maker Guidant has been under the gun for some time, facing angry shareholders because of the company's sliding stock price and federal regulators because of electrical flaws with Guidant's implantable defibrilators and pacemakers. Now the company has announced that it will withdraw from the market their Xience V cardiac stent, a drug-coated metal mesh cylinder used to hold open clogged arteries in heart disease patients. Guidant cited a 1% failure rate in their decision to pull the product.

More here.

-- MDT
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Ebay Makes Patent Case at Supreme Court
The primary question is whether permanent injunctions are appropriate in patent cases (in this instance, MercExchange vs. Ebay regarding Ebay's Buy it Now feature). Currently such a court ordered action is almost a guarantee when a case is brought. IT companies are generally opposed, but in the Pharma world, permanent injunctions are highly favored. Bottom line? Lots of folks are watching for the outcome of this one.

More here.

-- MDY
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Yale University Pulls Out of Hedge Fund
Yale has pulled $500 million out of Children's Investment (TCI) Fund Management. Concerns were apparently raised that Yale's take in the fund had gotten tooo big, having more than doubled since 2004. Children's Investment is a produce of Christopher Hohn, formerly of Perry Capital.

More here.

-- MDT
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3/29/2006
For FSA Chief, Good Behavior Begets Less Regulation
In a recent speech UK Financial Services Authority chief executive, John Tiner advised that in his opinion there are "too many rules" for companies to follow, but that this situation was an inevitable result of the beaureacratic merger which originally created the FSA, bringing all UK financial regulators under one umbrella. Tiner further suggested that while the FSA will continue to possess strong recourse against errant firms, that his focus will be on instilling better practices without the necessity of new regulations. Very interesting commentary. More details via the ever-venerable Financial Times.

-- MDT

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Do Mutual Funds Contribute to Excessive CEO Pay?
So says a recent study by the Corporate Library and the American Federation of State, County and Municipal Employees which analyzed proxy votes on exec. compensation.

Via CNNMoney.com:
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.

-- MDT
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Biovail Shareholders Alledges Hedge Fund, Analyst Involvement in Stock Manip
Shareholders of Biovail, a pharamceutical company specializing in advanced drug delivery technologies, have filed a $4billion class action in U.S. Federal court against S.A.C. Capital Management, Gradient Analytics (who some of you may recall from their scrape with Overstock.com CEO, Patrick Byrne) and Banc of America Securities. The shareholder suit alledges that the aforementioned parties had a hand in a manipulation of Biovail's common stock that adversely efffected shareholders. The Federal court suit follows a related superior court suit filed by Biovail in New Jersey pertaining to similar allegations of stock price manipulation.

More here.

-- MDT

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3/28/2006
Jabre Fights FSA Fine
Philippe Jabre, a star with alternative investment firm, GLG Partners had been awaiting details on the financial penalty associated with the FSA's recent disciplinary action taken against both he and GLG. Surprisingly to some, the FSA's fine against GLG, which was expected to be in the millions, came in at a modest $750,000. The FSA's accusations against Jabre relate to a 2003 bank bond deal. In a February 2006 decision notice the FSA declared that GLG was vicariously liable for not more closely monitoring what Jabre was doing.

Jabre is currently on a leave absence from GLG and recently left his directorship with the firm. While GLG has not expressed an interest in fighting the fine, Jabre has appealed the FSA decision and is keeping mum pending the outcome.

More here.

-- MDT

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WSJ LawBlog Looks at Insider Trading Ban for Lawmakers
So insider trading is legal for lawmakers now? Not quite...but its a near thing. Depends on what you mean by insider trading. You know, semantics. More from Peter Latman:
Bill Looks To Ban Insider Trading For Lawmakers and Their Aides

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...
Click on through to read the rest, here.

-- MDT

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More on Fugitive Hedge "Fiend" Kirk Wright
Leave it to the New York Post to come up with something like "hedge fiend." But the shoe apparently fits for Kirk Wright, formerly of supposed hedge fund, International Management Associates, and late of the lam. Wright skipped town after it became clear to many of his clients, which include several prominent National Football League players, that something was amiss with Interntaional Management's "management" of their money. Subsequently investigative giany, Kroll was brought it to help track the $100 million plus is missing assets and Wright himself. The New York Post has further details on the continuing story, with a particular Postian emphasis on the lavis lifestyle Wright made for himself at his client's expense.

