New York Hedgie Convicted Of Theft

Hedge fund founder and adviser Fredrick Douglas Scott, one of Ebony magazine’s “Top 30 under 30,” was sentenced to more than five years in prison for stealing over $1 million from investors. He pleaded guilty to engaging in a wire fraud conspiracy to steal over $1 million from investors and lying to officials from the SEC.

Scott was the CEO of ACI Capital Group LLC., an investment adviser registered with the SEC since July 2011. He was arrested in June 2014. He is sentenced to a 63-month prison term and ordered to pay $1.39 million in restitution

“Fredrick Douglas Scott admitted that he used ACI Capital to steal his clients’ investments and fund his own lavish lifestyle.” Attorney Loretta E. Lynch said. “Rather than the historic figure he presented to the media, Scott stands revealed as a common thief who lied his way into his investors’ pockets and then continued his web of lies when confronted by the SEC. Scott has now been brought to justice for lying, cheating, and stealing for his own personal financial gain.”

“Scott told brazen lies about the value of ACI’s assets under management and its ability to deliver huge returns on various investments,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  ”Our examination and enforcement staff aggressively pursue investment advisers who flout the registration provisions of the securities laws for their personal gain, especially those who attempt to cover up their misdeeds by flat-out lying to our examiners.”

According to documents filed in this case, Scott touted his bona fides as an investor to potential clients, including distributing the May 2010 issue of Ebony magazine that described him as “the youngest African-American hedge fund founder in history,” in reality, Scott used ACI to execute his fraudulent scheme, causing more than $1 million dollars in losses.

Scot preyed on his own community, saying at the time of the launch: “My goal is to redefine and advocate for economic sustainability and wealth creation in our community,” Scott said, “The minority banking industry, more specifically the African-American owned banking segment, is fragmented and under tremendous pressure from larger and more robustly capitalized mainstream competitors who have embraced the growing diversity of the marketplace. I believe that, in addition to capital, I can contribute fresh energy and new strategies that would improve the competitive posture of African-American owned banking and financial services businesses, as well as advance the mission of multi-generational economic strength and wealth creation in our community.”

Once victims wired money to ACI, Scott stole the funds for his personal use. Bank records show that Scott used client funds to finance his lifestyle, purchasing expensive personal items and wiring stolen client funds directly into his personal checking account.

Scott faces up to 20 years’ imprisonment on the fraud charge and five years’ imprisonment on the false statement charge. Scott also faces a fine equal to double the investors’ losses, mandatory restitution of $1,338,770 to the victims, and forfeiture of assets.

Fraud, Hedge Funds

Massachusets Retirement Board Accuses Fletcher Hedge Funds Of $50 Million Fraud

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The Massachusetts Bay Transportation Authority (MBTA) Retirement Fund is suing New York hedge fund manager Alphonse Fletcher Jr., the Boston Globe reports.

MBTA lost $25 million when Fletcher International Ltd, the master fund for the Fletcher group of hedge funds filed for Chapter 11 bankruptcy protection.

“The lawsuit, filed Monday in New York, accuses Fletcher and his firm, Fletcher Asset Management , and other parties of conducting a “long-running fraud” in which they misused money for their own benefit, inappropriately took inflated management fees, and overstated the value of assets.” The Boston Globe said. “The plaintiffs — which include the $1.6 billion MBTA fund, the Fletcher Fixed Income Alpha Fund, and three other Fletcher entities — are seeking $50 million, according to the complaint, as well as management and attorney’s fees and interest.”

According to an internal report, MBTA management is working closely with the Trustee in a collaborative effort to recover damages from both Fletcher and the potentially responsible third parties who enabled him. The MBTA’s investment portfolio achieved a 16.19% gross investment return in 2013, representing more than a $200 million investment gain.

Fraud, Hedge Funds

Hedge Funds Grab a Stake In Bitstamp

New York private equity firm Fortress Investment Group and two other investors, Benchmark Capital and Ribbit Capital, are buying a stake in Pantera Bitcoin Partners, a San Francisco-based hedge fund operator that buys and sells virtual currencies, Reuters reports.

Pantera invested about $10 million in Bitstamp Ltd. months before it emerged as the world’s dominant dollar-bitcoin exchange, Bloomberg reported.

The NYT reports: Pantera Capital, the parent of Pantera Bitcoin, was founded in 2003 by Dan Morehead, a veteran of the hedge fund giant Tiger Management. For most of its existence, Pantera was a macro hedge fund. But since 2011, Mr. Morehead has grown increasingly fascinated with Bitcoin, he said in an interview on Tuesday. In recent months, he said, the firm’s staff of 16 has shifted its attention to work full time on investments in the virtual currency world.

Fortress’ investment comes despite the company making a small paper loss on Bitcoin last year and the recent collapse of a major exchange following a massive theft.

Events, Hedge Funds

Neuberger Berman Mid Cap Growth Fund Surpasses $1 Billion In Assets

Hedge fund investor Neuberger Berman Group’s Mid Cap Growth Fund has exceeded $1 billion in assets under management following investor inflows and investment gains (as of February 21, 2014) since January 31, 2003.

The Fund’s two share classes with 10-year track records – Trust Class and Investor Class – both rank in the top third of the mid cap growth fund category for the 10 years annualized through February 28, 2014, according to fund tracker Morningstar Inc. The Trust Class and Investor Class also have both outperformed their benchmark, the Russell Midcap Growth Index, for the 10 years annualized through February 28, 2014.

Led by veteran manager Kenneth J. Turek, CFA, his team of analysts seek to identify businesses with potential catalysts for positive market revaluation.

“While we don’t anticipate a repeat of 2013′s outsized returns this year, we believe that valuations remain generally reasonable and even attractive for various mid cap segments,” Turek said. “We remain cautiously optimistic about the market and expect 2014 to be a constructive environment for mid cap growth stocks, but one more closely tied to underlying fundamentals, growth rates and a company’s ability to deliver positive differentiation.”

Hedge Fund Strategy

USB Launches Equity Hedge Fund & Swiss Distribution System

Swiss banking giant UBS is launching an equity-focused hedge fund according to a WSJ report. The new hedge fund will be called Capital and Consulting Services and will be run by Michael Sales, the Global Head of Business Consulting at UBS Prime Brokerage.

“The combination will enable us to offer a more strategic agenda for our hedge fund clients,” UBS’s Global Head of Prime Brokerage Reinhardt Olsen said in a memo seen by the WSJ.

Also in the news, UBS Fund Services announced a new service to support hedge managers with distribution in Switzerland. Distribution has gotten stricter since the amendment of the Swiss fund law in March 2013. USB reports that alternative investment funds (AIFs) distributed in Switzerland will now need a Swiss representative and a Swiss paying agent (in addition to UCITS funds).

“We have created a unique offering which fits perfectly to our UBS Fund Services’ one-stop shop approach.” André Valente, head of UBS Fund Services said. “Both representative and paying services can be offered in-house and a dedicated team ensures both compliance with all regulatory matters and a competitive time to market. We understand that in depth knowledge of fund distribution from both a regulatory and economic point of view is key, hence, our legal representative services team also serves as competence center for fund distribution to both private label fund and representative clients.”

Countries, Hedge Fund Strategy

Google & Autism Speaks Invite Hedge Funds To Listen

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In an effort to link private investors and hedge funds to innovative autism-related business developments, Autism Speaks, a leading autism nonprofit, is teaming up with Google to hold the 2014 Autism Investment Conference.

The event will be held March 4-5 at the Bently Reserve Banking Hall in downtown San Francisco.

“Private equity and venture capital firms TPG Biotech, Shore Capital Partners, Bay City Capital, Great Point Partners and Google Ventures, plus hedge fund Scopia Capital Management are among the investors slated to attend.” CNBC says.

Google is offering a complementary, day-long “Equipping Entrepreneurs” workshop for all registrants,  ranging from the basics of raising capital and writing business plans to building social marketing campaigns and “guerilla PR.” Participants will be provided transportation to and from Googleplex.

“From healthcare and life sciences to education and housing, AIC2014 will introduce entrepreneurs and companies of all sizes working on innovative products that address the unmet needs of the autism community.” The nonprofit said.

Events, Hedge Fund Philanthrophy, Hedge Funds

Hedge Funds Flocking To Ireland

The Irish Funds Industry Association (IFIA) is reporting an uptake in applications by fund managers seeking authorisation in Ireland under the new Alternative Investment Fund Managers Directive (AIFMD).

According to information released from the Central Bank of Ireland (CBI) to the IFIA today, applications from 72 fund management firms are being processed at present, with 11 AIFMs already authorized by the Central Bank of Ireland. In recent weeks 47 applications have been received.

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“With more than 40% of global hedge fund assets now serviced in Ireland, the news further highlights Ireland’s credibility as a domicile for alternative investment funds, and one of the top jurisdictions for accessing AIF passporting across the EU.” Pat Lardner CEO of the IFIA, said. “This is the first time the Central Bank of Ireland has released these figures and they clearly highlight that Ireland is going to be a domicile of choice for fund managers.”

The CBI now believes it will be exceeding its initial expectations and processing up to 90 applications between now and the deadline on 22nd July 2014. Ireland currently has over €1.5 trillion ($2.06 trillion) in alternative assets.

Countries, Hedge Funds

The Hedgemaster Reports on Ukraine’s Breakthrough

Hedge fund billionaire George Soros put out a statement obtained by HedgeCo regarding the violent uprising in the Ukrane:

“Following a crescendo of terrifying violence, the Ukrainian uprising has had a surprisingly positive outcome.” Soros said, “Contrary to all rational expectations, a group of citizens armed with not much more than sticks and shields made of cardboard boxes and metal garbage-can lids overwhelmed a police force firing live ammunition. There were many casualties, but the citizens prevailed. This was one of those historic moments that leave a lasting imprint on a society’s collective memory.

How could such a thing happen? Werner Heisenberg’s uncertainty principle in quantum mechanics offers a fitting metaphor. According to Heisenberg, subatomic phenomena can manifest themselves as particles or waves; similarly, human beings may alternate between behaving as individual particles or as components of a larger wave. In other words, the unpredictability of historical events like those in Ukraine has to do with an element of uncertainty in human identity.

People’s identity is made up of individual elements and elements of larger units to which they belong, and peoples’ impact on reality depends on which elements dominate their behavior. When civilians launched a suicidal attack on an armed force in Kyiv on February 20, their sense of representing “the nation” far outweighed their concern with their individual mortality. The result was to swing a deeply divided society from the verge of civil war to an unprecedented sense of unity.

Whether that unity endures will depend on how Europe responds. Ukrainians have demonstrated their allegiance to a European Union that is itself hopelessly divided, with the euro crisis pitting creditor and debtor countries against one another. That is why the EU was hopelessly outmaneuvered by Russia in the negotiations with Ukraine over an Association Agreement.

True to form, the EU under German leadership offered far too little and demanded far too much from Ukraine. Now, after the Ukrainian people’s commitment to closer ties with Europe fueled a successful popular insurrection, the EU, along with the International Monetary Fund, is putting together a multibillion-dollar rescue package to save the country from financial collapse. But that will not be sufficient to sustain the national unity that Ukraine will need in the coming years.

I established the Renaissance Foundation in Ukraine in 1990 – before the country achieved independence. The foundation did not participate in the recent uprising, but it did serve as a defender of those targeted by official repression. The foundation is now ready to support Ukrainians’ strongly felt desire to establish resilient democratic institutions (above all, an independent and professional judiciary). But Ukraine will need outside assistance that only the EU can provide: management expertise and access to markets.

In the remarkable transformation of Central Europe’s economies in the 1990’s, management expertise and market access resulted from massive investments by German and other EU-based companies, which integrated local producers into their global value chains. Ukraine, with its high-quality human capital and diversified economy, is a potentially attractive investment destination. But realizing this potential requires improving the business climate across the economy as a whole and within individual sectors – particularly by addressing the endemic corruption and weak rule of law that are deterring foreign and domestic investors alike.

In addition to encouraging foreign direct investment, the EU could provide support to train local companies’ managers and help them develop their business strategies, with service providers remunerated by equity stakes or profit-sharing. An effective way to roll out such support to a large number of companies would be to combine it with credit lines provided by commercial banks. To encourage participation, the European Bank for Reconstruction and Development (EBRD) could invest in companies alongside foreign and local investors, as it did in Central Europe.

Ukraine would thus open its domestic market to goods manufactured or assembled by European companies’ wholly- or partly-owned subsidiaries, while the EU would increase market access for Ukrainian companies and help them integrate into global markets.

I hope and trust that Europe under German leadership will rise to the occasion. I have been arguing for several years that Germany should accept the responsibilities and liabilities of its dominant position in Europe. Today, Ukraine needs a modern-day equivalent of the Marshall Plan, by which the United States helped to reconstruct Europe after World War II. Germany ought to play the same role today as the US did then.
I must, however, end with a word of caution. The Marshall Plan did not include the Soviet bloc, thereby reinforcing the Cold War division of Europe. A replay of the Cold War would cause immense damage to both Russia and Europe, and most of all to Ukraine, which is situated between them. Ukraine depends on Russian gas, and it needs access to European markets for its products; it must have good relations with both sides.

Here, too, Germany should take the lead. Chancellor Angela Merkel must reach out to President Vladimir Putin to ensure that Russia is a partner, not an opponent, in the Ukrainian renaissance.”

Uncategorized

$12 Million Fraud: Over 5 Years In Jail For Hedge Fund Manager

A NY hedge fund manager was sentenced to 5 and a half years in prison for defrauding investors in a $12 million scheme, Reuters reports this morning.

Lloyd Barringer pled guilty in July 2013 to four counts of fraud: securities fraud, conspiracy to commit securities fraud, mail fraud, and conspiracy to commit mail fraud.

The charges stem from his operation of the Gaffken & Barriger Fund LLC, which was based in Monticello, Sullivan County, New York. Barriger was the president of the hedge fund and the principal shareholder, director, and officer of G&B Partners, Inc., the fund’s managing member and sole common shareholder. He surrendered to the FBI in May 2011.

“Once again, belief in hedge funds by hopeful investors proved to be sadly misplaced,” Attorney Preet Bharara said, “Investors entrusted their hard-earned dollars to Lloyd Barringer, believing his promises that their savings would be safe and secure in his fund. But, as we have alleged, they were sorely mistaken. Even as problems with the fund multiplied, Barriger allegedly continued to lure investors in with his misinformation.”

Barringer raised approximately $12.6 million while lying to investors about the fund’s financial condition, according to federal prosecutors. They will seek the whole amount in forfeited assets.

The hedge fund manager faced a maximum sentence of 20 years in prison on each count. The Judge also ordered Barriger to forfeit $12.38 million and pay $9.37 million in restitution.

Fraud, Hedge Funds

SEC Files Court Brief to Protect Whistleblowers From Retaliation

The SEC filed a “friend-of-the-court” brief, arguing that whistleblowers are entitled to protection from employer retaliation, even if they report the wrongdoing only to their employer and not to the SEC. The SEC stated that a whistleblower need not have reported wrongdoing to the SEC to avail himself of Dodd-Frank’s anti-retaliation protections.

In 2013 the SEC awarded more than $25,000 combined for tips and information that three whistleblowers provided to help the SEC and Justice Department stop a sham hedge fund.

The WSJ reports that: “Companies have recently pushed back against those rules, arguing in court that individuals have to report suspected wrongdoing to the agency to qualify for whistleblower protection and that those who report internally only don’t make the cut. This would narrow the pool of individuals who can sue a firm over alleged retaliation.”

“The Commission’s whistleblower program both encourages whistleblowers to report wrongdoing and protects them when they do.  Today’s filing makes clear that under SEC rules, whistleblowers are entitled to protection regardless of whether they report wrongdoing to their employer or the Commission.”  Sean McKessy SEC Chief at the Whistleblower Office, said, “The Commission’s brief supports the anti-retaliation protections under the Dodd-Frank Act that I believe are critical to the success of the SEC’s whistleblower program.”

Hedge Funds