Eight Is Not Enough for Ponzi Schemer Sucarato

When he pleaded guilty to fraud last January, Robert Sucarato had no idea that he might have to spend over eight years in the Big House. Sucarato was the founder of the New York Financial Company, a grand-sounding name for a Ponzi scheme. The fund rooked investors out of $1.6 million.

The New Jersey federal judge overseeing the case has postponed sentencing until October, apparently to mull over a stiffer sentence that originally contemplated, according to the U.S. Attorney's Office in NJ. Federal sentencing guidelines call for a lockup period of six and a half to eight years. The defense lawyers have been given an opportunity to respond.

Incarcerated since April, Sucarato admits to being a serial liar. He inflated the amount under investment from $110.000 to $7.2 billion. He made up a phony degree from New York University, and then spun fairy tale biographies for his firm's officers. To top that off, he claimed phantom offices in Chicago and New York.

Sucarato helped himself to half a million dollars from the original investments of $1.7 million. He also lost $850.000 investing, and used the rest to keep the Ponzi scheme operating. 

The new sentencing date for Sucarato is now October 11. 

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

http://ericbank.com

Messy Lawsuit Reinstated

A New York appeals court ruled that a lawsuit filed by two former employees of Touradji Capital Management should not have been dismissed by a lower court. As such, Touradji will have to defend itself from accusations that it withheld over $50 million in bonuses.

The original suit was brought by Gentry Beach, who worked for the commodity hedge fund through 2008. In December of that year, Beach claimed that Touradji had not paid him three years of bonuses, amounting to $23 million dollars. Another employee, Robert Vollero, soon joined the lawsuit, saying that Touradji tried to intimidate him into sending a letter to investors defending the hedge fund against Beach's accusations. Vollero maintains that his own bonus would be forfeited if he did not comply.

To add to the mess, in 2009 Touradji countersued the two ex-employees, saying that they were:

"responsible for the destruction of millions of dollars of investor capital through a pattern of fraud, breaches of fiduciary duty, mismanagement and utter disregard for the interests of the investors."

Touradji is also suing Gary Beach, the father of Gentry Beach. Gary Beach is suing Touradji for disrupting a joint venture between the two. 

Even though the claims of unjust enrichment and labor law violations will now go forward, Touradji lawyer Sean O'Brien seemed supremely confident that despite a technical defeat at the hands of the appeals court, Touradji will prevail in the end:

"These are claims which we are confident will ultimately be dismissed."

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Another Guilty Tipster

It's another black mark against Primary Global Research. Earlier this month, one of its former expert consultants, Winifred Jiau, was found guilty on insider trading charges. Now, Mark Langoria, another Primary Global expert consultant has pleaded guilty to passing along confidential information about the company he worked for, Advanced Micro Devices. He was a supply chain manager at Advanced Micro.

Langoria admits he passed the information to clients of Primary Global, making him one of the most popular Primary Global consultants. Some of his clients were hedge funds. Two in particular are of note: Spherix Capital, whose founders were judged guilty in the Galleon Group case, and Barai Capital Management, where an analyst and a founder have pleaded guilty. So far, prosecutors have racked up nine guilty pleas in the expert network case.

Longoria already telegraphed that he was going to plead guilty. He told the judge after his arrest in December that he was not preparing to fight the case. In March, Langoria's lawyer admitted that they were in plea negotiations. 

Another trial of a Primary Global executive, James Fleishman, is scheduled to occur later in 2011. Walter Shimoon is yet another accused tipster – his plea deal is expected by Wednesday unless it falls through entirely.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Fraud Convict Want Do-Over

If you want to get in touch with convicted hedge fund fraudster James Nicholson sometime in the next 40 years, you can reach him at the Big House. That is, unless Nicholson succeeds at getting a new, shorter sentence. It seems the Nicholson doesn't like the idea of being incarcerated until he's in his 80's, and is taking steps to get out earlier.

The plan is predictable: blame the lawyer. Specifically, his new lawyer is casting doubt on the competence of the old lawyer, who allowed Nicholson to bargain away his right to appeal his sentence. The new lawyer, Andrew Frisch, declares:

"In an atmosphere of growing judicial criticism of the fraud guidelines and increasing disparity among sentences in fraud cases based on different judicial philosophies—precisely the disparity that national sentencing policy endeavors to eliminate—it was incumbent on counsel to preserve all sentencing challenges, not bargain them away for illusory gain."

Nicholson pleaded guilty last year to scamming investors out of $140 million through his Westgate Capital Management hedge fund. The New Jersey resident must have been unpleasantly surprised when, last November, U.S. District Judge Richard Sullivan handed him a nice stiff 40-year sentence. Apparently, Nicholson had thought that any sentence over 20 years in length was "a theoretical but not a real possibility."

