SEC: Fraud at Commodity Hedge Fund Juno Mother Earth

The Securities and Exchange Commission yesterday accused the founders of the commodity hedge fund Juno Mother Earth Asset Management with theft of about $2 million and lying about the amount of assets under management.

The two founders, Arturo Rodriquez and Eugenio Verzili, were slapped with a lawsuit alleging fraud. They lied about how much was invested in the fund and how much they had contributed to the fund.

"Verzili, Rodriguez and their firm violated the most fundamental duties of an investment adviser by lying to their clients and misappropriating the money entrusted to their care," George Canellos, chief of the SEC's New York office, announced. "They compounded their wrongdoing by providing false information in filings with the SEC that are designed to ensure that registered investment advisers make full disclosure to investors."

Their scheme was to issue nine phony promissory notes to hide the $1.8 million they stole from the fund. The skimmed money was used by the two founders to pay for travel, entertainment, meals, and operating costs. They also inflated the amount under investment to $200 million from the actual figure of $17 million. They lied by telling investors they had $3 million invested in Juno when in fact they had invested nothing. The SEC’s Bruce Karpati explained:

"Hedge fund investors derive comfort from knowing the fund's adviser has so-called 'skin in the game' by investing its own money side-by-side with investors and sharing the same risk and rewards. These managers deliberately distorted their skin in the game."

The SEC’s complains that the founders directed 41 distinct transfers of cash from the fund into Juno’s bank account. They hid their scheme from the independent directors of the fund. 

The SEC wants a permanent injunction, fines, interest and restitution from Verzilli, who lives in Miami Beach, and Rodriquez, who is thought to reside in Costa Rica. The SEC acknowledged the assistance of the Cayman Islands Monetary Authority and the Financial Market Authority of Liechtenstein in cracking the case.

Eric Bank, Freelance Writer
© 2011 Hedge Fund Writer LLC

Fraudulent Hedge Fund President Johnny X. Arrested

John Xanthoudakis was arrested this morning at the Trudeau International Airport in Montreal, the final arrest in an investigation eight years in the making. The former president of Norshield Financial Group was apprehended Tuesday morning after arriving on a flight from Bermuda two weeks after Quebec police issued a warrant. He offered no resistance.

Johnny X. and three of his best buddies are being charged with scamming the $120 million defunct hedge fund and defrauding former children’s TV producer Cinar. The hapless foursome stands accused of trying to drain funds from Cinar into Bahamian investments. One of the four, Ronald Weinberg, was the president of Cinar, and is hip deep in the scheme. He was released on $140,000 bond after he also surrendered at Trudeau airport.

Felon-to-be number three is Cinar’s former CFO Hasanain Panju. He worked with Weinberg to redirect Cinar funds to offshore accounts in the Bahamas behind the board’s back. The fourth felonious amigo is Lino Pasquale Matteo of the Mount Real investment firm. He helped Johnny X. camouflage the Bahamian investments.

Add it all up, you have 36 counts against the feckless foursome. Top charges include forgery, fraud, and using false documents, including a phony prospectus. All of this took place between August 1998 and March 2000. Norshield investors ended up losing C$159 million through this object lesson in human corruption.

Eric Bank, Freelance Writer

Rajaratnam Trial Updates

Raj Rajaratnam

The blockbuster trial of Raj Rajaratnam is spawning news stories on several fronts. Here is a summary of Monday’s action.

Kumar to Face Cross Examination

As we reported on Friday, Anil Kumar, once a director at McKinsey & Company, testified how he had illegally collected almost $3 million to furnish Rajaratnam with insider information. Advanced Micro Devices (AMD) is one of the McKinsey clients betrayed by Kumar, as evidenced by wiretapped tapes presented to the jury.

Kumar is expected to reveal tips related to other clients, including Business Objects SA, Cisco Systems, EBay Inc., Samsung Electronics and Spansion Inc. Then, the defense attorneys get their shot trying to prove to what they pray is a gullible jury that the payments were honest, even though Kumar shielded them from the Internal Revenue Service.

Gupta Tried to Join KKR

Rajat Gupta, another tipster from McKinsey (and oh yes, its chief) wanted to leave the board of Goldman Sachs behind to join Kohlberg Kravis Roberts just prior to passing confidential information about Goldman to Rajaratnam. One tape has Rajaratnam commiserating with Anil Kumar about Gupta’s situation at Goldman. One month later, Gupta was passing secrets about Berkshire Hathaway’s cash infusion into Goldman. Gupta has tried to resign from the board a week earlier, but was rebuffed by CEO Lloyd Blankfein and others.

Although Gupta gave his longstanding friendship with KKR founder Henry Kravis as the reason to depart, the wiretap has Kumar revealing the real reason – Gupta knew of the conflict of interest. Gupta took the post, but resigned earlier this month.

"At some point, what I worry about is that there can be this massive implosion in him," Kumar said.

"He didn't seem comfortable," Rajaratnam offered. "He seemed like he was tormented."

Prosecutors Release Three Tapes

Three wiretaps played for the jury last week were released by prosecutors in the Raj Rajaratnam trial. Intel employee Rajiv Goel is heard in one listening to Rajaratnam saying he bought a large position in PeopleSoft. Rajaratnam apparently bought the position through Goel’s brokerage account. The conversation continued:

"I can't buy anymore" and "we know because one of our guys is on the board that they are going to put $41 million in escrow."

Rajaratnam knew that the acquisition would exceed current prices by $3.

The second tape, Rajaratnam is overheard speaking with Galleon traders Ian Horowitz and Adam Smith discussing a deal with Vishay Intertechnology. The final tape has Anil Kumar discussing the AMD deal with Rajaratnam. This tape contains the conversations about Rajat Gupta mentioned above.

Former Rajaratnam Employee Added to Witness List

Robert Harrington is one confused dude. To hear him tell it, he has no idea why he was included in the prosecution’s list of 112 potential witnesses. Harrington currently is employed by Geneva-based Jabre Capital partners, a hedge fund. "No one from any organization or entity has contacted me about this issue," he revealed to MarketWatch.

Neither the prosecution nor the defense had any comment. Harrington’s boss, Philippe Riachi, was also in the dark: "We have not had any regulator conduct an investigation," he said. Harrington ceased to work at Galleon in 2007, just as Jabre was starting up.

Eric Bank, Freelance Writer