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Damn. Now I owe everybody 20c.
Apart from that - good outcome!
The POGO study is fascinating and welcome, but it's clearly not a complete picture of the revolving door. As noted in the report, the data POGO works with stems from rather limited disclosure requirements.
The only longer-term restriction is on former SEC staffers representing anybody before the Commission where the matter is something they worked on "personally" and "substantially". In all other cases, the max restriction is 2 years. Within that max 2 years, a "senior" employee can't appear before the SEC for anything until one year has passed; employees in general can't assist somebody else's representation on anything they were "personally" and "substantially" involved with at the SEC for two years; and employees in general can't represent anybody in a matter which was under their "official responsibility" for one year.
So there is pretty large scope for former SEC staffers - eg the 23 former SEC people at WH - to beaver away at stuff for defendants without this being captured by something like this POGO analysis & while their personal connections at the SEC are still pretty warm.
Also: Senior people have a lot of latitude to eg represent defendants in long-running litigation which began before they left the SEC, so long as they didn't have a "personal" and "substantial" involvement in the matter while with the SEC.
To illustrate, I pick on Andy Vollmer, hapless former SEC acting general counsel who returned to WilmerHale after being whipped in the Madoff senate hearings.
Even though the name and exact position have been redacted, I think it's fairly safe to assume that five records in the POGO database relate to him. In each of these, resignation from the SEC is given as 3/27/09, from the office of the "General Counsel" (Vollmer's intention to resign from the SEC & return to WilmerHale was announced in Feb 2009).
In two of the five, the date of notice is exactly one year after his resignation; Vollmer jumping into the case just as soon as he can after the one year restriction on “senior” ex-employees.
Vollmer in each notice says that he had no “personal” or “substantial” involvement in the matter while at the SEC, and it wasn’t under his “official responsibility”. All case details are redacted in Vollmer’s notices, except for the one dated 11/02/10, referring to SEC vs Espuelas, 06cv2435 SDNY – ie, a case launched in 2006.
Question: would *any* enforcement action come under the “official responsibility” of the SEC’s general counsel, as far as these regs are concerned?
Further illustrating the limited nature of the data: one of the defendants in SEC vs Espuelas has ex-SEC Venable LLP attorneys, some of whom get captured in the POGO data. But at least one of them doesn't: Brian J. Dunn, who left a senior counsel position at the SEC in ~2003. That's too long ago for a notification to be required. Amusingly, his notice address on the docket is c/o the SEC, rather than Venable ...
these groups laugh uncontrollably in private as bagholders are created while they dump their large positions for massive gains
That laughing at victims is the mark of a sociopath & is very real in securities fraud activities. I think many perps get as much out of tricking people into screwing themselves, as they do from whatever $$$ they manage to scam.
I'd guess he has character testimonials in his sentencing memo, which is still sealed, right? These pages were just addenda, I think.
I'm still betting 20c on no time in slammer, but I think the prosecution sentencing memo is still sealed also? Should depend a lot on what that says, and in turn I guess that might depend on how usefully he's been singing.
Truly.
Is he really going to ask for mitigation on the basis of creating a Bag-Holders' Induction page? And for trying to clip a fee from stock touts?
On other revolving doors ...
One of the companies I watch, Locateplus (LPHC on the pinks, based in Boston) had a director resign last week - one James F. Ahearn, director since early 2009.
He was the FBI's SAC Boston from late 1986 - 1990 (? I think). After this he was SAC Phoenix, before taking early retirement in 1993. Post-retirement, he seems to have worked mainly in the casino/gambling sector.
It looks like he was probably intro'd to LPHC by an ex-director of the company and old friend of his, one Robert H. Kite. Kite was also associated with an investigative/consulting company which Ahearn owned, and is/was conencted with an FBI communtiy out-reach program Ahearn seems to have instituted. Kite resigned from LPHC in 2005, timing which may or may not be significant (see below).
Kenneth Kaiser is the other ex-senior FBI guy involved with LPHC, joining as "Exec VP and Chief Risk Officer" in mid-2010. He was also a SAC Boston, from 2003-2007. But then he made the big move to an FBI top-team position in Washington, resigning (?) as Asst Director of the Inspection division in 2009.
My question is why would these guys want to be involved with LPHC? Kaiser, in particular, was very senior at the FBI, one step to the directorship - then ends up an employee with a flaky little company like LPHC?
Which, as revealed in govt filings in the current criminal case against former execs, has been central to a DoJ investigation since 2005?
LP is notably not a defendant in the criminal case, while it is a defendant in the SEC's civil case. You don't need to be a tin-foil-hat candidate to wonder if there is some connection here - perhaps having a former FBI asst director as "Chief Risk Officer" can work some magic with the DoJ. And to wonder whether the prior Kite/Ahearn connection may have had something to do with the SEC and DoJ investigations taking so many years, for what was a very obvious collection of scams.
Back to Ahearn: FWIW his time as SAC Boston coincided with the first appalling revelations in the press about the Boston FBI's connections with Whitey Bulger and the Winter Hill gang.
Ahearn vigorously and incorrectly denied any special relationship with Bulger in public comments; vigorously supported agent John Connolly (now in jail forever), apparently his best bud & the agent running Bulger as informer while being a de facto member of Bulger's gang; and in general apparently failed to do anything useful to deal with the virtual joint venture the Boston FBI had formed with Bulger, except help keep the lid on the affair until it blew up later in the 90's, after his retirement.
The prime info source for the FBI/Bulger nexus is Justice Mark L. Wolf's lucid, horrifying, exhaustive and compelling memorandum and order in USA vs Salemme from Sep 1999: http://www.ipsn.org/court_cases/United_States_v_Salemme_Decision.htm
Ahearn has a testifying role in this as (imo) "failed leader".
As far as Kaiser goes, his tenure as SAC Boston seemed to continue the tradition of "failing to track down and Bulger and then being promoted": http://stolenvermeer.blogspot.com/2007/01/whitey-nightmare-continues.html
This is to do with sentencing. He's already admitted guilt; ADVFN doesn't seem to care very much.
Revolving door investigation by David Kotz (mentioned in the POGO report): http://www.iwatchnews.org/2010/06/18/2642/sec-watchdog-investigates-%E2%80%9Crevolving-door%E2%80%9D-policy
Suggesting that the law firm in question is WIlmerHale, which wouldn't be a big surprise.
... sources outside the agency say the most obvious candidate is WilmerHale, a firm mentioned in an IG report about the SEC’s settlement with Allied Capital, a now-defunct private equity firm accused of overvaluing its investment portfolio.
That January report says that a “former [SEC] enforcement director” at WilmerHale — since identified as William McLucas — came to a meeting on behalf of Allied to help broker a deal with the SEC, a development that changed the tone of the negotiations. McLucas, according to the IG report, played a role in convincing the SEC to drop fraud charges even though an SEC accountant found problems with Allied’s books.
[...]
Kotz revealed that he was also investigating the SEC’s revolving door policy, according to the Wall Street Journal , which first reported the story. “[W]e are currently conducting an investigation of allegations very recently brought to our attention that a prominent law firm’s significant ties with the SEC, specifically, the prevalence of SEC attorneys leaving the agency to join this particular law firm, led to the SEC’s failure to take appropriate actions in a matter involving the law firm,” Kotz wrote.
[...]
WilmerHale, though, is in a class by itself. Some 23 ex-SEC lawyers work there, according to the firm’s web site. McLucas, who chairs the securities group, is the star. He joined in 1998, after holding the agency’s high-profile job of enforcement director for eight years, an eternity by SEC standards. He remains a respected figure at the agency, and, apparently, an intimidating one.
SEC lawyers described Allied Capital as “heavily, heavily armed” at the settlement meeting, according to the IG report. They told the IG that McLucas “gets brought down from on high for certain events. And this was one of them.”
Roddy Boyd: “In a just society, Janice ... would get medals.”
Hear hear!
Particularly for the effort she puts into Bag-holder Deprogramming - God knows how she has the patience for it.
On the other hand, why didn't Rabo do any diligence on the Norma collateral manager before exposing itself? A few hours diligence on NIR and CR should have been enough to send Rabo yelping away into the hills.
Rabo's shareholders should have grounds to sue Rabo management.
I'd prefer Charles Trenet, but I guess it's up to him.
I'm surprised admin Shelly hasn't yet linked that on the exciting new "Bag-holder Induction" page.
Please, judge, I wanna go fishing!
I guess that should pretty much wrap this case up.
Without this discovery, I will have insufficient facts to oppose the first ground of IHUB’s special motion to strike.
DO NOT SOLICITATE ON THIS BOARD !
Michael Lauer acquittal: These technical cases are tough to put to a jury, but I also wonder whether the Florida prosecutors were crap (noting that Lauer's winning attorney was the assistant federal defender, so the usual blah about poor govt prosecutors facing big top-tier legal teams doesn't apply here).
