Hedge Fund Launch Postponed by Arrest of Founder

The headline may be a little bit of an overstatement. The hedge fund “founder” is a Connecticut vagrant who was collecting funds by collecting cans. At five cents a can, that’s a lot of cans. 

The future financial mogul, Brent Goggins, was executing the ultimate in retail funding – soliciting tin cans door-to-door in West Hartford, at the corners of Fenwood and Exeter Avenues, near Carol Road. For reasons unexplained, somebody called the local police, who collared the future financier for soliciting without a permit. 

The 32-year-old Goggins has a criminal record – in 2007 he copped to resisting arrest. As Goggins was being put under arrest, police discovered an accomplice, Charles Cravish, who is a fugitive wanted in Florida for, you guessed it, resisting arrest. The double arrest was a major coup for the West Hartford constabulary.

Goggins seems to be popular with the rich ladies – his girlfriend posted $100 bail to spring him from the Big House. She must also be very forgiving, because Goggins and Cravish had “borrowed” her car for their little adventure. The car was towed.

Florida is expected to extradite Cravish as soon as possible. Plans for the Goggins Cravish Metals Fund are indeterminate at this time.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

JPMorgan Backpedaling From Debt Scandal

It’s a complicated question, but the gist is, should a company publicly entice you to buy securities that it itself is shorting? JPMorgan is in talks with the Securities and Exchange Commission to have the SEC drop its investigation into a deal concerning collateralized debt obligations and the Magnetar hedge fund. A little history lesson is in order.

Last year, Goldman Sachs reached a settlement with the SEC over a similar issue. There, the charge was that Goldman was structuring and marketing CDOs recommended to Goldman by the Paulson & Co hedge fund, even as Paulson was shorting those same CDOs. The settlement cost Goldman $550 million. The charges were that the CDOs were dogs and that Goldman was shafting its customers as it and Paulson profited on the loser CDOs.

Now, JPMorgan would like to walk away from a SEC investigation in which the role of Paulson is played by Illinois-based hedge fund Magnetar. If JPMorgan gets its way, there will be no SEC lawsuit. According to the Financial Times, a settlement could be weeks away.

It’s not known what the outcome of the talks will be. The SEC is curious about $1.1 billion in CDOs called “Squared”, and whether Magnetar was shorting these puppies as JPMorgan was recommending them at Magnetar’s behest. Magnetar, for the record, denies any wrongdoing.-A spokesman for Obiwan Kenobe claimed “These aren’t the droids you’re looking for. Move along, move along.”

In the end, JPMorgan lost $880 million on Squared. Perhaps the proper name of the deal should have been Screwed. 

In a separate case this week, the SEC is contemplating civil charges against Wachovia, since purchased by Wells Fargo & Co, for Wachovia’s sale of some allegedly overpriced CDOs. No hedge funds are involved in the Wells Fargo case.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

SEC: Gupta Must Submit to Administrative Action

Rajat Gupta

Former McKinsey & Company chief Rajat Gupta is an alleged tipster in the Raj Rajaratnam Galleon Group case. As we earlier reported, the Securities and Exchange Commission has filed an administrative action against Gupta, rather than indicting him in the criminal case. Gupta subsequently filed a lawsuit asking U.S. District Judge Jed Rakoff to force the SEC to try Gupta in a jury trial rather than resort to an administrative action. The action is slated for July 18.

On Friday, the SEC responded with a filing of its own, arguing that Gupta cannot escape the administrative proceedings, and that Judge Rakoff lacks jurisdiction to stop it.

Of the 24 individuals sued in the SEC case against Galleon, only Gupta is facing an administrative action rather than a jury trial lawsuit. Observers agree that administrative actions tend to favor the SEC, as opposed to a jury trial. Regarding Gupta’s request for a trial, SEC lawyer Richard Humes declared:

"Even if he gets the ruling he is asking for, it doesn't stop the rest of the proceedings."

Humes and fellow attorney Christopher Bruckmann maintain that Gupta has recourse to appeal decisions of administrative proceedings in federal court, not district court.

"Gupta is essentially seeking to convert potential factual, legal and constitutional defenses to an administrative proceeding to a claim that he is entitled to immediate" relief in federal court.

Gupta has steadfastly denied doing anything wrong. Judge Rakoff has in the past appeared sympathetic to Gupta’s claims, calling “bizarre” the singling out of Gupta for administrative action and commenting:

"23 of them are charged in federal court where they have the right to a jury trial, and one of them is not and is charged only in an administrative proceeding. Does that implicate the equal protection clause of the Constitution as well as a jury trial clause of the Constitution?"

It is anticipated that Gupta will testify for the defense in the Galleon trial. Previously, the prosecution played an 18-minute tape to the jury with Gupta and Rajaratnam speaking about insider topics. At the time, Gupta was on the board of Goldman Sachs, and therefore had a duty to protect Goldman’s secrets. The Gupta tape contains a discussion of Goldman possibly acquiring both Wachovia Corp. and insurance behemoth American International Group. 

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC