Hedge Funds

Published on: January 2, 2013

Investor Sues Citigroup for $400 Million Lost in CSO Fund

An investor recently commenced legal action attempting to recover $400 million lost in Citigroup Alternative Investments LLC’s Corporate Special Opportunities Fund. The investor, David Beach, is suing Citigroup, accusing the bank of misleading investors about debt trading in ProSiebenSat. 1 Media AG, (PSM). ProSiebenSat. 1 is a German firm and one of Europe’s biggest broadcasters.

Investor Sues Citigroup for $400 million Lost in CSO Fund

According to the complaint, which was filed in Manhattan federal court, John Picket, the CSO’s founder, leveraged the assets of the fund in order to purchase debt in the German firm’s offering worth around 558 million Euros, or $730 million. Allegedly, following Pickett’s actions, the CSO fund suffered significant losses. Reportedly, in December 2007, Pickett resigned.

Beach’s investment fraud lawyers stated in the complaint that, “investors were not informed that his departure was the result of his breaches of the fund’s investment restrictions.” Citigroup spokeswoman Danielle Romero-Apsilos declined to comment in relation to the suit.

Published on: December 13, 2012

Merrill Lynch Customers Could Recover Losses Over Hedge Funds, Fannie Mae Preferred Stock

by InvestorLawyers

Securities fraud attorneys are currently investigating claims on behalf of Merrill Lynch customers who suffered significant losses as a result of their hedge fund investments and/or Fannie Mae Preferred Shares investments with the firm.

Merrill Lynch Customers Could Recover Losses Over Hedge Funds or Fannie Mae Preferred Stock

In particular, these stock fraud lawyers are looking into the sales practices of Merrill Lynch and its brokers in regards to the Coast Access II LLC hedge fund. Coast Access II LLC is a “feeder fund,” investing substantially all of its assets in Coast Diversified Fund LLC, a multi-manager, multi-strategy “fund of funds” which invests through the market neutral or relative value trading of several securities and commodities trading advisors, according to Coast Access’ SEC Form D filing. Coast Access II LLC’s place of principal business operations and executive offices are listed as Merrill Lynch Alternative Investments and the investment was offered through Merrill Lynch. However, securities fraud attorneys now believe that the hedge fund was recommended to certain Merrill Lynch clients, despite its unsuitability for those clients.

A recent FINRA arbitration proceeding concluded with an order for Merrill Lynch to pay two of its investors $1.34 million in connection with their Fannie Mae preferred shares investments. Allegedly, Merrill Lynch misrepresented the risks involved in this investment, marketing them as “safe.” As a result, the investors, clients of broker Miles Pure, suffered significant losses. Their claim included allegations that the firm was negligent in its supervision of Pure and had committed civil fraud. Pure now works for Morgan Keegan.

Published on: September 20, 2012

JOBS Act for Hedge Fund Advertising Faces Criticism from Investor Protection Groups

by InvestorLawyers

In a recent 4-1 vote, SEC commissioners decided to invite public comment related to a proposal for how to put an end to decades of limits imposed on startups and private funds in their pursuit of investors. Together with the mutual fund industry and investor protection groups, stock fraud lawyers look upon the new JOBS Act with criticism. The Act will essentially, as part of an effort to increase fledgling companies’ funding options, end the advertising ban on hedge funds. Reportedly, hedge funds will possibly be able to conduct wide advertising campaigns, as opposed to the current strategy of closed-door solicitation to individual investors.

JOBS Act for Hedge Fund Advertising Faces Criticism from Investor-Protection Groups

According to securities arbitration lawyers, concern related to the JOBS Act comes from the possibility that a restriction-free lift of the ban could result in some private funds exposing investors to misleading advertisements. Securities laws have previously only allowed firms to solicit non-public securities to “accredited” investors, who were usually wealthy, frequent investors. Furthermore, these investors would have needed an existing relationship with the firm.

While individuals who qualify for the investments will still need to have over $1 million in assets or a minimum income of $200,000 a year, a lack of advertising restrictions would still expose individuals for which these investments are unsuitable to misleading solicitation. Furthermore, those individuals may not have the investment sophistication required to understand the risks of these products. According to stock fraud lawyers, this could be a situation that leaves investors susceptible to securities fraud.

Published on: June 13, 2012

Investment Fraud Red Flags for Elderly Investors

by InvestorLawyers

According to securities fraud attorneys, elderly and retired individuals are frequently the targets of securities fraud. While this is not likely to change, elderly investors can be aware of red flags that could indicate fraud has occurred. Some of these red flags include recommendations for investments that are typically unsuitable for elderly investors, unsolicited investment offers, unrealistically high return promises, promises of little or no risk, request for up-front payments, high pressure tactics, direct mail offerings and Internet offerings.

Investment Fraud Red Flags for Elderly Investors

In regards to suitability, FINRA Rule 2111 will replace NASD Rule 2310 on July 9, 2012. Factors determining an investment’s suitability for each investor will now include the customer’s age, tax status, financial situation and needs, liquidity needs, investment experience, investment objectives, risk tolerance, investment time horizon and other investments. A broker or adviser must consider these factors before making a recommendation after July 9.

According to securities fraud attorneys, because of an elderly investor’s age, asset allocations that are weighted in investments with a long time horizon or higher risk investments are often considered inappropriate. Potentially unsuitable investment products for elderly investors include:

Published on: December 22, 2011

SEC Issues Wells Notices to Harbinger Capital; Investors Seeking Representation

by InvestorLawyers

Following the recent notices sent by the Securities and Exchange Commission to Harbinger Capital, Philip Falcone, Omar Asali and Robin Roger, some investors of Harbinger Capital are seeking representation for possible securities arbitration claims. Philip Falcone, 49, is the manager of the New York-based hedge fund Harbinger Capital Partners LLC, which was valued three years ago at $26 billion but has now fallen to a value of only $5.7 billion. Furthermore, a wireless technology venture that is being backed by Falcone, LightSquared LP, is facing regulatory and political roadblocks.

SEC Issues Wells Notices to Harbinger Capital; Investors Seeking Representation

A statement by Harbinger said the Wells Notices issued by the SEC are related to alleged “violations of the federal securities laws’ anti-fraud provisions in connection with matters previously disclosed and an additional matter regarding the circumstances and disclosure related to agreements with certain fund investors.” The firm also stated that, should an enforcement action be brought by the SEC, they “intend to vigorously defend against it.”

The SEC and the U.S. Attorney’s Office are investigating Harbinger over a loan that was paid to Falcone from one of his funds. The loan amounted to over $113 million and was allegedly used to pay personal taxes. The kicker? The transaction was completed without notifying investors. In addition, the SEC is investigating whether preferential treatment was given to some investors over others. According to a statement made by Harbinger, withdrawals from its main hedge fund are anticipated to be suspended December 30, 2011.

Published on: December 8, 2011

Western Pacific Facing Charges of Hedge Fund Fraud

by InvestorLawyers

The Securities and Exchange Commission (SEC) has charged Western Pacific Capital Management LLC and its president, James O’Rourke, with securities fraud. The California-based firm allegedly materially represented the liquidity of a hedge fund and failed to disclose to clients a conflict of interest related to the fund. Stock fraud lawyers are watching this and other hedge fund fraud cases in which investors may be seeking to reclaim their losses.

Western Pacific Facing Charges of Hedge Fund Fraud

The conflict of interest occurred when O’Rourke and the firm urged their clients to invest in a security on which they would earn a 10 percent commission. In addition, they did not register as a broker, did not provide written disclosure, did not properly redeem the interest of one hedge fund investor before another, and omitted and misstated aspects of the hedge fund’s liquidity. The security in question was stock offered by Ameranth Inc. and sales took place in 2005 and 2006. Investments made by Western Pacific clients earned the firm $450,495 in “success fees.” In addition, from 2005 to 2008, O’Rourke and Western Pacific stated that their hedge fund, The Lighthouse Fund LP, consisted of only 25 percent illiquid assets when, in truth, it consisted of 90 percent illiquid securities.

One investor, who did not want the $800,000 of Ameranth stock he currently owned, was given his interest in cash by O’Rourke after Western Pacific used the Lighthouse Fund to resolve the dispute. This took place ahead of a different client that had requested a full redemption previously, thus the redemption of interest did not take place in the proper order.

Published on: October 17, 2011

SEC Proposes Revision of Rule That Will Reduce ABS Conflicts

by InvestorLawyers

The U.S. Securities and Exchange Commission has introduced a proposal in which bets made by securitization participants and underwriters against ABS, or asset-backed securities, that cause a conflict of interest will be barred. The hope is that this bar will prevent possible harm to investors that are caused by these conflicts of interest.

SEC Proposes Revision of Rule that will Reduce ABS Conflicts

According to Investopedia, an asset-backed security is “a financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternate to investing in corporate debt.” While an alternate to corporate debt investment can be appealing to investors, asset-backed securities are not without their risks.

On September 19, a 4-0 vote by SEC commissioners passed the decision to seek comment on a Dodd-Frank Act-required rule. The clarification of this rule would “restrict those who package or sponsor asset-backed securities from engaging in deals that put their interests in conflict with buyers for a year after the first closing of a sale,” according to Bloomberg Businessweek.