The jury notes filed at case closing are suggestive, IMO.
As the jury starts its deliberations, they send a note to the judge, "We need the tape!"
Then a bit later: "When it comes to stocks, warrants, trades, shells ... etc, what can one do legally and illegally?"
The judge declined to address this rather broad issue: "I cannot answer the question you have asked. Please refer to the jury instructions for the legal principles you are to apply."
Reading the instructions, I don't think the jury would have found much enlightenment on their question.
Shapiro appoints new deputy chief of staff. Yes, he is an ex-WilmerHale guy (or at least somebody with the same name used to be of counsel there).
James R. Burns Named SEC Deputy Chief of Staff
On May 4, 2011, Securities and Exchange Commission Chairman Mary Schapiro announced that James R. Burns will become the agency’s Deputy Chief of Staff.
Mr. Burns has been a member of Chairman Schapiro’s staff since March 2010, working chiefly on issues involving the Division of Trading and Markets. From August 2008 to February 2010, Mr. Burns was a counsel to Commissioner Kathleen Casey, advising her on investment management issues.
“Jim has a deep understanding of the workings of the Commission and has played an instrumental role in the implementation of the financial reform legislation,” said Chairman Schapiro.
Mr. Burns said, “I am honored to have been asked by Chairman Schapiro to take on this new role and to help advance the SEC’s critical mission to protect investors.”
Mr. Burns replaces Kayla Gillan, who left the agency at the end of April.
Before coming to the SEC, Mr. Burns was a securities lawyer in private practice and focused on investment management and enforcement matters. He served as a law clerk to Judge William B. Traxler on the U.S. Court of Appeals for the Fourth Circuit. Mr. Burns previously worked on federal higher education policy at the American Council on Education, and also worked at Oriel College, Oxford University.
Mr. Burns received his law degree from Georgetown University Law Center. He holds master’s and doctorate degrees in philosophy from Oxford University, and graduated magna cum laude from Harvard College. (Press Rel. 2011-106)
Roddy Boyd's new book about AIG, "Fatal Risk", is pretty good (though it could have done with a good editor - language is klunky in places).
He's asking people to buy it so he can keep his Financial Investigator blog going: http://www.thefinancialinvestigator.com/?p=358
Looking at how that CONC position might be valued as of 30th June 2008 (assuming CR vehicles held all the notes, which I think they did, based on a quick flick thru CONC filings).
A legit outfit would see that CONC had negative NAV even ignoring these notes/debentures, no revenue, losses and no business prospects & would therefore value them at some haircut to the face value of the debentures, quite probably "$0".
A non-legit outfit might do something like this:
- I think the notes & debentures were all convertible at 35% of the average of the lowest 3 closes in the previous 20 trading days. Assuming this average was no higher than the 30th June market price, convert all the note/debenture principal plus accrued interest into common at 35% of the average. To value the debentures, multiply the resulting number of common by the market price as of 30th June.
- This is guaranteed to produce a valuation of at least $3.6M/35% = $10.3M for the debentures, or ~240% uplift over their face value of $3M.
- For the warrants, it depends on whether the exercise prices were greater than the 30th June market price. If not, do something Black-Scoles-ish to ascribe some value to them. If so, value the warrants as 67.6M * (mkt price - exercise price).
- I think all the warrants had exercise prices of $0.0009 and that the 30th June market price was less than that (? - not sure, don't have good data), which would mean "unfortunately" you couldn't get a very big valuation kick from the warrants. But watch what happens later in the year - a 2,500:1 R/S. Do the warrants exercise prices get reset? If not, maybe the big kick will be available then.
- So we start with a $10M+ valuation for the position, and then to be "conservative" you perhaps take a haircut of 20% to reflect "illiquidity" or whatever, down to $8M, still not a bad value versus your $3M investment.
This is ridiculous, of course - if only because it ignores what the dilution from the conversions and possible warrant exercise would do to the share price, making a mockery of the June 30th market mark.
But it's the kind of thing that eg PWC signed off on happily in their audits of Lancer until the redemptions started to bite. Would be completely unamazed if NIR was doing something in the same spirit.
Thanks for that. "smeergeld" = "kickbacks", "bribes".
I don't think it says that their research outfit actually valued the assets - just that they no longer trust anything NIR says and they have no comfort on ever getting anything out of AJW.
Frikkin idiots for putting their clients into something like AJW - you'd hope the clients can sue them.
Yes, that sounds like what a scammy hedge fund chief would say about the Lauer/Lancer outcome. Particularly as it ignores the $62M ping against Lauer for basically the same activities in the SEC's civil action.