-- MDT

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1 Comments.
Anonymous Anonymoussaid...
"hedge fiend" as applied to Kirk Wright is actually a complimentary reference, as compared to what the man really is, whose true description would probably be censored on this blog.
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Apple vs. Apple Over Violation of 1991 Agreement
The roots of this litigation date back to 1991 when upstart Cupertino, California-based Apple Computer made an agreement with the London-based Apple record label founded by former Beatles, McCartney, Starr and Harrison. Due to potential marketplace confusion that might result between the two similarly named entities, Apple Computer signed an agreement that essentially, according to Apple Records, precluded the computer manufacturer for entering the music business. Millions of iPods and a billion music downloads later, Apple Records is somehow under the impression that Apple Computer.

Hence the lawsuit.

More here.

- MDT

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3/27/2006
SEC Overturns Quattrone Ban
Last week was a good week to be Frank Quattrone. Late last week former banker saw his conviction on obstruction of justice charges overthrown and his lifetime SEC ban removed.

For more on Quattrone's travails, click here.

-- MDT
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Sprint Nextel Sues Pretexing Investigator
San Marco & Associates is being sued by Sprint Nextel regarding allegations that the Florida private investigative firm used pretexting as a tool to obtain confidential Sprint Nextel customer telephone records. The telecom company recently pursued a similar claim (and was successful at getting an injunction) against another firm, First Source Information Specialists.

Read more here.

-- MDT
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Case Against Nacchio...Not Dismissed
This past Friday a Denver federal court judge declined to grant a dismissal of 42 counts insider of insider against former Qwest CEO, Joseph Nacchios. The request for dismissal was related to the defense team's inability thus far to qeustion Nacchios about secret dealings with the U.S. government. Special clearances are being required for said questioning and were granted to defense lawyers as of Friday. Each of the counts against Nacchios could cost him ten years in prison and a $1 million fine. More on the case and the continuing legal manuverings therein can be found here. In addition to the criminal counts pending againts Nacchios, civil charges from the SEC also loom. More here.

-- MDT

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3/24/2006
Fear the Wiki...User Edited Information Resources Useful, But Perilous?
"New information" resources are all the rage on the web and the once obscure "Wiki" has officially achived noun status in the tech-savvy vernacular. However, Joshua Greenbam of enterprise Applications Consulting writing at IntelligentEnterprise.com says to watch your step, as the emerging world of wikis meshes not at all well corporate America:
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...

...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...
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.

The issue for corporations and individuals would then seem to boil down primarily to control. Any business wants to dictate as much as possible the presentation of its public profile and professional reputations. Wikis, in their nature are easy to produce and reproduce, making them very difficult to control from a central point. This is a valid concern for companies and reason enough for them to be wiki-wary.

While I can't entirely agree with Greenbaum's comparison of junk mail and reader-edited wiki content, his ultimate point seems a vaild one. Trust but verify. Check your work at every step. Take precaution on your own behalf, on behalf of your company and in the case of a company like Caveat Research, on behalf of your client as well, to review alternate sources of data for comparison purposes. Truth to tell, even "legitimate" sources of information are often complied in lowest common denominator fashion. Whether the editorial process is traditional or wiki-style, the axiom of "garbage in, garbage out" remains entirely true.

More from Greenbaum's article here.

-- MDT
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3/23/2006
Appetite for Sensitive Info Places Hedge Funds in Precarious Spot
Or so aruges financial reporter, John Gapper in a recent issue of The Australian. Gapper's tone is more matter-of-fact than accusatory, and his article more an effort to articulate the pressures and potential rewards involved int eh hedge fund trade. The forbidden fruit of inside information combined with novel trading strategies can bring rich rewards indeed. Gapper does not insinuate that the misuse of inside information is endemic in the hedge fund industry, but rather, concludes that "Everyone but the dishonest loses by allowing that imbalance to persist." More from the article:
...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.

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...
The article continues here.

-- MDT
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New Good at The Nugget
Russian company, U.S. court, securities class action. Interesting scenario, yes? Outcome: case dismissed. For more details and comments on the ourcome, check out Christopher Jones's PSLRANugget.

-- MDT
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Refco Brokers Settle Client Poaching Lawsuit
Deserting the sinking ship? A group of Chicago-based former Refco brokers have settled on charges of leaving the company with onfidential documents in-hand and poaching Refco clients insinuating an impending decline in service from Refco. Wonder what they could have been referring to? Via Cattlenetwork.com:
Ex-Refco Brokers Who Allegedly Poached Clients Settle Suit

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"...
More here.

