It’s Almost Spring, And Subpoenas Are in The Air…
Location: BlogsBob O'Brien's Sanity Check Blog
Posted by: bobo 2/13/2006 11:20 AM
Well, in this latest update, I've been informed that the SEC inquiry into our favorite hedge fund and research group has gone formal. That means, for those who haven’t been following it, that after a long period of gathering information and investigating, that the SEC formalized their proceeding, submitting their case in writing to a panel in Washington, in order to get approval to issue subpoenas - and it was approved, creating a formal investigation. This is not a rumor. It is fact.
Now, for those that don’t understand what that means in real world terms, it's pretty simple: A federal marshal shows up at your door and serves you with a subpoena, and all of a sudden you are in a completely different ballgame. There aren’t a lot of reasons that the SEC goes formal, other than to subpoena. It is the unmistakable signal that you are going to receive the kind of scrutiny that makes an IRS audit seem like a picnic lunch with a Victoria’s Secret model. It is also done exclusively because the Commission is looking at either civil, or criminal, action(s).
Which raises the question, has the hedge fund in question been served with a subpoena yet? My hunch is that he has, or will be imminently. Assuming that is the case, it further raises the question as to whether he has the legal obligation to notify his investors that he is now the object of the government’s full weight and attention. And does he have a legal obligation to notify his network of brokers, bankers, and hedge fund buddies? I don’t know a lot about the law and how federal agencies work, but if you are a hedge fund, and you are getting subpoenas from the federales, is that a good thing, or a bad thing?
I asked my contact if a hedge fund had a fiduciary or legal obligation to notify their investors and their network of brokers and bankers, but he/she didn’t know. Seems like something that the investors would need to know, and also something that the banks and brokers and other hedge funds placing their trust in you would need to be immediately notified about – keeping it secret would create a certain friction, I would think, in those relationships…can you imagine the calls?
“Hello, XXX Partn…”
“Hi, XXX. Say, I was reading the web this morning, and I heard that a certain hedge fund got a subpoena from the Feds. You know anything about that?”
“…..uh….where did you see that?”
“That wasn’t the question, was it? The question was, did anyone we know get a subpoena, and not tell his good friends who are supporting him every day?”
“I…did someone say that we got served?”
“Again, wasn’t the question. Did you have a marshal show up at your door, and just not let us, your compadres, know about it? Because if that’s the case…”
“….Uh, Steve....babe….this line is breaking up….I’ll have to call you back….”
Perhaps one of the many newshounds that read this blog could do a little investigative journalism, and see if anyone they know got a subpoena, and if they’ve informed their investors and their network of this latest development? Maybe find out what kind of things the feds were requesting? Maybe nose around the SEC and see if there is anything abuzz?
I wonder if we will see any articles in the WSJ, or the NY Times, or Barrons, or TheStreet.com, or Reuters, or Dow Jones, or Fortune, or the Motley Fool, or the NY Post, about this? Want to bet on the answer?
----------------------
On another note, I was speaking with Dr. Byrne of OSTK via the bat phone (actually the bunny phone), and he told me that two of his affiants had been threatened by the Gradient/Rocker gang. The threats were along the lines of, “We know people everywhere, we can prevent you from ever getting work in this industry,” kind of stuff. Byrne says that Carr Bettis, the owner of Gradient, made the calls, and specifically said, “My lawyers told me it would be OK to call you.”
That sounds odd, as I would have thought there would be some sort of law or something that would prevent that sort of thing, in a lawsuit where the defendants are accused of behavior that sounds to my ear as being criminal. I can’t believe that it would be kosher to be threatening the witnesses that have submitted sworn statements to the court, supporting the allegations against the perpetrators.
Does anyone legal-minded know anything about this stuff? Is it illegal to threaten witnesses, or par for the course?
Patrick also told me that he had gotten a nasty letter from their attorneys arguing that the materials that the affiants had provided to OSTK were somehow privileged, or obtained illegally, or some such. He told me that his response to them was that seven State and Federal law enforcement/regulatory agencies had already contacted him asking for the data, and that he (concerned citizen that he is) had of course provided them the materials; he says he did so hoping that some day we would hear about subpoenas being issued as a result.
Huh.
This looks like it will be in the limelight again soon, as March is coming quick, and the Marin court will be ruling on the SLAPP defense argument advanced by Rocker/Gradient. I’m guessing that the court will rule that the jury deserves to hear all the facts of the case, and that with 8 affiants testifying to collusive shenanigans there is adequate initial proof that this is about conduct, not speech, thus the SLAPP motion is frivolous.
I would also hope that anything that comes up in discovery, when the OSTK team goes after the whole network alleged to be part of this little shindig, isn’t held internally, but instead goes straight to law enforcement (as Byrne did with the batch he sent to the aforementioned agencies). That’s what I would do. Cooperate with the authorities. Help them help themselves. If I was a betting man, I’d say that it could get quite hot in that kitchen sooner than later, and if the allegations are true, this could become about doing time, as well as money. Dunno. These things do have a way of spinning in unexpected ways, and Patrick sounded upbeat, and quite confident.
He even let on that he has more than just a few “smooth stones” that are moving in the direction of the Wall Street “Goliath”, and felt that the next month or two would cause a radical shift in the public’s perspective of what this is all about, and just how big it is. Some of the names involved are, well, significant, to say the least. As we spoke, I got a mental image of a Claymore mine going off, discharging its lethal pattern of damage in the most brutal possible way. I’m not sure smooth stones and slingshots are the right metaphors, but time will tell. It will be fascinating to watch – given how one-sided the press has been, I can’t wait to see if there will be a media blackout when big names become part of the mix.
If the allegations are true, I actually feel sorry for the Gradient guys – the lower members of the food chain usually are the ones to take big heat when things go ugly – rarely does the uber-boss take a bullet, but his capos are necessarily expendable.
I’ve been an interested bystander throughout this little vignette, and have cautioned against jumping to conclusions, but I will say this – all Patrick has to get approved is one of the nine counts he’s leveled at his adversaries, and discovery goes forward.
I would bet better than even money that they get it.
On Patrick’s side, discovery is being handled by a team of law firms that are working on pure contingency, a group of sharks that stared down Big Tobacco and won $17 billion in one state alone, and which have the deep pockets to afford any number of economists, lawyers, paralegals, etc. I would suspect that once they get into the operating room, the proctology exam is thorough, and protracted – and they are deeply interested in the naked short selling issue, so the trading records from the brokerages could yield a host of valuable data for yet more actions.
Sounds like there will soon be a thriving cottage industry, sifting through the mountains of documents and trading records that are going to be discovered from everyone with whom the allegedly innocent defendants ever did business. Then, the world of theory collapses, and we get to find out what really goes on behind the curtain on Wall Street. I’m convinced that the entire network of brokers and hedge funds that Patrick believes are involved in this are looking forward to the opportunity to clear their good names by having all facts known – it is, after all, only the guilty that have anything to fear, and sunshine is a powerful antiseptic…
So, in summary, I would say, bring out the trading records, bring out the phone and email and IM logs, the banking docs, the offshore transfers and trades, the lists of investors and the sources of the funds, the ATM logs, etc. I personally believe that the NY folks have to be delighted that they will finally be able to dispel all the ugly controversy that has surrounded this case, and prove to the world that they are, indeed, without guilt of any sort. If they are telling the truth, Patrick will be paying their legal bills and they will be vindicated, so I’m sure I can imagine the eagerness with which they are saying, “Let’s go, bring it on, we have nothing to hide!”
This is anything b
AI