Although these cases are always tough, I do wonder whether the Florida prosecutors were just schlobby at putting it together & presenting it.
Correction: Martin Weisberg wasn't ever VRAL's attorney in the T&T litigation; mis-remembered the actual circumstances. Going back over the docket ...
Weisberg's former firm, Baker & Mackenzie, represented VRAL in the T&T litigation up until early 2008. They then withdrew, saying that Weisberg had intro'd VRAL to them and was the partner in charge of the relationship; and that since his indictment the govt was now requesting all documents in their possession related to his clients, including VRAL, thus putting them in a conflicted position.
I believe it comes from an ancient Hurrian word meaning "to copulate".
Switching to FF from now on ...
Huh, just checked with Firefox and it's fine, but still borked with IE 9. Weird.
BTW, are OTC Markets filings down for everybody else? Haven't been able to access via eg http://www.otcmarkets.com/stock/VRAL/financials for several days.
Some diligence concerning Virl Genetics (VRAL on the pinks), long-running AIDS drug story, now branching out into clean energy. In particular, their IR firm, Imperial Consulting Network www.thinkimperial.com which includes the pathetic "Biotech Stock Review", "Wide World of Stocks" etc.
- Dissolved the other day by NY state, I think because of failure to pay state taxes. Check it here: http://www.dos.state.ny.us/corps/bus_entity_search.html
- CEO of Imperial is one Hugh W. Austin. See eg http://eon.businesswire.com/news/eon/20101209006258/en/VRAL/Viral-Genetics/Wide-World-of-Stocks
- Austin was CEO of NY International Commerce Group Inc (a dba for Interlock Services Inc, and also 2DoBiz). This is the entity that VRAL contracted with in 2002 to pursue distribution in China, which I think led to the unapproved trial by Beijing Ditan Hospital in 2003. This was a PR disaster for VRAL, with negative publicity in Newsweek, the FT and elsewhere. Eg: http://www.newsweek.com/2005/04/11/meds-and-miracles.html
- Austin's unedifying history includes a ** $117M ** default judgement against him in favor of the court appointed receiver on accusations of assisting James Capwill to launder money in the Liberte viaticals scam. Case # 1:03-cv-02550 in USDC Ohio northern district.
- Imperial Consulting's Port Jefferson NY address is shared by something called Wonderland Capital. This is/was controlled by Austin and one Paul Giarmoleo. (Ref filings in 1:2008-cv-01707 in USDC Colorado eastern district).
- Giarmoleo is an ex-First Montauk Securities broker who was also accused by the receiver of assisting to launder Capwill money in the Liberte affair. (He & First Montauk settled). He has a bad FINRA sheet, culminating in one year suspension + fines for fraud in 2008 (check http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/ ) He does not appear to have been employed as a broker since then.
- I don't whether Giarmoleo has a formal position with Imperial Consulting but both he and Austin were issued "consultant" shares by VRAL under the same 2007 S-8. See http://www.sec.gov/Archives/edgar/data/1091326/000121465907001592/0001214659-07-001592-index.htm
- The S-8 also gave shares to one Jeremy Draper, an associate of Austin and Giarmoleo (see filings in the Colorado case mentioned above).
- And also to lawyer Martin Weisberg, who was indicted for fraud in 2007 in the Xybernaut/Ramp affair. See http://www.nytimes.com/2007/10/20/business/20trader.html Up until this indictment, Weisberg was VRAL's lawyer in the T&T litigation. Weisberg was also involved with Austin's Interlock at the time it was known as or becoming or whatever 2DoBiz, a US/Canadian operation of substantial shadiness, and one of the vehicles mentioned frequently in the Liberte receiver's actions against Austin and others.
- As the dubious cherry on top of this dubious confection, VRAL's auditor/accountant Myron Landis was CFO of Interlock/NY Int'l Commerce while Austin was CEO. See eg: http://www.sec.gov/Archives/edgar/data/1096297/000091068002000800/f857066.txt
- Austin and Giarmoleo's Wonderland Capital garnered 35M+ free trading shares in VRAL in the period 2007 - Apr 2010. See VRAL's pink sheets initial disclosure statement http://www.pinkinvesting.com/uploads/reports/pdf/4853/Annual_Report_-_Information_Statement_08221954.pdf Majority priced at 2c, some at 5c. The disclosure statement glosses these as "issued for cash in private placement" - not sure how the "free trading" part works in that case. Dates are not given but get the impression that some/most were issued at the same time that VRAL arranged for Corey Ribotsky vehicles, Double U Master Fund etc to swap their outstanding convertible debentures for similarly price free trading shares.