-- MDT

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3/22/2006
Massachusetts Seeks Lead Plaintiff Status in Pension Fund Collapse Class Action Suit
Via AP Newswire:
State seeks to be lead plaintiff in class-action pension lawsuit

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...
More here.

-- MDT
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Supreme Court Rules on Class Action Jurisdiction, Federal Courts Only Please
This 8-0 decision by SCOTUS sets a higher threshold for investor class actions, as certification is more difficult in federal court than it is in many state courts. The prime benficiary in the near term, Merril Lynch, which had been staring down the barrel of a myriad of suits lagely arising from Eliot Spitzer's 2002 investigation of the firm.

More here.

-- MDT
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3/21/2006
School Districts Hire P.I.s to Track Student Residency
Via the Associated Press:
School Districts Hire Investigators To Track Students' Residency

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.
The original article appears here, at NewsNet5.com.

-- MDT
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Hermitage Capital's William Browder Banned from Russia
Browder, one of Russia's largest foreign investors has been a steady critic of corporate scandal in that country, so much so in fact, that it appears the government has decided he is a threat to national security:

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...

More here (requires subscription). Additional details can also be found at The Houston Chronicle.

-- MDT

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3/20/2006
Fraud Worries in China Market Create Bonanza For Corporate P.I.s
An interesting CNNMoney article on the ever-growing international market for corporate P.I. services. Featured in the article are fellow investigator-bloggers, Fortress Global.
U.S. private eyes are snooping in China

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...
More here.

-- MDT

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UK Retirement Planning Firm, Alexander Forbes Skimmed Millions from Retiree Funds
Somehow this is appropriate coming on the heels of the H&R Block story. Alexander Forbes, a UK financial planning firm has been made the subject of a regulatory investigation regading the firm's mis-use of funds under its management. Several former Forbes emploees have already been arrested and the six-month long investigation is still rolling along. Further details can be found here, at South Africa's, Personal Finance.

-- MDT
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Spitzer Goes After H&R Block, The New York Sun Not Amused
No, no...just tell us what you really think?
Spitzer Versus the Poor

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."
For more vitriol, click here. For more on the story in more sedate language, click here.

-- MDT

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Form SEC Chief, Goldschmid Defends SOX
Harvey Goldschmid spoke at a recent symposium on post-Enron corporate regs. held at the University of California, Berkeley Law School. On the subject of SARBOX, Goldschmid said that he thought he burden of the law on smaller companies had been overstated and that the law had been a boon to investor confidence at a time when it was sorely needed. For more from Goldschmid and a few rebuttals, check out the recap at RedHerring.com.

-- MDT

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3/17/2006
Oh, and Happy St. Patrick's Day to All


Please enjoy yourself responsibly.

-- MDT
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Appaloosa Management Head Says Delphi Misrepresented Financial Position

Via CentralDaily.com:
Fund manager says Delphi misrepresented its financial position

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...
More here.

-- MDT
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Pitt, Grasso & Spitzer...Quite a Scrum Underway
But an interesting tid-bit from the WSJ Law Blog, last year Grasso took the fifth under questioning by the SEC regarding New York Stock Exchange trading firms:
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.

-- MDT
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3/16/2006
Nearly Half of All Applications Lie on Their Resumes
Believe it.

You can read about the results of the study here. And then, frankly, give us a call. Better you find out before you've made the hire than after.

-- MDT
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Sharon Watkins Takes the Stand at Enron Trial
Undoubtably one of the most interesting personalities to come out of the Enron fiasco is Sharon Watkins. Watkins, a former EnronVP, ended up blowing the whistle on the energy trader's circular deals with a series of Andy Fastow-created entities, most notably LJM. If you haven't already, take a gander at this recap of her testimony.

-- MDT

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Fuji Television to Sue Livedoor
Fuji Television, which recently acquired a 12.5% stake in Livedoor. Fuji is now claiming that this purchase was made under false pretenses. Livedoor's shares on the Tokyo stock exchange have fallen 90% since it was revealed that Livedoor execs had been hiding company losses. Five Livedoor execs have been charged with fraud in the ongoing investigation. Fuji, for its part recently sold off its Livedoor holdings and is planning to sue Livedoor for damages amounting to $231 million.

More here. And more on Livedoor's travails here.

