Two of Four Hedge Funds Implicated in WaMu Insider Trading Delay Depositions

When Washington Mutual went bankrupt, four hedge funds were allegedly involved in trading the dead bank's shares using confidential information. They hotly denied the allegations, but two of them seem lukewarm to the prospect of being deposed in the case.

Once again, management at Centerbridge Capital Partners and Appaloosa Management have delayed giving their depositions. This is the third delay, according to the Puget Sound Business Journal. Now, May 26 looms large as the day when the company representatives sit down with lawyers for the WaMu stockholders and come clean about what they did and when they did it. Unless they try another delay.

The right to question the hedge funds, which also include Aurelius Capital Management and Owl Creek Asset Management, was granted the WaMu shareholders when the hedge funds, which originally OK'd the bankruptcy plans, changed their tactics and opposed it earlier this year. Some shareholders have concerns that the hedge funds relied on confidential information that they came across during the drafting of the WaMu reorganization. JPMorgan Chase bought WaMu's banking business after it was seized by federal regulators in 2008.

Aurelius representatives were deposed last week, and Owl Creek is scheduled for deposition next week.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Rajaratnam Guilty on All Counts

Galleon Group's founder Raj Rajaratnam is guilty on all 14 counts of security fraud and conspiracy related to the blockbuster 2-month insider trading case in which he played the starring role. 

The jury verdict was unanimous.

It took 12 days of deliberation to reach the devastating verdicts. Legal experts agreed that the government put on a very strong case, aided by FBI phone taps and the testimony of former associates. Prosecutors made their case of a 6 year conspiracy dating from 2003 in which Rajaratnam garnered almost $64 million in illegal proceeds.

The defense attorneys' strategy to portray Rajaratnam as a diligent user of public information failed. The jury bought the argument instead that Rajaratnam benefited from insider tips.

U.S. District Judge Richard Holwell can sentence Rajaratnam, born in Sri Lanka, to up to 25 years in the Big House. A bail hearing will determine whether Rajaratnam remains incarcerated until sentencing.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Would-be Buyer of Kodak and American Airlines: A Fraud or Just Crazy?

His name is Allen Weintraub and he's either certifiable or prosecutable. He and his Sterling Global Holdings "hedge fund" offered to buy out Eastman Kodak for $1.3 billion and AMR, the parent of American Airlines, for $3.25 billion. The only rub – he has no money.

That little detail didn't stop Weintraub from sending offering letters to the two companies, even though three banks turned down his loan applications. The Securities and Exchange Commission was sent copies of the letters. According to Kodak's David Lanzillo:

"We thoroughly investigated the letter from Sterling Global, believed it to be a hoax, and turned the matter over to the SEC." AMR's Ed Martelle added: "we have no corroborating information to demonstrate the offer described in the letters as legitimate. We believe the SEC actions speak for themselves."

The SEC complaint was filed in Florida federal court and reads in part:

"Neither Weintraub nor Sterling Global has the means to purchase either Kodak or AMR by tender offer or otherwise as they have no substantial assets or resources. Weintraub falsely claimed that he had bank agreements in place to obtain the approximately $4.5 billion in financing that the tender offers would require. In communications with various media outlets, Weintraub misrepresented his experience in purchasing and operating companies and failed to disclose his prior felony convictions, SEC injunction, and officer and director bar."

Weintraub is quoted as saying:

"We work similar to a hedge fund, but with a very limited amount of investors."

Uh-huh!

Eric Bank, Freelance Writer