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Archive for August, 2013


SEC charges former Oppenheimer private equity fund manager

The Securities and Exchange Commission today charged a former portfolio manager at Oppenheimer & Co. with misleading investors about the valuation and performance of a fund consisting of other private equity funds.
 
An SEC investigation found that Brian Williamson disseminated quarterly reports and marketing materials to prospective investors misstating that the valuation of the Oppenheimer fund’s holdings was based on values received from the portfolio managers of those underlying funds.  Williamson actually valued the fund’s largest investment at a significant markup to the manager’s estimated value.  He also sent marketing materials reporting an internal rate of return that failed to deduct fees and expenses.  As a result, the fund’s reported performance as measured by its internal rate of return – a key indicator of the fund’s performance – was significantly enhanced.
 
According to the SEC’s order instituting administrative proceedings against Williamson, he was an Oppenheimer employee from 2005 to 2011.  Williamson marketed Oppenheimer Global Resource Private Equity Fund I, L.P. to pensions, foundations, endowments, and high net worth individuals and families.  From September to October 2009, Williamson marketed the fund using materials that reported an internal rate of return that did not take into account any fees and expenses that the fund paid to underlying fund managers or the additional fees and expenses that the fund paid Oppenheimer.  Furthermore, Williamson modified the Oppenheimer fund’s marketing materials in October 2009 by increasing the reported value of the fund’s largest investment – Cartesian Investors-A LLC – from $6 million to approximately $9 million.  This increase was a significant markup to the underlying manager’s estimated value.  Nonetheless, the marketing materials falsely stated that underlying fund values were “based on the underlying manager’s estimated values.”
 
According to the SEC’s order, Williamson made or approved additional material misrepresentations that created the misleading impression that the Oppenheimer fund’s increased internal rate of return was due to increased performance or third party valuations.  In fact, it was Williamson’s revised valuation of Cartesian that resulted in a material increase in the Oppenheimer fund’s reported performance.  For example, for the quarter ended June 30, 2009, Williamson’s markup of the Cartesian investment increased the reported internal rate of return from approximately 3.8 percent to 38.3 percent.

Bambi Holzer under investigation — again

According to a a Reuters news report:

Bambi Holzer, a Beverly Hills, California-based broker known both for her frequent television appearances and the dozens of complaints against her by one-time clients, was informed on July 18 about the investigation, according to FINRA’s website.

FINRA, the industry body that regulates brokers, initiated the investigation, according to the disclosure. Holzer did not immediately respond to a request for comment.  Former clients of Holzer have lodged as many as 50 complaints against her over the past decade, and some of the ex-clients have won more than a total of $11 million in fines and compensatory judgments against her, her broker registration shows.

Hollywood producer Ken Kragen sued Holzer and won after she convinced him to put his funds into what prosecutors charged was an oil-and-gas Ponzi scheme and into an insurance annuity from which his money could not be extracted until he died. Louis-Dreyfus also sued Holzer after the broker convinced her to put money in the same type of insurance annuity.

 

Falcone and Harbinger Capital agree to SEC settlement

The Securities and Exchange Commission today announced that New York-based hedge fund adviser Philip A. Falcone and his advisory firm Harbinger Capital Partners have agreed to a settlement in which they must pay more than $18 million and admit wrongdoing.  Falcone also agreed to be barred from the securities industry for at least five years.

The settlement, which must be approved by the U.S. District Court for the Southern District of New York, requires Falcone to pay $6,507,574 in disgorgement, $1,013,140 in prejudgment interest, and a $4 million penalty.  The Harbinger entities are required to pay a $6.5 million penalty.  Falcone has consented to the entry of a judgment barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization with a right to reapply after five years.  The bar will allow him to assist with the liquidation of his hedge funds under the supervision of an independent monitor.

Among the set of facts that Falcone and Harbinger admitted to in settlement papers filed with the court:Falcone improperly borrowed $113.2 million from the Harbinger Capital Partners Special Situations Fund (SSF) at an interest rate less than SSF was paying to borrow money, to pay his personal tax obligation, at a time when Falcone had barred other SSF investors from making redemptions, and did not disclose the loan to investors for approximately five months.

Falcone and Harbinger granted favorable redemption and liquidity terms to certain large investors in HCP Fund I, and did not disclose certain of these arrangements to the fund’s board of directors and the other fund investors.

During the summer of 2006, Falcone heard rumors that a Financial Services Firm was shorting the bonds of the Canadian manufacturer, and encouraging its customers to do the same.

In September and October 2006, Falcone retaliated against the Financial Services Firm for shorting the bonds by causing the Harbinger funds to purchase all of the remaining outstanding bonds in the open market.

Flcone and the other Defendants then demanded that the Financial Services Firm settle its outstanding transactions in the bonds and deliver the bonds that it owed.  Defendants did not disclose at the time that it would be virtually impossible for the Financial Services Firm to acquire any bonds to deliver, as nearly the entire supply was locked up in the Harbinger funds’ custodial account and the Harbinger funds were not offering them for sale.

Due to Falcone’s and the other Defendants’ improper interference with the normal interplay of supply and demand in the bonds, the bonds more than doubled in price during this period.

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