-- MDT
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Remember Refco...Prosecutors are Still Sorting Out the Failed Firm's Offshore Accounts
According to an article this morning from Bloomberg, Refco held as much as $525 million in phony bonds in offshore accounts. At issue now - where the bonds were issued and how exactly they were valued. Implicated, but not yet accused of wrongdoing in the bond investigation are Bawag, an Austrian bank and Liquid Opportunity (website?), a hedge fund based offshore. Refco itself has also not been charged with any specific wrongdoing in connection with the bond accounts, but the investigtion continues.

More here.

-- MDT

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Digital Dirt...Social Sites Can Threaten Job Prospects
Good Morning America has a short story this moring about how one's online conduct can come back to bite them on the job hunt. A good point. Whether it is your Blog, Myspace profile, Friendster membership, LinkedIn profile or one of any number of other online social/biz tools (ZeroDegrees, Ryze, Ziggs, Classmates...you name it.) - know that potential employers and possibly the investigators working on their behalf will find them. Be careful how you post, boast and otherwise represent yourself.

And please...no embarassing photos.

Read more about sifting your "Digital Dirt" at ABCNews.

-- MDT
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3/15/2006
Bear Stearns Reaches Settlement with SEC on Fund Probe
Bear Stearns has agreed to pay $250 million to settle SEC charges that the investment firm assisted its hedge fund clients in illegally trading mutual fund shares. Bear Stearns has been facing accusations of illegal activities on this front since 2003 when New York Attorney General Eliot Spitzer first brought forth accusations that the company swindled investors on behalf of its hedge fun clients.

More here.

-- MDT

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3/14/2006
Hedge Funds Settle With SEC on Allegations of Illegal PIPES Transactions
Hedge funds Langley Partners, North Olmsted Partners and Quantico Partner have agreed to pay $15.8 million so settle charges of illegal trading, without admitting wrongdoing. The common thread amongst these three funds was manager Jeffery Thorp who is also a party to the settlement. The SEC charges related to irregularies in 23 securities PIPES transactions involving Thorpe's funds.

Read more on the story here.

-- MDT

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Anonymous Anonymoussaid...
don't forget that some people have gone to jail for PIPEs abuse. Guillaume Pollet at Societe Generale went to jail in 2005.

http://www.washingtonpost.com/wp-dyn/articles/A7988-2005Apr21.html

Guillaume Pollet, a former managing director at S.G. Cowen Securities, pleaded guilty to insider trading for selling shares of Rockville-based HealthExtras short in 2001 after he learned the company planned a private-equity offering. Also, the Securities and Exchange Commission charged Pollet with fraud and insider trading, saying he engaged in short selling of shares of 10 companies that were involved in private investment in public equity, or PIPEs, some of which were structured by S.G. Cowen. Pollet's short sales "locked in" more than $4 million in trading profit for S.G. Cowen, the SEC said. The SEC suit is its first attempt to punish alleged abuses in the PIPEs market, said Mark K. Schonfeld, director of the SEC's Northeast office.
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Speaking of Tax Cheats, A New GAO Report Highlights Billion Dollar Tax Debts on the Part of Government Contractors
The Daily Caveat loves the GAO. Time Magazine has details on one the government auditor's latest reports detailing rampant tax chicanery on the part of vovernment contractorys. A snippit:
" ...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...

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...
More here.

-- MDT

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Former Atlanta Mayor Skates on Bribery and Racketeering Charges, Hooked on Tax Evasion
Win some, lose some I guess. Via the Washington Post:
Ex-Atlanta Mayor Guilty of Tax Evasion

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...
Read more here.

-- MDT

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It Gives One Pause...Shredded Credit Card Application Successfully Processed
This gentleman opted to try an experiement with one of the multitude of junk-mail credit card appllications here receives by mail. He tore the think into tiny pieces, taped the application back together, filled it out and mailed it in. While it was arguably somewhat unscientific to introduce additional variables into the experiment, our intrepid blogger, in the name of versimillitude also used a new cell phone number on the application and a new address not on file with the credit card company. Wouldn't you know it, a brand new Chase credit card with a $5,000 limit appeared in his mailbox in short order, even though his application had all the earmarks of one ressurected from the trash and sent an anonymous address.

Perhaps it is well past time for cross-cut shredders to be installed in America's kitchens right next to the diswasher. And if you are indeed shopping for a shredder, may I recommend a review of these videos. Truly the apex of shred-zen.