As of yet, Nicholson has not sought to change his guilty plea. One wonders how much worse the sentence would have been if he had plead not guilty and lost his trial. Nicholson will have plenty of time to ponder that question…

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Magnetar CDO Spurs Another SEC Probe

A collateralized debt obligation structured on behalf of the Magnetar Capital hedge fund has interested investigators from the Securities and Exchange Commission. It seems they have questions regarding the roles of Merrill Lynch and the hedge fund NIR Capital Management in marketing the CDO. The investigation continues the ongoing probe into banks' CDO marketing practices, and is the second time Magnetar has been involved.

The Merrill Lynch unit of Bank of America is under scrutiny from the SEC for allowing Magnetar to select securities for the "Norma" CDO – securities that Magnetar allegedly shorted. The question is whether Merrill and NIR failed to meet its obligations to the CDO investors by not disclosing the Magnetar role. The Dutch bank Rabobank settled a lawsuit against Merrill last year where it charged that Merrill:

"hand-picked a beholden collateral manager that was willing to ignore its fiduciary duties to Norma's investors by selecting Norma's collateral pool at Merrill Lynch's behest rather than on the basis of the rigorous independent analysis."

Magnetar does not stand accused of any wrongdoing and denies all allegations that it picked and shorted Norma securities. In a related investigation, the SEC is looking into JPMorgan Chase over another CDO allegedly developed for Magnetar. The Feds have warned both a JPMorgan executive and an executive at hedge fund GSC Group, the CDO's collateral manager, now bankrupt.

NIR is no stranger to controversy. It has had to deal with lawsuits that accuse it of lying about its fund performance. In addition, Federal prosecutors are keenly interested in whether NIR participated in paying kickbacks to get its assets evaluated at an inflated level.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Goffer and Friends Convicted

Zvi Goffer, his brother Emanuel Goffer and Michael Kimelman, all alumni of the Incremental Capital hedge fund, found themselves on the wrong side of a guilty verdict this morning as prosecutors successfully concluded the second Galleon Group insider trading trial. It was only a month ago when Raj Rajaratnam was found guilty in the first trial. The three newly minted convicts each face up to 25 years in the Big House for conspiracy and securities fraud.

The hapless trio participated in two insider-trading rings headed up by Goffer and Rajaratnam. The trial featured taped conversations and cooperating witnesses. Altogether, 27 people participated in the two rings. 

The jury was decisive, convicting Zvi Goffer on 14 counts and the other two on three counts each. The three hardly put up any defense, and one, Kimelman, turned down a plea deal that would have spared him jail time. His lawyer, Michael Sommer, said:

"We are enormously disappointed with the verdict as we believed the evidence clearly showed that Mr. Kimelman had not engaged in any insider trading. We will of course pursue all avenues of appeal."

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Jiau's Insider Tips Batted 1,000

Winifred Jiau

Noah Freeman, a former portfolio manager at SAC Capital Advisors, said yesterday that he received a string of "perfect" tips from expert-network consultant Winifred Jiau, even though receiving those tips was in violation of SAC policy.

His testimony stated that Jiau passed him correct information regarding the earnings at Nvidia Corp. and Marvell Technology Group during the years 2006 – 2008. Freeman in turn passed the tips along to Neil Druker (head of Sonar Capital Management), Donald Longueuil (SAC trader), and Samir Barai (founder of Barai Capital Management). Both Longueuil and Barai have already pleaded guilty, whereas Druker has yet to be accused of any crime.

Said Freeman of Jiau:

"She provided us with almost complete financial results before they were announced. It gave us the ability to know what the company was going to say before they said it. That gave us a huge leg up."

In his own defense, Druker, through his lawyer, called Freeman dishonest and was seeking to falsely implicate others at Sonar.

Jiau received $1,000 a month for her insider tips, which later rose to $5,000 per month. Payments were made via artificially high trading commissions to hide the truth. SAC, while a central figure in the case, has never been accused of wrongdoing.

Jiau has been implicated by other individuals in the expert network, nine of whom have pleaded guilty. According to Freeman, Jiau was a "very, very difficult" person to deal with, constantly rescheduling meetings or phone calling at strange hours. She once requested that Freeman ship her a dozen lobsters for Thanksgiving, then failed to pick up the shipment. From Freeman's secretary:

"Winnie never picked up her lobsters. Typical Winnie to leave 12 lobsters to die at Fed Ex. She has no heart."

If convicted, Jiau will continue to abstain from lobster for up to 25 years in the Big House.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC