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Archive for August, 2012


Behringer Harvard funds implode

Reliable news sources have reported that Behringer Harvard Strategic Opportunity Fund I and II will report catastrophic losses to investors this Friday.  Behringer Harvard informed brokers last week of the fund problems and is preparing to tell investors. 

Launched in 2005, the Behringer Harvard Strategic Opportunity Fund I raised $65 million and invested in six properties, including a hotel on Wilshire Boulevard in Los Angeles and an office building in Amsterdam.  A related fund, Strategic Opportunity Fund II, raised $62 million over a similar period of time.

Behringer Harvard Opportunity REIT I saw its estimated value decline 46% at the end of 2011 to $4.12 a share, from $7.66 a year earlier. In June, one property in that REIT went into bankruptcy protection.

Also as of Dec. 31, investors in the Behringer Harvard Short-Term Opportunity Fund I LLP, which had about $130 million in total assets, saw its valuation drop to 40 cents a share, down drastically from $6.48 a share as of Dec. 31, 2010.

According to the company’s web site, the programs sponsored and managed by the Behringer Harvard group of companies have attracted more than $5 billion in equity which has been invested into more than $11 billion in assets.

SEC charges resident for Puerto Rico based Ponzi scheme

The Securities and Exchange Commission today charged a Puerto Rico resident and his company with conducting a Ponzi scheme that targeted evangelical Christians and factory workers in Puerto Rico.

The SEC alleges that Ricardo Bonilla Rojas and his firm Shadai Yire raised at least $7 million from as many as 200 investors living primarily in Puerto Rico but also on the U.S. mainland in such states as Florida, New York, and North Carolina. The SEC alleges that Rojas actively solicited investors through personal discussions with individuals both over the phone and in person, and he also marketed the investment opportunity in presentations to evangelical Christian groups and factory workers who were often inexperienced investors. According to the SEC’s complaint filed in U.S. District Court for the District of Puerto Rico, Rojas falsely assured investors that their principal contributions were “100% guaranteed” and promised returns up to 50 percent, telling them he would invest their money in commodities. According to the complaint, Rojas never actually invested any money in commodities and instead used new contributions to repay earlier investors in classic Ponzi scheme fashion and stole $700,000 for himself.

In a parallel action, the U.S. Attorney’s Office for the District of Puerto Rico today announced criminal charges against Rojas.

According to the SEC’s complaint, Rojas and Shadai Yire conducted the scheme from at least August 2005 to February 2009. Rojas, who resides in Arecibo, Puerto Rico, and his company Shadai Yire have never been registered with the SEC to offer securities.

The SEC alleges that Rojas hired some sales agents to help him solicit investors, and paid commissions based on a percentage of the investor funds they raised. Rojas and his sales agents pitched the investment opportunity to individuals as a risk-free way to earn high returns in a short period of time. The SEC further alleges that Rojas created phony account statements that were sent to investors to hide his misuse of investor money and lead them to believe their investments were growing.

Regulators Subpoena 7 banks

New York Attorney General Eric Schneiderman and Connecticut Attorney General George Jepsen are jointly investigating and have requested information from JP Morgan Chase, Barclays, Royal Bank of Scotland, HSBC. UBS, Deutsche Bank and Citigroup were also named in the report by Bloomberg.

In the UK the Serious Fraud Office has said it will investigate “a number of financial institutions” over the alleged manipulation of Libor and related interest rate benchmarks.

The Government has also commissioned a review of the Libor-setting system after it was widely accepted that the current system based on subjective submissions from banks is no longer viable. Sir Mervyn King, governor of the Bank of England, has been among those to say that Libor is not working and must be replaced,

 

Former football coach implicated in Ponzi Scheme

The SEC charged former college football Jim Donnan with fraud, alleging he teamed up with an Ohio man to conduct an $80 million Ponzi scheme that allegedly included other college coaches and former players as victims.

According to the SEC, Mr. Donnan—a college football Hall of Fame inductee who guided teams at Marshall University and the University of Georgia and later became a television commentator—conducted the fraud with his business partner, Gregory Crabtree, through a West Virginia-based company called GLC Ltd.

The SEC said Messrs. Donnan and Crabtree told investors that GLC was earning substantial profits in the wholesale liquidation business and promised returns between 50% to 380%. However, it said only about $12 million of the $80 million raised from nearly 100 investors was actually used for business purposes, and the “remaining funds were used to pay fake returns to earlier investors or stolen for other uses” by Messrs. Donnan and Crabtree.

Ed Wedbush CEO of Wedbush Securities suspended by FINRA

A Financial Industry Regulatory Authority hearing panel has hit Wedbush Securities with a $300,000 fine, and issued its president and founder, Edward Wedbush, a 31-day suspension along with a $25,000 fine.

The August 2nd decision is a culmination of a range of offenses, inquiries and disciplinary actions dating back over a decade to February of 2002. The complaint charges Wedbush with three violations relating to the firm’s failure to file reports on employment registration of registered representatives, customer complaints, and statistical reports in a timely and accurate manner; and in some cases failure to file them at all. A fourth violation accused the firm of inadequate supervision, and a fifth named Edward Wedbush specifically, alleging that he failed to fulfill his duties as president and supervise registration filings from August 2006  until July 2010.

Wedbush was unavailable for comment despite calls to the firm and its attorney.

“The firm’s failure to remedy the reporting problems despite repeated warnings from FINRA and the NYSE is also an aggravating factor applicable to all violations,” the FINRA hearing officer said in the panel decision. “Over a period of at least eight years leading up to the filing of the complaint, NYSE and FINRA both warned the firm in examinations, an AWC, Wells Notices, and disciplinary actions, or failures in its regulatory reporting, yet problems persisted,” the decision stated.

And in harsh words for the firm’s president, the FINRA decision noted that “Mr. Wedbush knew of the firm’s reporting issues.” It went on to say that “as president of the firm, Mr. Wedbush should have taken more steps to ensure that the firm addressed its problems, but he did not.”

 
 
 
 

US Cities May Have Been Gamed in Libor Scandal

In the two decades before the 2008 financial collapse, the investment banking industry sidled up to state and local finance officials with an offer they couldn’t refuse. Instead of issuing plain vanilla 30-year fixed-rate bonds to build roads, schools and parking garages, why not sell variable rate bonds at lower rates and buy a swap that would fix the total payment at something lower than what they’d pay in the fixed-rate market?

 The government agency got a slightly lower rate, while the investment bank earned fees. If the variable bond’s rate rose above the fixed rate target – the scenario that government finance officials feared most – the swap counterparty (the banks often off-loaded the instruments to speculators) paid off the government agency. If the variable bond rate went down, the swap payments moved in the other direction: from taxpayers to speculators. Either way, the government’s total cost was supposed to stay fixed.

The banks behind Libor have been reporting incorrect lower rates to make their finances appear more stable. Government investigators and regulators are also investigating allegations that bank insiders manipulated the Libor rates to benefit their proprietary trading desks.

Estimates have stated that more than $200 billion in government agency swaps contracts were affected by the rate manipulation and total losses to governments alone could be in excess of $1 billion. A report issued in early June by a coalition of urban transit advocacy groups estimated the Libor scandal cost 13 big city transit agencies $92.6 million in reduced payments, led by San Francisco’s Bay Area Rapid Transit system with a $17.1 million loss and the New York Metropolitan Transportation Authority with a $16.9 million loss.

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