Read the full experiment recap here.

-- MDT
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Livedoor Scandal Grows
Livedoor, the Japanese equivalent to the U.S.-based Ticketmaster, has been facing a growing corporate fraud scandal for the past several months and new charges have just been filed. Read all about it a the IHT.

-- MDT
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3/13/2006
Canadian Mutial Fund, Norbourg Facing 51 Charges From Quebec Regulators
Vincent Lacroix president of mutual fund, Norbourg, is facing 51 counts of securities act violations in relation to $130 million in missing investor funds. Criminal charges are also being considered.

More here.

-- MDT
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Lerach Alleges Online Music Price Fixin'
Famed plaintiff attorney and class-action king, Bill Lerach has filed suit on behalf of eleven plantiffs who are claiming to have paid artificially high prices for music purchased online. The Department of Justice has also been pursing an investigation into online music pricing, as has New York Attorney General Elliot Spitzer.

More here.

-- MDT

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Former Bank of China Director Embezzles $113 Million
Via the Epoch Times:
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...


More here.

-- MDT

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SEC Sues Texas Investment Advisory Firm, BMA Ventures on Scalping
The SEC charged in a Texas federal court that William Kepler, president of Dallas-based BMA Ventures had scalped penny stocks by simultaneously marketing them and selling them. $1.9 million in ill-gotten gains are alleged.

More on the case, here.

-- MDT
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A London P.I. Cocktail Party...Hosted by Who Else But Kroll
The amusing details, via The Telegraph. A snippit:
"...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...

...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..."
Pithy, no? Read more.

-- MDT



-- MDT

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3/10/2006
KPMG Bermuda Sues Investigative Group
U.S. Investigative firm, Diligence, LLC., is being accused of bribery by accounting firm, KPMG. Apparently the bribery charge relates to the investigation of IPOC International Growth Fund. KPMG had been conducting its own investigation into IPOC, a Bermuda-based mutual fund who's founder was recently outed by the Wall Street Journal as a known fraudster.

KPMG is alleging that Diligence offered bribes to KPMG employees in exchange for damaging information on IPOC. Their suit asks for $11 million in combined damages. Diligence denies any wrongdoing and characterizes the information exchange as a whistleblower who spoke out without any financial inducement.

Read more here, via the Royal Gazette. And by all means check out the indispensible KYCNews.com, which initially broke the story.

-- MDT

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Chamber of Commerce Charges SEC Enforcement too Harsh
Accoridng to their new report, The U.S. Chamber of Commerce doesn't care too much for the SEC's "punative tone" and is recommending a that the SEC, frankly, cool it a little bit. Get the full skinny on the Chamber's comments here, via their press release. The SEC, in turn, cite's a 70%+ success rate in its trials and a perfect 6 and 0 record in fiscal 'O6.

While The Chamber's observations come hot on the heels of public criticism of the SEC's handling of the Overstock probe, which included the controversial subpoenaing of prominent financial journalists, the business advocacy group traces the SEC's heavier hand back a bit further. After all, it was only in 1990 that Congress even gave the SEC the ability to assess fines on U.S. companies.

Read more about it, including high-level responses from the SEC, right here.

-- MDT
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SEC Files Suit Against Philly Venture Capital Fund, Reaches Settlement with Investment Advisors
The nation's chief securities regulator is alleging that Keystone Venture Partners misappropriated over $9 million. Three Keystone investment advisors have agreed to no-fault settlements with the SEC. Kiernan Dale, the chief individual charged with wrong-doing in the case will be ordered to pay a $1.37 million penalty, but the SEC is apparently choosing to wave this payment as Dale would not be able to afford it. The SEC is also not seeking a further civil penalty against Dale. Two other Keystone advisors, John Regan and Peter Ligeti have each agreed to civil penalties of $50,000.

More on the case here. You can also read a related judicial opinion online (which has a great many further details) or download the PDF version.

-- MDT
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Government Seeks Fraud Charges Against Mario Gabelli
Gamco Investors chief Mario Gabelli, a Wallstreet stallwart, is facing fraud charges from the Justice Department in relation to Gabelli companies' involvement in wireless telephone license bidding in the 1990s. The government response comes on the heels of a lawsuite filed against Gabelli and associated companies back in 2001 and concerns 12 FCC sponsored auctions in which the firms took part. Gabelli, for his part, is planning to fight the suit.

More on the case against Gabelli here.

