SEC Gives Million-Dollar Whistleblower Award to Compliance Officer

imagesNew York, HedgeCo.Net – The Securities and Exchange Commission today announced an award of more than a million dollars to a compliance professional who provided information that assisted the SEC in an enforcement action against the whistleblower’s company.

The award involves a compliance officer who had a reasonable basis to believe that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors.

“When investors or the market could suffer substantial financial harm, our rules permit compliance officers to receive an award for reporting misconduct to the SEC,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement. “This compliance officer reported misconduct after responsible management at the entity became aware of potentially impending harm to investors and failed to take steps to prevent it.”

The whistleblower in this matter will receive between $1.4 million and $1.6 million. Whistleblower awards can range from 10 percent to 30 percent of the money collected in a successful enforcement action with sanctions exceeding $1 million. By law, the SEC must protect the confidentiality of whistleblowers and cannot disclose information that might directly or indirectly reveal their identities.

Since its inception in 2011, the SEC’s whistleblower program has paid more than $50 million to 16 whistleblowers who provided the SEC with unique and useful information that contributed to a successful enforcement action. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money is taken or withheld from harmed investors to pay whistleblower awards.

This is the second award the SEC has made to an employee with internal audit or compliance responsibilities.

Hedge Funds

Google Chairman Invests In DE Shaw Hedge Fund

google-dollarsNew York, HedgeCo.Net – Google chairman Eric Schmidt, has bought a 20% equity share in the D. E. Shaw group, a global hedge fund investment and technology development firm with more than $36 billion in aggregate investment capital.

“I’ve always regarded Eric as a kindred spirit—someone who shares our belief in the power of groundbreaking innovation, analytical rigor, and extraordinarily gifted employees,” said David Shaw, founder of the D. E. Shaw group. “I’ve known and respected David for many years, and as a longstanding investor in the D. E. Shaw group’s funds, I have the highest regard for their team and the firm that they’ve built,” said Eric Schmidt. “I’m excited to invest in an enterprise that has so successfully used technology to deliver superior risk-adjusted returns across asset classes globally.”

California based Hillspire, LLC, the family office that serves as the investment vehicle for Google Executive Chairman Eric Schmidt and his family, purchased the 20 percent equity interest previously owned by Lehman Brothers Holdings Inc. The equity stake represents a passive economic interest in the D. E. Shaw group, which will continue to function independently, with no changes in management or operations.

“We’ve worked with Hillspire for quite some time now, and have developed great respect and admiration for them,” said Anne Dinning, a Managing Director at the D. E. Shaw group and a member of the firm’s Executive Committee. “We’re truly delighted to be expanding our relationship with them.”

Hedge Funds

Global Hedge Fund Centaur Wins Award for Fifth Consecutive Year

awardNew York, HedgeCo.Net – For the fifth consecutive year, Centaur Fund Services has been recognised in the HFM European Hedge Fund Services Awards. Centaur was named as Best Administrator under $30bn – Overall in recognition of its exceptional client service and innovative product development over the past 12 months.

“We are thrilled that Centaur has once again been recognised as the best administrator amongst our peers.“ Ronan Daly, Founding Partner of Centaur Fund Services said “Being firmly established as the leader in this category allows us to stand out in this competitive market. It is a testament to the hard work of our entire team over the last five years.”

On awarding the ‘Best Administrator under €30bn – Overall’ award, the judges commented “We are delighted to award Centaur for the fifth year running. Centaur has consistently proven itself to be the leader in its field by demonstrating impressive customer service, product development and growth. The judges were particularly impressed by Centaur’s focus on accountability, which runs through every aspect of its firm.”

Centaur would also like to take this opportunity to congratulate clients that received awards at the HFM Week European Performance Awards 2015 also hosted by HFMWeek.

Headquartered in Dublin, Ireland and with offices in London and New York, Centaur delivers independent fund administration and regulatory services worldwide.

Hedge Funds

Married Couple Sentenced To Jail For Stealing $6.5 Million Through A Fictitious Hedge Fund

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New York (HedgeCo.Net) – An Oklahoma husband and wife were handed prison sentences yesterday for stealing over $6.5 million from six victims who thought they were investing in a hedge fund.

Linda Livolsi was sentenced to 45 months (3.75 years) in prison, three years of supervised release, and ordered to pay approximately $6.1 million in restitution.   Her husband, William Livolsi, was sentenced to two years in prison, three years of supervised release, and ordered to pay approximately $5 million in restitution.

“The defendants used convincing tactics and tempting monetary returns to persuade their victims to part with their money,” said U.S. Attorney Bogden.  “If someone offers unusually high returns on an investment, it is likely too good to be true.”

Since about 2003, under the artifice of RGM Enterprises, LLC, Linda Livolsi had been soliciting and inducing persons to give her money for the purpose of investing it in a purported hedge fund that offered large monetary returns.  In reality, the hedge fund never existed and the Livolsi’s spent most the money for their personal benefit.

