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5 Feb

Hedgie Harassed by Pizzas also Managed Toxic CDO in DOJ’s S&P Lawsuit

Yesterday I reported on a New Canaan hedge fund manager who had a guy arrested for calling him multiple times saying he was a crook for working at Bear Stearns. The headlines were about some kind of harassment going on where the guy was obsessed with Higgins wife – who he use to date. I thought Higgins’ stalker was a bit off because Higgins actually left Bear Stearns in 2004 so how could he have helped caused their spectacular 2008 downfall. Well I might have been wrong about that.

Today in the DOJ civil fraud suit against the rater, S&P, we learn all about this $500 mn-ish asset backed CDO that was sold to a California credit union and blew up a year after S&P gave it a glowing buy signal. It was called Sorin VI Ltd and issued in March 2007. Well guess who picked the collateral that went into that CDO at the center of the DOJ’s lawsuit – non other than James Higgins firm Sorin Capital Management. And guess who the underwriter was…yep his buddies at Bear Stearns on the resi mortgage desk specifically Mike Neirenberg who ran the Alt-A desk.

Moody’s records show they started taking negative down grades on the toxic CDO Higgins managed in April 2008. His Bear Stearns buddy, Nierenberg, is one of the main traders in my big rmbs fraud story at The Atlantic that was also part of the Frontline Flim The Untouchables. I reported in May 2010 for The Atlantic analysts that worked for Nierenberg were told to make up loan level detail for the raters (like S&P) to get the bonds rated faster. Something that pretty much equals fraud.

Now this story gets even funnier because S&P thought the CDO was so screwed up – while they were rating it – that they even made a little song called ‘Burning down the House’ about it. FTAlphaville has some fun insight on the CDO and the suit today. The California credit union that bought $100mn of the CDO ended up loosing 90 percent of their investment, while Hedgies acting as collateral managers made some nice extra change ‘managing” the CDOs. And as long as they didn’t also own a tranche of the toxic stuff they took care of there wasn’t a lot risk for them.

New Canaan town records show 2008 was the year Higgins bought his huge spanking new mansion at 1480 Ponus Ridge Rd for near $8 million. Then at the end of the year he had to tell his investors his $1.5bn flagship fund was well…negative 36 percent.

Maybe Higgins alleged stalker, Donato Minicozzi, really did know something about how Higgins worked when he called to tell him “Bear Stearns Crook. Notre Dame Sucks. See you at South Beach.” But then this was a guy who threaten the millionaire by saying he’d send pizzas and girls to his house– so he might not be that clever.

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30 Nov

Are the Feds Gunning for Civil RICO against Steven Cohen or SAC Capital?

The DOJ has a hard on for famed hedgie Stevie Cohen and the rest of the financial press has suddenly just figured this out. Cohen, a stock trader who founded Stamford-based SAC Capital, runs a trading company that is facing a pending SEC lawsuit. What the SEC would sue for we don’t actually know yet but my fellow journalist are speculating it’s for insider trading because six other people who once worked for Cohen have been arrested for such securities crimes.

I’ve covered Stevie Cohen since 2007 for Trader Monthly when we put him on a pedestal as a top 100 trader simply for the amount of money he made in a year. Cohen-ites (his loyal band of testosterone fueled stock jockey traders) live all around me in lower Fairfield County and I’ve interviewed countless people who have worked for him or are family related. The man has created a cult like mafia club who even when he kicks your rear out of his firm for one bad trade are still ultra loyal to him. I’m consistently told “No trader is ever going to try to cross Stevie Cohen”. So getting a trader like Mathew Martoma, who was arrested last week for one of the largest inside trading profits the DOJ has figure out yet,is going to be really tough for Federal prosecutors. I know as a fact Stevie became aware of the FBI investigating him personally for insider trading as far back as 2006 – based on conversations Stevie had with people I spoke with. That’s why we are seeing press reports about the number of compliance people he has at SAC because he amped up that division of the firm once he knew the feds were on to him.

The DOJ is playing a game of chicken with Cohen by throwing in a paragraph in their recent criminal case against a trader who worked from him saying ‘the hedge fund owner’ was on a call discussing getting out of the stock the Feds think was traded with inside info. There was really no legal reason to put that detail into the complaint since they haven’t charged Cohen but it’s clear they wanted the public to hear they are coming after him. Now nearly every one of the SAC traders I have spoken with simply think there is no way Stevie is that dumb to have a 20 minute conversation with Martoma that would included Stevie hearing Martoma say he wanted to get out of the trade because he was just leaked material non public information about a drug trial. In fact the person they think would be dumb enough to have that convo is the man who ran and partial owned CR Intrinsic Matt Grossman. Stevie is really slick about moving risk away from his direct line of fire and since the DOJ complaint doesn’t actually name who Martoma spoke with all we can do is speculate and hope the DOJ who is leaking a ton of info to reporters is telling the truth.