- MDT

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3/09/2006
"Painter of Light" a Boob-Grabbing, Public Urinating, Scuzzy Businessman?
So says the L.A. Times, although, as my taste in art run more towards Kandinsky, Bosch or Bacon, I can't say that I was previously familiar with Thomas Kinkade, the self-professed Painter of Light, who several years ago leveraged some artistic talent and a religious conversion in to a treacly empire.

Here's a sample of his work:



Nice.

But not so nice is Kinkade, according to former associates and owners of Kinkade-exclusive galleries, who claim that that they were pressured to expand rapidly, and prodded into opening multiple locations in a small geographic area. Later, they claim that Kinkade tanked his public company in order to take it back private on the cheap. Then there are the drunken disorderly charges of sexual harrassment and peeing on Winnie the Poo at Disneyland.

You can't make this stuff up.

Read on here and here.

-- MDT
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Full Details of Fastow Testimony at Enron Exec Trial
Not that his comments haven't already been endlessly dissected by major news media over the last day-and-a-half. But in case you missed, well everything for the last 24 hours - here goes:
Kenneth Lay knew of Enron's troubles, Fastow says

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...
More here.

-- MDT

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12Daily Shut Down by SEC
I'd been meaning to follow-up on this story for a few days...

Via CIO-Today.com:
...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

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3/08/2006
Lancer Fraud Going Under the Radar?
Another slap for the SEC, as the New York Post's Chris Byron calls the agency out on playing patty-cake with Overstock's patrick Byrne while Lancer hedge fund fraud investgiation lingers:
...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.

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...
Read the full article here.

-- MDT

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3/07/2006
Speaking of Kroll...
...as the preceding article did at length - the investigative giant has announced the purchase of California-based Infolink Screening Services.

Kroll as also been installed as the liquidator of failed hedge fund, Philadelphia Alternative Asset Management (PAAM, to you and me.) Form more on the PAAM flame-out and how Man Financial fits into the picture, click here.

-- MDT

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Higher Profile for Corporate Sleuths
While I take some minor exception to the implication that corporate P.I.s spend the majority of their time rifling through dustbins, the essential truth is the same - our industry is growing, our client base is expanding and our public profile, for good or ill, is inching ever higher. And dustbins... they CAN be useful:
Sleuths step out of the dustbins and into the limelight

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.
Check out the full article here.

-- MDT

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3/06/2006
New Hedge Fund Risk Report Released By EDHEC
Read about it here. Or just go download the darn thing.

-- MDT
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Adelphia Founder Son Sentenced to Home Confinement on Bank Fraud Charges
Via the San Diego Union Tribune:
Adelphia founder's son sentenced

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.
The original article appears here. For more on the sentencing of the other Rigas boys, click here.

-- MDT
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Wallstreet Gets its Eyes Done?
Via The Telegraph:
Wall Street life - New breed of young blade emerges

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...
Read the full piece here.

--MDT
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3/03/2006
Skilling - "They're on to us."
More from THE TRIAL, via ABC News.

-- MDT
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Chief Archivist Calls Attention to Re-Classification of Documents, Calls for Moratorium on
In yesterday's New York Times Chief Archivist Allen Weinstein lambasted the recently outed government document reclassification program. This program, spearheaded by several un-named but most likely three-letter government agencies, has been under way for the last seven years and has seen unprecedented numbers of documents listed as classified and unavailable for public review.

This is a serious blow to transparancy in government, and business as well. Federal Archives ands FOIA requests are standard tools used by investigators to protect their clients's from fraud and deception. While one certaily needs to balance the needs of national security with public disclosure, Weinstein's statements seem to indicate the goal here was not to serve such precise needs, but rather to push back the line on docs across the board.

Check out the NYT article before it dissapears behind their subscription services, and check the above back-link for more background on the issue.

-- MDT

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Heavy Fines Levied on GLG In the Wake of Phillippe Jabre Scandal
Meanwhile investors pledge to stick by the hedge fund while it weathers the scandal (17% returns will do that).

Via Reuters:
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...


More here.

Curiously, our friend, Mr. Fink from Man Group did not appear to mention the GLG matter in his recent comments about hedge fund fraud being a North American issue.

-- MDT

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Byrne Stepping Down from Overstock?
But not the one you think. Patrick Byrne is staying put. His father, John Byrne is considering stepping down from his position as Chairman of Overstock due to disagreements with the younger Byrne. Specifically, father Byrne is apparently aghast at the amount of time Patrick has spent on his public slapfight with supposed short-sellers.