The Livolsi’s fraudulently obtained about $6.5 million in funds from six investors from 2003 to 2007, including approximately $5 million that came from one victim.  Linda Livolsi also filed false federal tax returns for the years 2003 to 2006, and failed to file tax returns for 2007 and 2008. Her total tax liability for those years, not including interest and penalties, is approximately $1.1 million.

Fraud, Hedge Funds

Hedge Fund Advisor BlackRock Settles With SEC For $12 Million

conflictos-de-intereses-02New York (HedgeCo.Net) – BlackRock Advisors LLC has agreed to settle SEC charges of failing to disclose a conflict of interest among its ranks and will pay a $12 million penalty. The hedge fund advisor will also hire an independent compliance consultant to conduct an internal review.

BlackRock reported $70.4 billion of long-term net inflows for the first quarter of 2015, representing 6.5% annualized growth.

“Daniel J. Rice III was managing energy-focused funds and separately managed accounts at BlackRock when he founded Rice Energy, a family-owned and operated oil-and-natural gas company.” The SEC said. “Rice was the general partner of Rice Energy and personally invested approximately $50 million in the company. Rice Energy later formed a joint venture with a publicly-traded coal company that eventually became the largest holding (almost 10 percent) in the $1.7 billion BlackRock Energy & Resources Portfolio, the largest Rice-managed fund. The SEC’s order finds that BlackRock knew and approved of Rice’s investment and involvement with Rice Energy as well as the joint venture, but failed to disclose this conflict of interest to either the boards of the BlackRock registered funds or its advisory clients.”

The SEC’s order also finds that BlackRock and its then-chief compliance officer Bartholomew A. Battista caused the funds’ failure to report a “material compliance matter” – namely Rice’s violations of BlackRock’s private investment policy – to their boards of directors. BlackRock additionally failed to adopt and implement policies and procedures for outside activities of employees, and Battista caused this failure. Battista agreed to pay a $60,000 penalty to settle the charges against him.

“BlackRock violated its fiduciary obligation to eliminate the conflict of interest created by Rice’s outside business activity or otherwise disclose it to BlackRock’s fund boards and advisory clients,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “By failing to make such a disclosure, BlackRock deprived its clients of their right to exercise their independent judgment to determine whether the conflict might impact portfolio management decisions.”

Fraud, Hedge Funds

Seward & Kissel Says Hedge Funds Are Looking More Like Family Offices

New York (HedgeCo.Net) – According to a recent study from Citi Private Bank, an increasing number of hedge funds are converting to family office structures for various regulatory and compliance reasons.

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Image courtesy of Switzerland Family Office

“It is absolutely the case that start-up managers have a much higher barrier to entry these days due to a combination of factors including the increasing need to develop an institutionalized platform with robust operational procedures in order to attract capital from sophisticated investors.” Meir Grossman, Investment Management Partner at Seward & Kissel LLP, said. “It is certainly the case that the time it is taking a manager to launch a fund has practically doubled from approx. 2-3 months to 4-6 months, especially given the trend of managers requiring a significant seed investment to properly launch.”

“However, the conversion from hedge fund management to family offices is really only happening at the upper levels of this industry as very few start up managers have the wealth to forgo a business and instead manage their own family office,” Meir said in a letter obtained by HedgeCo.

A family office or single family office (SFO) is a private company that manages investments and trusts for a single family. The company’s financial capital is the family’s own wealth, often accumulated over many family generations.

Family offices often provide family management services, which includes family governance, financial and investment education, philanthropy coordination, and succession planning. A family office can cost over $1 million to operate, so the family’s net worth usually exceeds $100 million. Recently, some family offices have accepted non-family members. (Source: Wikipedia)

Hedge Fund Strategy, Hedge Funds

TED Talks: With Great Power Comes Great Responsibility

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By Alex Akesson – In a recent Ted Talk, hedge fund manager Paul Tudor Jones II spoke about fairness in the investing arena and how a focus solely on profits is, as he puts it, “threatening the very underpinnings of society.” Jones is estimated to have a net worth of $4.3 billion by Forbes Magazine and ranked as the 108th richest America.

Jones founded a not-for-profit called Just Capital, its mission statement: to help companies and corporations learn how to operate in a more just fashion by using the public’s input to define exactly what the criteria are for just corporate behavior.

“Income inequality is not a good thing. Higher profit margins do not increase societal wealth.” The hedge fund manager and philanthropist said in the talk. “What they actually do is they exacerbate income inequality… intuitively, that makes sense, right? Because if the top 10 percent of American families own 90 percent of the stocks, as they take a greater share of corporate profits, then there’s less wealth left for the rest of society.”

https://www.ted.com/talks/paul_tudor_jones_ii_why_we_need_to_rethink_capitalism/transcript?language=en

“It’s estimated that 47 percent of American workers can be displaced in the next 20 years. I’m not against progress. I want the driverless car and the jet pack just like everyone else.” Jones said.  ”But I’m pleading for recognition that with increased wealth and profits has to come greater corporate social responsibility.”

“Now, when I was young, and there was a problem, my mama used to always sigh and shake her head and say, “Have mercy, have mercy.” Now’s not the time for us, for the rest of us to show them mercy.” Jones said. “The time is now for us to show them fairness, and we can do that, you and I, by starting where we work, in the businesses that we operate in. And when we put justness on par with profits, we’ll get the most wonderful thing in all the world. We’ll take back our humanity.”

Hedge Funds

Eurekahedge: Hedge Funds Return $54.1 Billion In Q1

Hedge funds returned $54.1 billion in performance-based gains for the first quarter of 2015; their highest Q1 gains on record since 2006 which brings the total industry AUM to a record high of nearly $2.2 trillion.

Asia ex-Japan investing funds have delivered the best returns globally and were up 2.08% for March, led by Greater China focused funds which gained 4.85%.
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European hedge funds were up 4.21% in Q1 2015 and have grown their asset base by US$10.5 billion which brings their current AUM close to a record high of $500 billion.

Other highlights include:

This month’s Eurekahedge report also features an interview with Ben Silluzio, CEO & CIO, at Qato Capital Market Neutral Long/Short Fund, and a video interview with Christian Stauffer, CEO at EuroFin Asia Group.

Hedge Funds

Global Equity Mutual Funds and ETFs Get $88.3 Billion in 2015

WEB_ETFcheat0420New York (HedgeCo.Net) – TrimTabs Investment Research reported today that strong investor interest in non-U.S. equities is broadening from Europe and Japan into emerging markets.  Even ahead of the stimulus announced Sunday, exchange-traded funds focused on Chinese equities posted 22 consecutive days of inflows totaling $1.6 billion (7.8% of the funds’ assets).

“Heady gains in Chinese stocks are attracting loads of American money,” said David Santschi, Chief Executive Officer of TrimTabs.  “ETFs focused on Chinese stocks shot up 14% in the past month.”

In a research note, TrimTabs explained that emerging markets equity funds in general have been drawing their first substantial buying this year.  In the month ended Friday, April 17, emerging markets equity ETFs issued $2.3 billion (2.2% of assets), posting inflows on all but two trading days.  During that span, they surged 8%.

TrimTabs also noted that inflows into global equity mutual funds and ETFs have totaled $88.3 billion ($1.2 billion daily) so far this year, putting them on track to surpass the previous four-month record of $86.0 billion ($1.1 billion daily) from December 2005 through March 2006.  In April, global equity funds are up 3.5%.

“For now, central bank stimulus measures are propping up financial asset prices around the world,” said Santschi.  “The long-term consequences of these policies may not be as pleasant.”

Hedge Fund Strategy, Hedge Funds

Couple Charged With Stealing $147 Million From Customers

ContentImage-PonziSchemeWordCloud.gif-550x0After four weeks of trial, a federal jury in New York, returned guilty verdicts against Diane Kaylor and Jason Keryc, former employees of fictitious hedge fund Agape World, Inc. (Agape), on charges of securities fraud, conspiracy, mail fraud, and wire fraud.

As a result of the investment Ponzi scheme, approximately 3,800 investors sustained actual losses totaling approximately $147 million.

The charges arose out of the defendants’ participation in a huge Ponzi scheme. When sentenced by United States District Judge Denis R. Hurley, the defendants face a maximum sentence of 20 years’ imprisonment on each count. Keryc was remanded.

“Kaylor and Keryc convinced thousands of hard-working, middle class Americans to invest their life savings, their children’s college funds, or their retirement money in Agape, knowing that Agape was a Ponzi scheme,” United States Attorney Loretta Lynch said. “The defendants’ motive was simple and all too common today: greed. The more money the defendants pried out of investors’ pockets, the larger their commission checks. The defendants gained the trust of their investors and then betrayed that trust to feed their insatiable appetites for money.”

The defendants and their co-conspirators took more than $370 million from approximately 5,000 investors. Of that $370 million, only $22 million actually went to fund bridge loans. Unbeknownst to investors, approximately $113 million of their money was used to trade high risk futures and commodities.

Between October 2005 and January 2009, the defendants, who worked as account representatives or brokers for Cosmo, played critical roles in the operation of the Ponzi scheme by soliciting and obtaining hundreds of millions of dollars from investors. To induce investments and discourage withdrawals, the defendants misled the investors by

  1. assuring investors that their investments would only be used to fund specific, short-term secured bridge loans to commercial borrowers, or to make short-term loans to small businesses;
  2. promising to pay investors unusually high rates of returns; and
  3. representing that investing in Agape carried little or no risk of loss. The defendants raised significantly more money than was needed for the loans, and lied to the investors by assuring them that their money would specifically be used to fund only a particular loan. For their efforts, Kaylor and Keryc made approximately $3.4 million and $8.9 million, respectively.

Nicholas Cosmo founded Agape in August 2000. Earlier, Cosmo spent 21 months in a federal prison for defrauding investors. Kaylor and Keryc were aware of Cosmo’s prior fraud conviction, but, not surprisingly, did not disclose this information to their investors.

Fraud, Hedge Funds