Published on: September 14, 2011

Insider Trading Lande Ex-Hedge Fund Trader in Prison

by InvestorLawyers

Galleon Group LLC ex-hedge fund trader Craig Drimal pleaded guilty to six counts of conspiracy and securities fraud in April. He has now been sentenced to five-and-a-half years in prison. Drimal admitted to insider trading based on information from lawyers at Ropes & Gray LLP, a firm based in Boston. The transactions involved Axcan Pharma Inc., 3Com Corp., Hilton Hotels Corp. and Kronos Inc.

Insider trading lands weston man in prison

Drimal personally profited $6.5 million from trades in 3Com Corp. and Axcan Pharma Inc., $4.3 million from trades related to Hilton Hotels Corp. and just over $950,000 from trades related to Kronos Inc., totaling more than $10 million in personal net profit as a result of his broker misconduct.

According to prosecutors, Federal Bureau of Investigation agents approached Drimal in 2009, seeking his cooperation. Contrary to the FBI’s instructions, Drimal contacted another Galleon Group trader, informing him of the government’s probe. In addition, Drimal lied to the SEC about his motivations for buying Axcan stock in a July 2008 interview.

Published on: August 7, 2011

SELEWACH SENTENCED TO 8-12 YEARS IN PRISON

by InvestorLawyers

Shane Selewach, a former Ameriprise Financial Services Inc. broker, has been convicted of stealing nearly $335,000 from clients and sentenced to 8-12 years in prison for broker misconduct. Selewach’s misconduct includes six counts of larceny, six counts of securities fraud and conducting business as an unregistered broker dealer.

SELEWACH SENTENCED TO 8-12 YEARS IN PRISON

Selewach was employed with Ameriprise from September 1997 until he was fired in April 2006. In February of 2008, he was permanently barred from acting as a securities broker by the Financial Industry Regulatory Authority. His broker misconduct took place between July 2005 and November 2008, during which time he stole nearly $350,000 from six victims. For the last nine months of this time period, he was barred from being a broker but continued to operate as one regardless. Selewach led investors to believe that he was investing their money in hedge funds, commodities and real estate, but in reality he was using it for personal benefit including travel, mortgage payments and sporting event tickets.

During the trial, Selewach’s defense argued that the monies he received were loans rather than “high-interest-rate investments,” according to the Cape Cod Times. Selewach himself testified to this effect. However, victims of his crimes testified otherwise. One of his victims, Patricia Conti, lost more than $150,000 to Selewach. Conti testified that Selewach did not disclose that his departure from Ameriprise was a result of termination, that he continually pressured her and that he asked her to sign documents which she was unable to read fully because they were largely concealed from view.

Published on: July 24, 2011

VICTIMS OF NOEL AND KLOSEK INVESTMENT FRAUD FINALLY RECEIVING PARTIAL RESTITUTION

by InvestorLawyers

$1 million is being distributed to victims of an investment scam by federal authorities. Bryan Keith Noel and Alexander Klosek of North Carolina were charged in 2009 with multiple crimes, including conspiracy to commit wire fraud and conspiracy to commit mail fraud. All crimes were connected to Noel’s fraudulent investment business. In March 2010, Noel was found guilty and ordered to pay $11 million in restitution plus serve 25 years in prison. Klosek entered a guilty plea and was ultimately sentenced to pay $10.5 million in restitution and to serve 87 months in prison.

Victims of Noel and Klosek Investment Fraud Finally Receiving Partial Restitution

Official court documents stated that Noel and Klosek’s fraud took place from about January 2003 to around July 2006 and involved over 100 clients, the majority of which were local NC retirees. In this atrocious broker fraud, clients were persuaded to invest large sums with Noel’s business, which were then diverted to another company belonging to Noel, significantly decreasing clients’ investment values. The diversion occurred without his clients’ knowledge or approval. The decrease in investment value was then hidden from clients with falsified quarterly statements and in July 2006, investors were told that their investment had actually grown. Victims of Noel and Klosek’s fraud now believed their assets to be around $16 million when, in fact, they had dwindled to only around $1 million.

According to the NC Securities Division Newsletter, Acting Special Agent in Charge of the Charlotte Division of the FBI, Joseph S. Campbell, said this of the case: “Retirees are often victims of fraud, and to steal their financial security is unconscionable. These men stole millions of dollars from people who don’t have the opportunity to restore the savings they’ve spent their lives building.” Though the $1 million that is now being distributed is only a small portion of the total restitution ordered by the court, it is a start.