- Not clear how many, if any, of these were issued before the mid-2009 pump and dump in which Imperial Consulting played a large part on the pump side (eg through their Wide World of Stocks broadcasts).
Blah. As I posted elsewhere yesterday:
I am actually nervous about whether the jury will return a guilty verdict in the Lauer/Lancer criminal trial - even though from a common-sense point of view it's a no-brainer. The defense just has so much scope to say that Lauer simply got things wrong; expert witnesses can easily be bought and can tend to cancel each other out; and so the main evidence for criminal intent comes from the testimony of shady insiders on plea bargains with obvious motives to lie.
These cases are tough ....
I am actually nervous about whether the jury will return a guilty verdict in the Lauer/Lancer criminal trial - even though from a common-sense point of view it's a no-brainer. The defense just has so much scope to say that Lauer simply got things wrong; expert witnesses can easily be bought and can tend to cancel each other out; and so the main evidence for criminal intent comes from the testimony of shady insiders on plea bargains with obvious motives to lie.
FWIW, he was indeed acquitted. These cases are tough!
http://www.bloomberg.com/news/2011-04-27/lancer-group-founder-michael-lauer-acquitted-of-stock-fraud-in-hedge-funds.html
Looks like you're right about the dismissal: http://www.courts.state.ny.us/courts/ad2/calendar/webcal/decisions/2011/D29854.pdf
Delivered on Apr 12th.
Another illustration of basic rule for hedge fund investing: make sure that the agts don't block you from suing the mgr and service providers if they do bad stuff, in a convenient jurisdiction.
Dunno what's taking so long in this case. But things always move slowly. EG: my hedge fund scam benchmark, Lancer.
Chris Byron of the NY Post slammed it for a year before the SEC shut it down, in July 2003. It was a much simpler, more obvious scam than anything CR seems to have been doing. In the end though, I think the feds only acted when Morgan Stanley complained about having been scammed - needed a name of that size to really get things moving.
http://www.rgm.com/articles/lancer2.html
From there, it took until Sep 2008, more than five years, for the SEC to finally get a civil court decision against Lauer: http://www.sec.gov/news/press/2008/2008-225.htm
And it took almost 5 years after the July 2003 shut-down for the DoJ to lay criminal charges, in Feb 2008: http://miami.fbi.gov/dojpressrel/pressrel08/mm20080219.htm
The jury is now considering its verdict in the criminal case - ie more than 3 years after the charges were laid, and almost 8 years after the SEC first moved on it.
All this for a big, blatantly obvious scam, involving grossly inflated valuations on a handle of pinkies.
Point: these cases are risky, because even an obvious scam can be hard to explain to a lay jury, and the defence has lots of scope to muddy the waters. The prosecution has to prove criminal intent, which can be hard to do. The defense can always construct some sort of story on which the guy simply got things wrong.
Generally you can't count on a conviction unless you have insiders willing to testify, and obviously the insiders are not necessarily the most jury-credible people in these cases. The feds have to spend a lot of effort to make the case water-tight, and they are often naturally reluctant to put a lot of effort into a case unless they think they can do that.
I am actually nervous about whether the jury will return a guilty verdict in the Lauer/Lancer criminal trial - even though from a common-sense point of view it's a no-brainer. The defense just has so much scope to say that Lauer simply got things wrong; expert witnesses can easily be bought and can tend to cancel each other out; and so the main evidence for criminal intent comes from the testimony of shady insiders on plea bargains with obvious motives to lie.
I doubt that anything is very kosher. My point is just that these kinds of agreements can sometimes make it more difficult than you might expect to sue 3rd parties successfully - ie the parties with deep pockets you could actually hope to get $$$ from.
Yup. Article 9.1(b) seems to be the relevant thing for valuations.
The "operating agreement" I saw filed in one of the NY supreme court cases seemed to say that Corey was responsible for the valuations. How investors could agree to that kind of arrangement has always been beyond me. Assuming that they did, think it would be tough sledding to pin much financial liability on anybody deep-pocketed third party.
Re slowness: Possible that Corey is wearing a wire for the feds now?
Tks for that piece. I think it lacks a bit of historical insight; this was a pre-Enron etc phenomenon. In particular, I'm pretty sure that 2000's-vintage NSS "meme" stems in large part from the Rhino/Sedona thing.
