SEC Takes Plainfield Asset Management Whistleblowers Suit Seriously

It looks like the Securities and Exchange Commission is taking the whistleblower complaint against Max Holmes and his hedge fund Plainfield Asset Management seriously. This month I detailed at The Distressed Debt Report specific evidence anonymous Plainfield staffers have turned over to regulators describing how Holmes has been allegedly overvaluing billions of the fund’s assets in order to take home millions in undeserved fees. On top of that I reported it appears some investors, like the mega-billion New York State Common fund, have received preferential treatment in the liquidation of Plainfield Special Situations Fund and the Plainfield Direct Fund. Letters I saw from the SEC, sent on February 15th, shows the regulator is not releasing any fund data because of an investigation into Holmes and Plainfield.

Katie Benner at Fortune reported last September the F.B.I. had also started to question ex-Plainfield executives. This month I confirmed it was Eric Reehl and August Ceradini – two managing directors who were involved in the fund’s asset backed lending deals – which’ve been grilled by the feds. Reehl, who finally went on the record after I broke the news naming him as a potential whistleblower, claims he’s not a willing participant in outing all the alleged securities violations the whistleblower compliant details against Plainfield. Nor is he a client of the firm who filed the complaint against his former employer. But the F.B.I. has still questioned him multiple times according to people who have spoken to Reehl about this. Regulator sources tell me, the F.B.I. and S.E.C. are working together on their investigations.

It’s not only ex-staffers who are speaking out though. PFAM investors like Mike Longo, of fund of fund Investcorp, have expressed frustration with Plainfield after they read about the whistleblower complaint in the press. I reported for The Distressed Debt Report, according to additional information sent to the SEC, Longo said in August:

“There is no transparency at all from PFAM. They continue to lose our dollars. Performance sucks even in an up market. Holmes promised 18 months ago to return funds redeeming investors at 8.5% per quarter but has paid out a lot less.”

Investcorp’s outside press wouldn’t comment on Longo’s view about Plainfield.

The new Dodd-Frank bill has the once dormant SEC all fired up to go after illegal moves like this and has given the regulator the power to lobe hefty fees against these hedgie titans. Or even kick them out of the business. But while we’ve watched a few funds charged for allegedly lying about asset valuations to earn more money, like Conn-based asset backed fund SouthRidge, we have yet to see regulators slam the hammer and inflict any real consequences on this group of alternative investment managers.

According to an internal valuation document I’ve seen, Plainfield listed their total asset in the Master Fund (Plainfield Special Situations Master Fund Limited) at $5,117,607,879 billion as of August 31st 2008. This was only a few months before their three year gate was imposed in late 2008, cutting off large pension and funds of funds from getting their money out. Investors are expecting that gate to be lifted after the third quarter of this year but the question is will Holmes be able to return all the money he’s been promising to give back. As of September 2010 PFAM valued their master fund assets at $1,654,642,302. Even if Holmes can convince investors he did his best to sell the assets at the discounted prices the market might offer – the SEC still wants to know if he has been properly valuing the assets for the last three years. Valuations that, according to a taped conversation of Reehl with a confidential informant, personally netted Holmes $40 million in 2009. (PFAM valued the AUM on its master fund as of 12/31/09 at $2,911,654,001).

Plainfield refused to comment for my stories in The Distressed Debt Report except to say they think I’m a biased reporter on this subject. They made the same statement of Katie Benner, of Fortune, who was first to tell the world last year that the Manhattan D.A. was investigating Plainfield for loan to own deals and forcing distressed borrowers into failure so they can snag their assets on the cheap. I’ve seen P.R. moves like this before that try to discredit the reporter without answering the actual merits of the reported facts.