I only know of one sloppy practice Stevie has done in the past which could set him up for a co-conspirator in securities fraud – he would have weekly calls with traders who held large positions on Sunday nights to get a status of why they are in the trade. Cohen knew his traders used expert networks and according to firms that worked with SAC he encouraged his traders to use them. Still using an expert network isn’t illegal as long as you don’t get secret material non public info from them. That’s why I’m hearing from people who have been interviewed by the Feds about Stevie that a one time criminal charge for insider trading isn’t their goal. Instead it’s a non criminal suit–they want to charge him with Civil RICO.

Think about it – we know there is a pattern of behavior coming out of SAC Cap to get inside info to boost their trading gains. So if they want to get the leader of this pact why not try a suit that doesn’t need a full burden of proof jury to convict but just a majority who thinks he did this. They also need a pattern of about three crimes that followed the same amo and they basically already have that. With Civil RICO the DOJ can also go after Stevie’s personal assets if they can prove he bought them with money earned at SAC Capital. Given about half of the $14 billion in assets the firm manages are Stevie’s that sure gives the DOJ a big bucket of money to go after. The DOJ’s goal isn’t to get an inside trading charge on him with maybe a few years of jail time; they want to totally obliterate Cohen, shut down any chance of his trading again, and then take away his 36,000 sq ft palace in Greenwich and leave his wife Alex and daughters with nothing to live on.

Now this might be a pipe dream to the guys and gals running the DOJ financial fraud unit but I am quite confident after over six years of time and money spent on chasing Stevie Cohen they won’t give up with out a down and dirty fight. The problem is proving liability and their under paid lawyers and investigators have an uphill battle against the mind of Cohen and his cartel of other hedgies he’s helped turn into millionaires.

I hear of office bets at Wall Street firms setting up pools on if Cohen gets arrested and most are betting indicted but not convicted. That’s how much power and smarts they think this trading titan has. I have no doubt that Stevie started his career at Gruntal using inside info to make money — in court filings with his ex-wife’s lawsuit his attorney never argues Stevie didn’t inside trade on RCA they just claim she can’t sue for it because it’s past the statute of limitations. (Patricia Cohen’s suit against her ex-husband Stevie Cohen is still ongoing in NY State Appellate Court) But what I have doubt in is the DOJ’s ability to get the mafiosi informant type of evidence they’d need to nail him…and that’s just a sad fact of our justice system.

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29 Nov

Greenwich Hedgie Max Holmes now wants to be a Media Titan

A Greenwich hedge fund manager who ran a multi-billion dollar fund is quitting trading to getting into the media business. Max Holmes of Plainfield Asset Management, who was widely reported for being under regulatory investigation, has called his new venture EcQuant. Holmes started winding down his asset-back fund a few years ago after gating his investors money during the financial crisis for over three years. Regulators were investigating the hedgie for charging excessive fees on overvalued assets but no charges have been brought so far.

Holmes, who is also a part time professor at NYU’s Stern School of Business, claims to have a nifty new software that will “change the face and bones of the News Media market”. But what this means is a mystery as the rest of the company description is a gobbly-guke of pr spin claiming EcQuant’s ’20 developers’ can create monetary value for media content–with out explaining how. They even claim to be hiring!

It’s unclear how Holmes little after-hedgie-life company was funded but I’ve previously reported for DealFlow Media that Holmes took home at least $50 million in fees while his fund was gated and his pension fund investors earned nothing. Hopefully he’ll be a little more diligent with his staff this time and not hold recorded town halls that teach his crew how to hide information from the SEC.

If your a new client of EcQuant we’d love to hear from you. Max wouldn’t return an email for comment but if you want to reach Holmes he’s now at: max.holmes@ecquant.com or you can stop by his office at 60 Arch Street (2nd floor) in Greenwich.

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15 Oct

SEC Recovers Only $100k From Spongetech Fraud but Stops Metter’s WGCH Income

Spongetech’s co-founder Michael Metter was forced out of his CEO job at Businesstalkradio.net last week and had to give up his six-figure income. You might remember Metter’s name when he made headline news around the world for his arrest by the FBI for securities fraud and interference with an SEC investigation. The alleged scam involved the pump and dump of a penny stock company he was CEO of called Spongetech. Metter has been out on bail since May 2010 and allowed to keep his side-job as CEO of four am radio stations he partially owned.

I was first to report last year for DealFlow Media that the SEC, in their civil fraud suit against Metter, was able to seize control of the radio station bank accounts after they discovered Metter and his Spongetech partner Steven Moskowitz had used money from a Spongetech affiliate company to lend the stations $6 million. The transaction was set up as a PIPE deal, which means it involved the sale of Spongetech stock to come up with the funds that BTR then used to pay off Barker Capital who had an asset backed lending fund that gave Metter and his radio company money to buy more radio stations. Metter had also secured his $2 million mid-country Greenwich home as collateral for the Barker Capital loan and when BTR didn’t pay Barker the money back on time they filed a lawsuit to seize the radio station assets and personal assets of BTR owners.

Luckily for Metter he had this high-flyin’ penny stock company, Spongetech, to borrow from and get Barker Capital off his back. The SEC convinced the court this move was similar to money laundering and last year the radio stations, which includes a Greenwich CT am political and business station (WGCH), were named as relief defendants in the Spongetech fraud suit. I reported in February 2010 for Greenwich Time, before Metter’s arrest, that if the SEC sued him for fraud he’d likely lose his radio stations. Well that started to come true last year when the securities regular forced the stations to be put up for sale because they didn’t have the millions needed to pay back the ill-gotten gain from Spongetech.

Today, I reported for finance trade pup Growth Capitalist Investor that court documents show some of the BTR assets have actually sold and the funds are now held by the court. The station won’t answer questions about which stations or assets have sold but I was able to confirm the SEC is telling lawyers in the case it’s only for about $100,000 (net of cost). BTR owns am stations in Pittsburg, Brockton Mass., Las Vegas, and Greenwich. FCC records show the Greenwich and Brockton stations are still owned by BTR and their call letters, WGCH / WXBR are still advertised on BTR’s website. The Las Vegas station was purchased for $3.9 million so if it’s one of the assets that just sold for around $100k that is one heck of a loss. The court appointed receiver for BTR isn’t talking either about the asset sold but by year-end new ownership likely has to be filed with the FCC.

On Friday, Rob Varnon inaccurately reported for Greenwich Time that the Brockton station has been sold for $250,000. Varnon also wrote, “Metter maintains his innocence and said funds from the loan went to pay back a hedge fund that was calling in its loan. He says he did not know the source of the funding was Spongetech.” Now that’s odd since Metter was the signatory power for BTR who received the funds from Spongetech who he was also the CEO of since 2001? SEC filings show Metter signed financial statements and 8-K’s with the SEC stating BTR’s parent Blue Star Media had gotten the loan in question so if he didn’t know where the loan came from then the SEC could just add on another regulatory violation, breach of fiduciary duties because as CEO of BTR it’s his job to know where he is borrowing money from.

These are all documented and easy to research facts Greenwich Time left out of their story. Maybe it has something to do with the fact that Metter’s replacement at the radio stations is Jeff Weber, the chair of the Greenwich Chamber of Commerce and former COO of BTR who was there when the questionable loan went down. SEC filings also show Weber owned shares in Spongetech-it’s unclear if they were ‘given’ as payment for his COO job at BTR or if he bought them on his own. Part of the SEC’s case against Spongetech is the fact that millions of penny stock shares were cashed out via illegal methods of unrestricting stock that wasn’t allowed to be sold on the market. I have to wonder if Weber received any of his Spongetech stock this way? Weber hasn’t been named as a defendant in the SEC or DOJ’s criminal case against Spongetech and also won’t return calls for comment.

Weber told the Greenwich Time last year the Greenwich station was listed for $1.25mn but I reported at Growth Capitalist Investor that people involved in the sale said they’ve haven’t gotten offers anywhere near that.

The monies held from the partial BTR assets sale are meant for defrauded Spongetech investors but my report at Growth Capitalist Investor shows there is now a ‘magical’ new secured lender who claims BTR also owes them millions. This means even if the rest of the stations end up sold, for say $500,000, the SEC will have to fight another court battle in its slow attempt to get back any relief dollars for mom and pop Spongetech investors. The only thing investors can take satisfaction in is Metter’s personal bank accounts, Greenwich home, boat and other assets are still frozen and now he doesn’t have his $8,600 bi-weekly salary coming in.

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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.

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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

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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.

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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.

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