Menu
25 Sep

Due Dilligence Problems at JP Morgan Securities: Pension Report Snafu

Due diligence appears to be lacking at JP Morgan Securities. I reported today for Growth Capitalist the mega-bank’s clearing business was using valuation reports from a notorious hedgie manager who has been sued for fraud by regulators and outed from his fund. The inaccurate reports then went to pension investors.

JPM Clearing manages the asset valuation reports Hedge Funds have to file for investors who used IRA pension dollars to join a hedge fund. There are all kinds of special tax treatments this type of investor gets so banks like JP Morgan often act as custodians between investors and the hedge fund managers. Except in this case JP Morgan forgot to do a simple google search to learn Long Island hedgie Corey Ribotsky, of NIR Group, hasn’t had the rights to send any info on the value of the investments in his AJW funds since January.

NIR Group was a large investor in the PIPE space and at its height boasted around $800 million of fund assets. But investors had a rude awakening last month when I reported the court appointed liquidator, PwC, was sending out reports showing the funds had lost 97% of their value. So it’s kind of troubling to see Ribotsky out there trying to get JP Morgan to spin a story for him, by having them deliver reports with inaccurate valuations, during the same week the Liquidator is trying to tell these poor investors they are only getting pennies back.

There is a bunch of great details about other tax related errors (possible manipulations to avoid the IRS knowing taxes should be collected) the hedge fund manager did with JPM Clearing; so go read the story at Growth Capitalist while registration is still free.

1 Comment
17 Sep

NIR Group Investors Scream Valuation Fraud after Report of 97% Loss on Investments

Investors in a troubled hedge fund founded by Corey Ribotsky were told by the funds’ liquidator last week their hopes of recovering any real money was slim. I reported on the 97 percent drop in valuation for Growth Capitalist today in a story that details how main street investors who gave their pension money to NIR Group’s AJW Funds are shaking their heads in utter disgust. Investor frustration stems from the notion that the SEC has gathered a ton of new evidence to support their claims of asset valuation fraud in a new amended complaint against the hedge fund manager yet the Eastern District of New York DOJ hasn’t charged Ribotsky with any criminal wrong doing yet.

Ribotsky even came to investors with his dick in his hand this March trying to claim he’d been burned by the market and lost millions also via the fees he says he invested back into the fund. This effort is spelled out in a seven page letter sent to NIR Group investors that you can read below. Keep in mind Ribotsky wrote this letter after a court appointed liquidator kicked him out as fund manager in January and then the liquidator showed investors a cash flow report that reflected a completely different picture than Ribotsky had told them for years.

There is a ton of new details in the story on NIR at Growth Capitalist so go ahead and register for free to read it.

Editors Note: Growth Capitalist is a new trade publication founded by one of my former Dealflow Media editors, Brett Goetschius, who has a ton of experience reporting on finance for the institutional and main street investors. If you’re looking for news that helps you with the kind of investment research that hedge funds pay big banks millions of fees for Growth Capitalist could be a good starting point.

2012-03 Ribotsky Letter to NIR Group Investors

No Comments
4 Sep

Swiss Criminal Investigation into Barclays’ GoldenKey fail Moving Forward

That Barclays criminal complaint I told you about this winter is still alive in Geneva courts. I heard from people involved in the case that after news of Barclays role in the Libor scandal broke, the Swiss judge reviewing evidence brought by high net worth investor Philippe Rebourg took the case a lot more serious. Rebourg lost millions from a Barclays billion dollar structured investment vehicle, called GoldenKey, who failed in spectacular fashion in 2007 through his investment with Avendis Capital. Avendis ran a hedge fund called AEIF fund, which used about 50 percent of their investors assets to buy positions in GoldenKey and then levered up their stake in the SIV. Avendis was also a collateral manager for BarCap, who according to Rebourg’s claim; happen to get some easy money from Barcap to buy their over leveraged position in GoldenKey.