Simply: the relevant seedy part of the plaintiff bar saw that Rhino folded immediately rather than undergo discovery by Sedona in their first go-round in court, and smelled blood. I'm sure they thought that if they could get some of these cases in front of juries, there would be enough discovered to build stories for squillion-dollar settlement outcomes, a la the tobacco cases. There were evil foreigners with titles like "Dr. Dr.", murky-looking offshore outfits, struggling little companies battling the malice of International Finance etc etc - grist for the damages mill.
So they invested a little in getting bottom feeders to stir up the mud.
Of course, it didn't work. Recalling the abysmal quality of their pleadings in most of these cases, these guys seemed to have little knowledge of securities law or the particularity required to get past motions to dismiss and into discovery.
Along the way the real & interesting story got smothered - ie money laundering, usually with the collusion of the target companies & their management.
He was at WH before joinig Fiserv, fwiw.
Revolving door connecting SEC and WilmerHale keeps turning ..
http://www.washingtonpost.com/business/economy/former-sec-member-gallagher-in-running-for-commissioner/2011/04/21/AFAINELE_story.html
Washington lawyer Daniel M. Gallagher Jr., a former staff member at the Securities and Exchange Commission, is the leading candidate to fill a Republican slot as one of the agency’s five commissioners, sources familiar with the process said Thursday.
Gallagher would bring experience regulating and advising financial companies.
He would also extend a long track record of lawyers moving between the SEC and the law firm WilmerHale, a major force in securities law.
At the SEC, Gallagher held a senior position overseeing financial markets in the aftermath of the financial crisis.
http://www.wilmerhale.com/daniel_gallagher/
Another WH->SEC->WH->SEC career path. I wonder who has spun through the door the most times so far? They should get a plaque or something.
Maybe the feds should just outsource markets and enforcement stuff to WH and let them do both sides of it - that'd cut out all the costs of having to transfer 401K's and benefit plans every few years.
Click Here: Get a FREE barbed-wire bicep tattoo at the Henna Hut.
Every bar or restaurant I got to these days seems to have at least one kid working there with one of these tattoos. The personal statement seems to be: "I have decided to brand myself as a human sheep, cannon fodder and STD risk. If I had any money I would buy penny stocks as directed by people on IHUB boards."
What does the IM or prospectus or whatever say about valuation & audits?
It's always seemed bizarre to me, but hedge funds of this vintage often left valuation completely to the manager & allowed for shonky valuation practices like valuing warrants simply at the difference between market & exercise price, valuing debt-like instruments simply at face plus accrued interest etc etc.
At the same time, entities which you might think have fiduciary duties to the investors - auditors, prime brokers, administrators - often turn out to have very little when the issue reaches court.
The Michael Lauer/Lancer scam is the one I know best. A simple scam - get control of pinkie shells with no business or revnue, load them up with warrants etc, manipulate the stock prices, claim $1B valuation on a handful of these. Lauer is on trial now in Florida for faking valuations and manipulation, but the auditor settled civil cases for some piddling amount, and the administrator has just had most civil claims against it dismissed.
These scams are usually scams against the fund investors - inflated valuations to beef up up the management fee, kickbacks to the fund manager from fund resources, keeping failed investments alive so they don't have to be written off etc. But to the extent the practices are allowed under the fund agreements, the supposedly sophisticated investors who agreed to them often have only limited recourse when the shit hits the fan.
Thanks for that.
Merrill appointing Ribotsky CDO manager - a nice marker for the point at which the US investment industry reached its nadir.
Do people here know this story? Ribotsky as CDO manager for Merrill!
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=62102983
Corey Ribotsky as CDO manager for Merrill and Magnestar.
Have people seen this? Just an amazing story: http://www.propublica.org/article/all-the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble
---------------------------------
"Merrill Lynch teamed up with one of its most prized hedge fund clients -- an infamous short seller that had helped Merrill Lynch create four other CDOs -- to create Norma as a tailor-made way to bet against the mortgage-backed securities market," the complaint reads. (Emphasis in the original.)
"[T]o facilitate the selection of assets that would allow Norma to operate as a hedging instrument rather than an investment vehicle, Merrill Lynch hand-picked a beholden collateral manager that was willing to ignore its fiduciary duties to Norma's investors."
The manager for Norma was a small shop out of Long Island, N.Y., called NIR Capital Management. Run by Corey Ribotsky, the firm's primary line of business before entering CDOs was speculating in penny stocks.
---------------------------------------
The prospectus: http://s3.documentcloud.org/documents/1544/norma-cdo-i-ltd-prospectus.pdf