Via CNNMoney:
Overstock.com boss mulling resignation? Chairman John Byrne says disagreement with son Patrick could cause him to step down from post, newspaper says.

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...
More here.

-- MDT

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3/02/2006
FLASHBACK: Caveat's Comments on Hedge Fund Due Diligence Featured in Risk Magazine
Whether on behalf of individual investors or fund of funds who bear responsibility for the actions of the funds they manage, corporate investigators can be a crucial component in risk management - operational, headline and otherwise. If nothing else, the IMA story illustrates that if you don't work investigators on the front end, you may end up hiring them anyway...when it comes time to figure out where your money went.

Recently The Daily Caveat had the opportunity to discuss the challenges of hedge fund due diligence with the fine folks at Risk Magazine, the world's leading fianancial risk management journal. Seems appropriate to revisit the story, in light of continuing concerns in this arena:
Fund investors turn to private investigators

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.
The full article appears here.

-- MDT

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Kroll to Step in, Help Trace Missing Millions (And AWOL Executive) in IMA Hedge Fund Fraud
This sounds like quite the juicy case. Would love to be in on this one:
Private eye to help search for hedge fund millions

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"...
More here.

-- MDT

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Hedge Fund Fraudster Pleads Guilty
Marvin Irwin Friedman, former head of hedge fund Global Money Management plead guilty this week to tax evasion and conspiracy to commit mail fraud. GMM has claimed assets of $116 million under its control. The fund later collapsed with losses of $60 million. Friedman is set for sentencing in May and two other GMM employees are awaiting trial.

Read more here.

-- MDT
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Man Group Says Hedge Fund Fraud Endemic to the U.S.
At a recent Euromoney conferenceStanley Fink, Chief Executive of the alternative investment giant, the Man Group stood up for the European hedge fund industry and directed criticism at its U.S. counterparts. Fink observed that in contrast to the European market, poor regulation and lack of independent oversight are behind spate of U.S. hedge fund frauds:
"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.

-- MDT
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Cox Slammed in Wake of Subpoena Flap
There were many stinging editorials in the wake of the SEC's San Francisco office issuing subpoenas to several journalists regarding allegations that they participated in a short selling scheme on shares of struggling on-line retailer, Overstock.com. Here's just one sample from Loren Steffy at the Houston Chronicle that takes aim at SEC Chair Chris Cox:
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...


Ouch. Read the rest here.

-- MDT

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Overstock CEO Patrick Byrne Says He Didn't "Orchestrate" the SEC Subpoenas
Apparently Byrne also denied responsibility for weather, tides, and the great Chicago fire. More from the Reuters article:
...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...

...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."...
Check out the full article here. And, as reported earlier this morning, SEC Chair Chris Cox has since re-called the hounds.

-- MDT

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UK's Operation Payback Seized £40 Million From Criminals Last Year
Good goin':
£40m seized from London criminals

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"...
More on Operation Payback here.
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SEC Chief Cox Kills Journo Subpoenas in Overstock Fight
Continuing the Overstock thread from yesterday, via the New York Sun:
Selling the SEC Short

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...
Read the full Sun editorial here.

-- MDT
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3/01/2006
Quebec Investment Advisor, William Marston, Under-Fire
It's all in the headline:
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 gone

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...
For on Marston's history and the allegations he is now facing, click on over to the full article.

-- MDT
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TheStreet.com Receives SEC Subpoena on Stock Manip Charges
This would be in regard to the ongoing tribulations at Overstock.com. There lies a tangled tale of egos and executive-level feuds, centering on controversial Overstock exec. Patrick Byrne. According to Mr. Mad-Money himself, Jim Cramer,
"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 probe

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...
Check out the full article at here. For further details on Overstock's financial restatements and accounting overhaulin', check out this Contra Costa Times article.

-- MDT

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3 Comments.
Anonymous Anonymoussaid...
Good post on the Byrne appearance here:

http://garyweiss.blogspot.com/2006/03/sec-chasing-after-good-guys-or-bad.html

Raises a good point about the history of allegations such as this.
Hi Sam,

Thanks for the tip. I'll check it out.

And thanks as well for reading and responding to the blog. I
appreciate it very much.

Take care,

-- MDT
Anonymous Anonymoussaid...
My pleasure. Great blog and great links, by the way.
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