It’s a sordid tangle of relationships involving the America offices of BarCap, with executives like Kelsey Burr and John Parker playing the central role of evil banksters. Burr magically left the bank last year around the time Rebourg showed Barclays a slew of internal emails detailing his alleged role in the fraud. Burr and Parker built products called SIV-lite that would raise capital, borrow money in the short-term commercial paper debt market, and then invest all of this money in higher interest rate bearing products like mortgage-backed securities. The criminal claim tries to show, among other things, Barclays created these SIV’s to off-load their toxic mortgage products at the beginning of the financial crisis and sell them to unsuspecting investors via hedge funds the bankers were friendly with. It’s a tale that highlights how every firm from raters to auditors involved in these high finance products somehow played a role to cheat main street investors.

After I broke news highlighting the case, the judge temporarily gagged people involved from talking with the media. But insiders came forward this week with an update.

“The Swiss judge has done a deep dive into the evidence and charges could be brought within a month,” said a person involved in the Swiss criminal investigation.

The Swiss judge had to sort through multiple offshore entities BarCap set up within the GoldenKey transaction. Finding criminal liability is tough because the complexity of financial products like GoldenKey, which are very difficult to understand even for a specialized judge familiar with financial instruments, have been structured in order to make sure all the potential legal liability was outsourced to some external managers, like Avendis Capital, or domiciled in different bankruptcy remote jurisdictions.

There are questions to how in the heck some raters gave Barclays’ GoldenKey a stellar rating towards the end of the SIV’s heyday in 2007. Why was S&P so nice to Barclays? Now thanks to Rebourg’s case the Swiss judge is looking at email evidence that shows a level of arrogance and RICO like behavior by Barclays. One such email written in 2007 by a Barclays executive who was talking about the bank arranging GoldenKey says “…we can always strong-arm S&P if they become difficult over the CIO position as we use them day in day out for rating so many of our deals.”

The case also involves international auditor BDO because they were assigned as a court trustee for the liquidation of AEFI fund. Rebourg told me last year he couldn’t figure out why BDO was reluctant to go after Barclays to recover funds for investors harmed by the banks role in the alleged fraud. It was especially confusing since they found out that BDO had also been invested, via one of their companies, in the AEFI fund. The hope was BDO would be motivated to help investors get every dime possible after they kicked the AEFI managers out. Then investors in AEFI fund found out one of the partners of BDO was member of the board of Barclays Switzerland branch and figured some favoritism towards Barclays was at play.

Rebourg told me last year, “The attitude of Barclays’ employee, under Bob Diamond tenure, has been one of reckless brinkmanship. Convinced that they were above the law, they have repeatedly plucked clients and investors alike without fear of the law.”

With public sentiment turned against the bank from their admitted role in Libor manipulation this would be an easier time for the Swiss to use their unique financial crime laws against Barclays. But for anything serious to come out of Rebourg’s criminal claim it will have to be Geneva Attorney General Michael Lauber taking the Swiss judge’s opinion of the claim and Rebourg’s evidence to heart if we are going to see criminal charges drive that fear into Barclays’ bad actors.

1 Comment
10 Jul

UPDATE: Why is this Third Point Trader being Sued for Civil RICO?

UPDATE 9-5-12: Hedge Fund publication FinAlternatives is writing today about news of the Perry divorce/Civil RICO suit which was reported here first over a month ago. They mention accusations about Jeff Perry leaking news to the New York Post during their coverage of the balance sheet problems with Fairfax Financial. Perry’s ex-wife Elizabeth is off-base in this claim. I interviewed the NYP reporter involved who said Perry was not his main source on that story. In fact before Elizabeth filed her claim I told her attorney this. The suit reads like a shakedown because she thinks her husband has hidden money from her as they headed to divorce. Mr. Perry’s attorney told a local paper the lawsuit is “baseless” and The Jouranl News writes Jeff Perry’s lawyer noted the suit came just a few days after his client won custody of the couple’s children in July. The Jouranal News reporter, Erik Shilling, basically rewrote Mrs. Perry’s lawsuit without doing any investigation to learn about the dirty tactics we’ve seen between some hedge funds and Fairfax Financial. Shilling also refused to follow basic journalism ethics and credit me for reporting this news first.