The only reporter Plainfield actually spoke with about their trouble was Britt Erica Tunick, of AR Magazine, who wrote a rescue piece on Plainfield last summer to counter all the negative stories coming from Fortune, New York Post, Business Insider, and Greenwich Time. Her editorial theme was Holmes was being attacked by a few frustrated borrowers and it wasn’t his fault he couldn’t return investor money as fast as they’d like. Of course, the financial crisis became Holmes fall guy. Tunic is a decent reporter with experience in covering hedge funds but the story reads as if she’d traded a future news scoop with the fund or their outside press firm Sloane & Company. (Tunick’s editors deny this assumption but knowing a lot about how the finance news business works I don’t believe them.) Since Tunick’s report came out, court filings show one of the disgruntled borrowers Roger Stein brought forward evidence that PFAM used an arbitrator judge whose firm had done legal work for Plainfield (in my view that’s a conflict of interest) and that one of their witnesses was encouraged to lie on the stand or the fund would take away their health benefits. As of last month,PFAM hasn’t been able to execute the arbitration judgment they won against Stein, the borrower, because a judge in New York State Court appears to be reviewing if there was funny business going on in the legal proceedings. Ironically Plainfield’s General Counsel, Tom Fritsch, had been sending out investor letters saying the fund has won their case against the disgruntle borrower but leaves out the part about the award not being legally confirmed yet.

I’ve heard from multiple insiders detailing problems in Plainfield since early last year but have yet to hear from anyone supporting the funds actions. The door is always open and if you have information that proves Holmes isn’t inflating assets to reap fees or forcing borrowers into bankruptcy I’d love to hear from you.

UPDATE 2/24/11 11:00pm: I’ve heard from Plainfield’s general counsel who says the New York judge has now entered the Stein case arbitration award in favor of Plainfield. I’ll have to check with the courts clerk to confirm this is true tomorrow and review what parts of the award might have been confirmed.

UPDATE 2/25/11 The New York Supreme court has confirmed an award of over $2 million in favor of PFAM. Online court records show the judge confirmed the award on 2/10/11 – ten months after Plainfield had won the case in arbitration. Stein’s attorney wouldn’t answer if he plans to pay or appeal the award nor have I spoken with Mr. Stein about the case. I’ve asked Plainfield’s general counsel, Tom Fristch, if he universally communicated to investors the monetary award was held up for ten months because the courts were reviewing Plainfields conduct in the arbitration proceedings. Fristch has refused to answer. He did however write last night “the judge took the extraordinary step of sanctioning Mr. Stein for his actions.” When I looked into this I learned that’s not correct. The New York judge order for a referee to be assigned. If both parties continue with the case it would be up to the referee to impose sanctioning against Stein. So for now we wait to see if Stein pays up and drops his legal battle with the hedge fund or continues to try and clear his name through the court system. Or who knows maybe Plainfield will call off the arbitration award if they can get some of their disgruntled borrowers to sign agreements that they’ll stop investigating the fund and spilling to regulators – it’s not like they haven’t tried that one before.

UPDATE 3: Elana Margulies reporting for HFMweek has copied my orginal reporting on PFAM without souring it came from DealFlow media or this blog first. A big no-no in the world of journalism ethics. It looks like Plainfield has leaked news to her that the fund is not going to make their commited date to return capital to investors this year and now is promising June 2012. Next we watch to see if frustrated investors sue or regulators charge them for overvaluation of fees. But then we’ve been waiting for real action against the fund for some time now and it hasn’t happen.

Editors Note: The opinions and views in this blog are my own and do not refelect the views of any of the publications I write for. To read more about the evidence the SEC and FBI are reviewing on Plainfield check out DealFlow Media. It’s behind a paywall but you can buy the single article.


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  1. Teri have you ever looked into Niv and Max making up paper interest payments in the Plainfield Direct Lending fund to grow AUM and collect fees?

  2. Numbers Wieseler says

    Hey I realy enjoyed reading your blog I found it on Yahoo I book marked it to show to my son.

  3. Who even reads HFMweek Teri? Do they ever report news first? Good for you for calling them out on not giving you credit for doing the leg work on all things wrong at PFAM. I had to laugh when they reported Max would have a chance at starting another fund.

  4. Wilton Riegle says

    Interesting stuff as per usual, much appreciated. I sure hope this sort of thing gets more eyeballs.

  5. It is a great pleasure to declare that I love your work. You are doing a great job. Keep up the work.And yes i have book mark your site .

  6. lüks ara&ccedil says

    Glad I’ve finally found somtehnig I agree with!

  7. Eric,

    Teri Buhl has been covering Plainfield Assets Management for sometime. In one of her reports she said Plainfield was Mafia connected. Another good source is Katie Benner of FORTUNE. She has been covering Plainfield investigations in NY & CT. Mandarino was connected to Plainfield in engineering the fraudulent bankruptcy of Kara Homes. Call me for more sources.

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