Two Alleged Tipsters Seek Dismissals of Charges

Winifred Jiau

Expert network consultant Winifred Jiau, currently jailed without bail for her alleged part in an insider-trading scandal, is seeking dismissal of charges, citing lack of evidence. She is accused of passing along insider tips regarding Marvell Technology Group and Nvidia Corp.

Jiau, who consulted at Primary Global Research – a scandal nexus that employed eight arrested defendants in the case – claims that there is no evidence that her information was provided via insider tips. Jiau is cooling her heals in prison since the judge declared her a flight risk and revoked bail. Lawyers for Jiau say her continued incarceration hampers her defense because she lacks access to prosecutors’ documents. They want the government to specify which of the “tens of millions of pages of documents” in evidence pertain to Jiau.

Donald Longueuil

The second defendant seeking dismissal is former SAC Capital Advisors fund manager Donald Longueuil. He stands accused of receiving tips from Noah Freeman, another SAC manager who has pleaded guilty and is a prosecution witness. Longueuil’s lawyer, Craig Carpenito, filed a motion claiming:

“The indictment fails to allege Mr. Longueuil knew or should have known that material non-public information he received from non-inside sources was originally obtained from an inside tipper that fraudulently breached a duty. Mr. Longueuil was a third tier recipient of the information at best.”

Jiau and Longueuil have a few things in common: they are both facing 25-year sentences if convicted, they both have pleaded not guilty, and each wants a separate trial.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

SEC Sues Former Hedge Fund CFO For Improper Transfers

D.B. Zwirn & Co. is a defunct hedge fund, decimated when investors learned through an internal audit about improper transfers of funds. The accounting scandal resulted in the investigation of founder Daniel Zwirm, who was subsequently cleared of any wrongdoing.

Perry Gruss, the form CFO who made the transfers, may not be so lucky. Gruss is being sued by the Securities and Exchange Commission for knowingly making unauthorized transfers to help pay for a corporate jet and other expenses.  The jet was for the use of one of the firm’s partners. Apparently, the transfers were needed to keep the firm afloat.

The transfers covered a two year span beginning in 2004. The SEC began probing D.B. Zwirn over four years ago, but founder Zwirn was only cleared this year.

The internal audit that turned up the accounting irregularities included transfers from D.B. Zwirn’s offshore fund to its onshore fund ($576 million), transfers from the offshore fund to a revolving credit line ($273 million), money transferred to plug up cash flow shortfalls ($22 million), and of course the private jet ($3.8 million). Every failing company needs a private jet, right?

After the 2006 internal audit and his subsequent departure, Gruss sued D.B. Zwirn in 2009 for telling investors:

"a series of false and misleading statements … which sought to blame Gruss for any conceivable control issues at the company, and to shift the blame to Gruss without implicating Zwirn."

Gruss’ attorney, Nick Ackerman said of the current lawsuit that Gruss:

“…categorically denies the allegations in the SEC's complaint as being without merit. At all times, Mr. Gruss acted in the best interests of the shareholders, and there is not even an allegation that he obtained any financial gain whatsoever from any of the transactions alleged in the complaint."

In any event, it was all too much for investors in the former $5 billion hedge fund. By February 2008, the company was forced to close its largest fund, which went to Fortress Investment Group the following year.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

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