Original Story
A trader for Dan Loeb’s Third Point hedge fund was sued for civil RICO yesterday in New York Federal Court. This time it’s not a disgruntled CEO coming after trader Jeffrey Perry, who was involved in the controversial short sell trade against Fairfield Financial; it’s his wife of 20 years. Elizabeth Perry who sued Jeffery in 2011 for divorce claims her husband has worked for years to hide some of the $40 million in assets they made during their marriage and has allegedly lied on the net worth statement he filed in Westchester County, NY state court.

Mrs. Perry says she know this because she found investments in other hedge funds Jeffery had made and has some Cayman Island bank accounts he didn’t disclose but surprise surprise he won’t give the details about their worth in discovery during their divorce case. Elizabeth says investments in funds like Arden Institutional Advisors and Black Bear Fund II are worth over $1 million. So she rallied another famous hedge fund wife, Patricia Cohen’s attorney Howard Foster, to file a civil RICO case. Jeffrey Perry had also worked for Patricia’s ex Stevie Cohen and another famed hedgie Jim Chanos. Chicago-based Attorney Foster has had some success in Civil RICO cases and is still fighting Mrs. Ex-Stevie Cohen case in New York appellate court. The Cohen civil RICO case could get a decision soon and overturn a dismissal by a New York judge. Attorney Foster showed documents and detailed evidence about Stevie Cohen hiding over a million dollar investment from Patricia which made the case pretty strong. But the Perry suit he filed yesterday reads like a conspiracy theory not laden in a lot of detailed fact. The Perry’s divorce is still ongoing with custody battles being heard in New York State court this week.

Elizabeth Perry’s civil RICO claim could award her triple damages if her attorney can prove there was a conspiracy to hide assets planed by Jeffery while he was working at Third Point as far back as 2005. Attorney Foster attempts to lay out Jeffery’s role in ‘watching’ other people share information and analysis about Fairfax to reporters in an attempt to drive down the price of the stock. This is a case that made headlines for years except Foster leaves out the fact the a New Jersey judge dismissed the claims Fairfax brought against Third Point, Danny Loeb, Jeffery Perry and others.

Elizabeth’s suit makes a big assumption that Jeffery also created a false analysis about Fairfax and shared it with a New York Post reporter who then used Jeffery’s info to write an investigative story about the company being investigated by the Feds. I looked into this claim and learned from the reporter that wasn’t the sourcing for the story which makes me question does Elizabeth actually know any new information about Jeffery that could amount to a racketeering claim. If she does I’d expect members of the SEC to be knocking on her door but if not I don’t see why Jeffery’s actions as a trader doing research on a company his fund thinks is full of fraud ties into whether or not he’s hiding investments during a divorce.

Lying about your wealth so your soon-to-be-ex gets less and signing documents that confirm this is illegal in this country and discovery in big money wall street divorce cases can be really expensive. But using a federal court system with a civil RICO claim to get a judge to move discovery along or intimidate her husband seems extreme. If a federal judge finds merit to her civil RICO strategy then we’ve got a story to watch.

1 Comment
3 Jul

Court orders SEC whistleblower evidence on JP Morgan Hedge Fund fraud released

I’m on RT’s top financial show, Keiser Report, today talking about JP Morgan and the cascade of fraud the bank keeps trying to cover up. We learned last week Jamie Dimon had model the bank’s whale trade loss at a possible $9 billion but didn’t mention this when congress asked him to come in for an explainer on how he massively screwed up the bank’s risk management. JPM’s shareholders aren’t getting a lot of transparency from the bank’s leadership and I’ve learned there is another little problem coming to forefront.

A Connecticut state court judge has ordered whistleblower documents and internal emails sent to the SEC last year turned over to UBS who’s suing a JP Morgan owned hedge fund. According to a suit filed by ex-JPM’er Kevin Dillon the secret documents allegedly show JP Morgan’s back office trading administration worked with a Hedge Fund, Texas-based Highland Capital, to manipulate the net asset value of their fund’s assets. Court filings claim this was all done to get the Swiss banking giant, UBS, to lend them more money when they were in a performance death spiral and not let on to their investors that trouble was brewing in an effort to starve off redemptions.

The UBS lawsuit shows a complicated financial restructuring of a mega-million security by JPM’s staff to cover up the assets that likely should have failed sooner than they did. There are allegations of amping up the NAV to attract more investor money until the financial crisis whipped them into a tail spin they couldn’t recover from. Until a low-level internal whistleblower started gathering docs and complaining to his superiors we might have never known how deep the alleged deception was. Dillon was fired, sued, got some cash from JP Morgan in a private settlement but now UBS plans to reopen the wound and not let JP Morgan hide their bad behavior.

When UBS, who claims to have lost near $700mn on the Highland fraud, gets the whistleblower documents from Dillon’s Greenwich attorney Mark Sherman we could see all kinds of nasty emails exposing illegal acts like: back dating cross-trades between funds, applying trade-date accounting to up the NAV without settling trades, and moving crap assets out of one fund into another fund while making it look nice and rosy so UBS wouldn’t slam them with margin calls. Sherman said in CT state court filings last month there are actually 36,000 whistleblower documents he sent the SEC but since his whistleblower client, Dillon, signed a settlement with JP Morgan he won’t give them up for public viewing until the court orders it. Well, that’s happen now and when UBS gets their hands on the docs I’d expect the Swiss bank to file more evidence or claims attached to their fraudulent conveyance lawsuit that will basically outline a securities fraud case for the SEC against Highland and JP Morgan. If Sherman doesn’t request a protective order then the public will get a view of what kind of dirt the SEC has against JP Morgan/Highland.

Sherman’s used the new Dodd-Frank whistleblower law to score the largest reward for a client in the Art Samberg / Pequot Capital SEC settlement and it’s clear he’s hoping the SEC wakes up to the shenanigans at JP Morgan and files suit soon or moves right to a financial settlement with Highland/JPM. I realize it’s a big non US bank suing a big US bank for fraud so the case isn’t high on the SEC’s list but if we are seeing asset value manipulation within JP Morgan’s own hedge fund you have to wonder what other hedge funds JP Morgan has aided and abetted securities fraud with.

Highland Capital was run by James Dondero and became insolvent during the financial crises four years ago. The UBS lawsuit is FST-CV12-6013682-S and can found in Stamford, CT State Court.

7 Comments
12 Jun

Spongetech Fraudster Moskowitz makes SEC Plea Deal

Nearly six months after Steven Moskowitz plead guilty of one criminal count in the Spongetech pump and dump stock scheme the Securities and Exchange Commission got him to settle their securities fraud suit. On May 30th court filings show Moskowitz, co-conspirator of one of the most audacious penny stock frauds that cheated thousands of regular Joe’s out of life savings, agreed to be permanently banned from the industry and payback any profits and bonus he earned while President of Spongetech.

The number of millions Moskowitz will be ordered in restitution is still to be determined by New York Federal Judge Irizarry. The government’s suit, filed in May 2010, claimed the company controlled by Moskowitz and Michael Metter made $52 million in ill-gotten gains. Moskowitz doesn’t admit or deny guilt in the regulators settlement but then the SEC throws in this special condition that he can’t publicly deny he didn’t do any of the securities violations, which included fraud, that they sued him for. This of course could be a boost for the shareholder class action civil suits that are moving forward in New York Federal Court but considering Moskowitz has plead poor to the courts since his arrest we still don’t know how in the heck the SEC is going collect their financial judgment. Remember Moskowitz’s partner and Greenwich Radio station owner Michael Metter is still fighting the DOJ and SEC fraud charges and has yet to admit any wrong doing. And court records don’t exactly show either men have double-digit millions sitting in banks accounts waiting to be seized.

Now we see even though the DOJ got 6 guilty pleas in the case they have a serious evidence problem in their case against the last holdout – Mr. Metter. Aaron Elstein of Crain’s New York reported last month the DOJ got slapped in the face by the judge in Metter’s case when she denied their ability to use any electronic info they got off seized personal computers of Metter because they took too damn long to get through discovery and show Metter’s attorney what they had. If this sounds like a rookie legal mistake let’s not forget this is the same DOJ office that lost the case against the Bear Stearns Hedge Fund managers. Maybe the DOJ found some hidden emails on Metter’s computer showing millions hidden in off-shore bank accounts in Israel (both men are Jewish) and can tell the SEC where to get their recovery from but that’s a long shot.

The SEC made some progress this spring in getting the assets of Biztalkradio.net, which owns the local Greenwich radio station and three other stations, added as a relief defending in their suit. Metter has been a partial owner and chairman of this legitimate business for years. But the SEC added on claims that the Spongetech duo used the Radio biz to embezzle money via Spongetech stock. So the regulator has forced Metter to sell the stations and if there is a buyer the profits go to the SEC. No decent offers have come in yet and it’s highly doubtful they’d get the $1mn asking price on the Greenwich station. On top of that, in February we saw an upstate New York secured lender, Solution Funding, magically pop up and claim if the stations sell they are owed a few million also so that asset isn’t likely to produced real dollars for aggrieved shareholders or the SEC.

Court records show Metter is still getting paid around $6,800 bi-weekly by the radio biz although the SEC controls how he can spend it. Since his May 2010 arrest two years ago that means he’s been able to earn a few hundred thousand dollars off a company that alleged was money laundering about $5 million for Spongetech and its affiliates. He also still gets to live in his $2 million mid-county Greenwich home but hey at least the SEC took his yacht away. The only ray of hope for shareholders is that a letter filed by the SEC in court says a receiver should be appointed soon for Biztalkradio.net and we can assume the receiver would oust Metter from his current $100k+ job and move the stations sell along.

A total of seven people from lawyers to men who helped move money around for Metter and Moskowitz were arrested in the Spongetech securities fraud case and 6 have them have now plead guilty to criminal charges (3 of the 6 have been sentenced to jail time). The Spongetech duo has been charged with fraud, conspiracy, obstruction of justice, money-laundering and perjury in the DOJ’s case but Moskowitz and Metter the masterminds behind the scheme are still not locked up. Remember this was company New York Post trained investigative reporters Roddy Boyd and Kaja Whitehouse warned was a fraud a year before there were any arrests. I even reported for Greenwich Time three months before his arrest that Metter could lose the radio station if the SEC charged him. Metter even tried to sue the three reporters outing his fraud for defamation before his arrest which was of course tossed out. The SEC can fine and ban Wall Street criminals all day long but when it happens so late after the financial crime has been committed collection efforts become that much harder and the legal impact that much softer.

2 Comments
3 Feb

NIR’s Ribotsky Pigged Out on Fees while Investor Cash was Frozen

NIR Group’s court appointed liquidators, PricewaterhouseCoopers, have discovered Corey Ribotsky pigged out on fees while hundreds of mom and pop investors had their pension investments frozen. I reported this week for Long Island Business News, Ribotsky’s hometown paper, that the alleged hedgie fraudster is set to reap a whopping $52 million in fees. On top of that he had to resign from the fund after PwC and a group of US investors pressured him to quit after they realized the broker dealer market won’t do business with him because of reputation risk and his ‘management’ skills were not effective any longer.

There is a ton of detail on how investor cash was used while the funds were gated since late 2008 in the LIBN story so click here to read it. I will note that Ribotsky’s pressman Brad Gerstman told me this week Ribotsky has always told investors he reinvested his fees into the fund. But the PwC cash flow report shows only $300,000 was invested since November 2008. Hummm something doesn’t add up.

The staggering amount of fees is not the only thing PwC found when they were given access to NIR’s books. According to a Dec 15th letter, the liquidator also told some investors that funds were comingled. You see in Ribotsky’s view, although he sold investors into separate onshore and offshore funds, all their money was one big pot to do what he wanted with.

Ian Stokoe of PwC wrote, “In practical terms, NIR confirmed that while each Fund held one or more bank accounts, cash was routinely allocated from the various bank accounts to which ever entity needed it at the time to discharge liabilities.”

The FBI’s Mike Ryan has interviewed NIR investors for over two years now, and while investors say it was a relief to see the SEC finally sue Ribotsky for investor fraud, they simple don’t get why the Feds didn’t step in earlier and prevent the cash bleed from what appears to be needless fees on inflated assets.

UPDATE 2.6.12: DealFlow Media got the PwC liquidator on the record to say he’ll be looking into the legitimacy of the fees Ribotsky/NIR took while the funds were gated. This was something Ian Stokoe hinted he’d do when I first reported PwC was taking over the offshore fund this summer. So it will be important to watch if Ian follows through or is throwing out ‘friendly PR quotes.”

1 Comment
4 Jan

DealFlow Reporting Warned Early on about Life Partners Fraud

Three Life Partners executives were finally sued by the Securities and Exchange Commission yesterday for insider trading and accounting fraud. On December 16th 2010, Donna Horowitz senior reporter for DealFlow Media was first to report a Life Settlements trade group had sent a letter to the SEC warning about inflated prices the publicly traded company was booking for its life settlement assets. The trade group’s letter combined with Horowitz reporting on the alleged fraud by Brian Pardo CEO of Life Partners have clearly laid the ground work for this massive SEC suit against one of Texas Gov. Rick Perry’s big donors.

Today we see nearly every other finance publication playing catch up to the yearlong investigation of Dealflow Media, which included freedom of information request and in-depth sourcing from insiders victimized or involved in the alleged scheme. The Wall Street Journal today has tried to boast about a page one story they ran in late December 2010 on Life Partners, a story they basically re-jiggered after Horowitz originally broke the news.

Horowitz’s December 16th 2010 story, called Life Partners LEs Too Short?, warned investors about problems one Dallas investment club had found:

Jerry Kingston, who started the Dallas investment club, said the club was shut down because the group that hosts the web portal did not understand the life settlement asset class. He knows of no similar life settlement investment clubs.

“My goal would be to set up an [investment] club locally but I have not been able to find 5 friends to plop $10k each into an investment nobody clearly understands or does not have a moral objection to,” he said in a July email to The Life Settlements Report. “It’s really sad too given the investment environment. LPHI [Life Partners Holdings Inc.] raised over 400 new investors last month alone and those investors plowed in $30.7 million!!!”

Kingston had pitched the club on the professional networking website LinkedIn in August 2009.

Unlike the WSJ, DealFlow and Horowitz stayed on the Life Partners story with bi-weekly reports through out 2011 of investor fraud suits, Texas judges having to excuses themselves because they were too friendly with the Life Partners CEO to rule on cases, and even threats of lawsuits by Life Partners to investors who spoke out about the alleged fraud. To read over 30 articles on how Pardo executed this scheme and has continued to bully nearly anyone who challenges him, including the SEC and its auditor, you can buy single copies of Horowitz reporting here.

Pardo told journalist yesterday he plans to vigorously fight the SEC’s suit. Sam Antar, stock fraud expert, told me after the SEC suit was made public, “Criminal fraud is harder to prove and discovery is easier in civil cases. That’s why you see the SEC sue first sometimes.”

Life Partners preyed on main street investors and novice investor clubs to promote investments into its company but if you were reading DealFlow’s reporting, for over a year, you would have at least been forewarned to what regulators now reveal was a revenue and stock manipulation fraud.

Life Partners closed down 17 percent in trading today closing at $5.26 and the NASDAQ listed stock had a 52-week high of $16.83.

2 Comments
«Older Posts
Newer Posts»