THE BIZOP NEWS

Southern District of Florida $190 Million Scam- Press Release “R. Alexander Acosta, United States Attorney for the Southern District of Florida, Jonathan I. Solomon, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Division, and Don Saxon, Commissioner, State of Florida's Office of Financial Regulation, announced that Jung Bae Kim, also known as John B. Kim, 38, formerly of Jupiter, Florida, has been charged by a West Palm Beach federal grand jury in Case No. 06-80197-Cr-KLR in a thirty-five count Indictment with conspiracy to commit wire fraud, mail fraud, conspiracy to commit money laundering, and numerous substantive acts of wire fraud, mail fraud, and money laundering.”

“The Indictment alleges that John Kim and others orchestrated a massive investment fraud in the operation of various hedge funds under the umbrella of the KL Group, LLC, initially based in California and later in Palm Beach County. Also charged were Won Sok Lee and Yung Kim, John Kim's brother, for participating in the massive scheme, in which nearly $195 million was received from investors between 2000 and 2005. Also indicted were three hedge fund advisor companies that were allegedly owned and controlled by the individual defendants: KL Group, LLC, KL Florida, LLC and KL Triangulum Management, LLC. The corporate defendants were charged only in connection with the investment fraud conspiracy.

According to the charges, the defendants touted to investors through quarterly mailings and website postings that the KL Financial Group was a hugely successful family of hedge funds. In reality, however, the funds lost millions and millions of dollars, and allegedly paid old investors with new investors' funds. In addition, the Indictment alleges that Kim and other defendants used counterfeit documents falsely reporting investment returns in order to fool lawyers, accountants and ultimately their victims, the investors.” (my emphasis)

The SEC had shut down this hedge fund scam last in August, 2005.

The DOJ’s indictment in this hedge fund scam had an interesting allegation: The individuals created fake letterhead and accounting statements of well known firms. Cut and pasting using Photoshop, no doubt.

It will be interesting to see how good these counterfeits really were in the ensuing lawsuit against the professional advisors.

Posted by michael webster at 2:13 PM | Permalink | Comments (0) | TrackBacks (0)

Avid readers of this blog will recall that Mr. Wright is being sued by the SEC regarding matters both civil and criminal, while at the same time he and his numerous companies are in bankruptcy.

Mr. Wright allegedly swindled investors out of $180 million, and the facts are now beginning to seep up through the mud.

Civil Action by SEC

In August, 2006 Wright asked for a stay of the civil proceedings, which were being conducted as Wright's criminal action proceeded. In the criminal proceeding, Mr. Wright need not testify, while in the civil proceeding the discovery process may require Wright's attendance.

On October 27th, 2006, Judge Charles Pannell Jr. denied Wright's request for a stay. As a result, the SEC's motion for default judgment will proceed. The evidence that the SEC will rely upon for default judgment is contained in the the affidavit of the receiver.

According to the receiver, Wright converted approximately $17 million of the investors' money to his own use. The rest of money, approximately $150 million, is described as either returned to investors, lost through trades, or converted for Wright's and other principals for their personal use.

I suspect that this means that the receiver has no clear idea where the money is.

Criminal Action by SEC

Wright has withdrawn his motions for the suppression of evidence and the matter is now certified ready for trial, see the following order.

Bankruptcy of Wright and his Companies

The receiver and legal fees are approximately $1.8 million; while the recovery for the estate is $1.6 million, with possibly another $4 million to come from the sale of some of IMA's real estate in California.

The rest of any recovery will have to come from lawsuits against third parties, apparently. The transcript from the fees hearing doesn't make it entirely clear what these causes of action are. Perhaps the legal theories for recovery are clearer in the receiver's mind?

I would simply follow the money: find out where each investors's cheque was cashed. Go to that bank and ask where that money went - continue until all $150 million accounted for. But then again, I am not clever enough to be in a position to bill and collect from the bankrupt estates $1.6 million.

Posted by michael webster at 6:53 AM | Permalink | Comments (0) | TrackBacks (0)

I am a simple person, black isn't white, 0 isn't 1, and losses aren't gains. But apparently in the complicated world of hedge funds, I would fail. As reported by the SEC, November 14th, 2006, Kelsey L. Garman, Koinonia Investment Club II, Koinonia Income Account, had a very different view about what losses were.

"In its complaint, the Commission alleged that Garman falsely claimed to have had spectacular success trading securities on behalf of the four other defendants, Koinonia 100/200, Koinonia Investment Club, II, Koinonia Kingdom Club and Koinonia Income Account, when in fact the funds as a whole had losses rather than the gains he touted. Garman was charged with violating the antifraud provisions of the federal securities laws, the securities registration provisions and the antifraud provisions of the Investment Advisers Act."

If I write a cheque that turns up NSF, I don't have funds in that account, that amount of time it takes to notify me is about 10 days.

But the SEC is saying that someone can essentially write NSF cheques to their hedge fund clients for several years without anyone knowing about it.

I understand that it is much more difficult to steal cheques these days because of the anti-fraud steps taken by banks. Frank Abagnale would be proud of the many new anti-fraud steps taken with respect to replicating and stealing cheques.

But why on earth are we allowing the custodial institution's statements to be circumvented, and have losses reported as gains. Surely, we want more from the investment market than Queen of Hearts in Alice in Wonderland reporting -where something is true just because the Queen of Hearts said so.

Could we please have reporting statements that cannot be faked up? It is surely not to much to ask.

Technorati Tags: koinonia, garman, investment club, investment advisers act

Posted by michael webster at 11:54 PM | Permalink | Comments (0) | TrackBacks (0)

The Securities and Exchange Commission ("Commission") announced that on October 17, 2006, Judge Polster of the United States District Court for the Northern District of Ohio entered a Final Judgment against Gregory Applegate ("Applegate") in which Applegate consented to the entry of an order of permanent injunction enjoining him from violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

Several months earlier, April 2006, the SEC announced, that Gregory Applegate had been sentenced to 5 years in prison and ordered to repay almost $3 million in restitution, in connection with his Ponzi scheme. According to the complaint,

"From about 2001 through August 2005, Applegate solicited at least 140 investors to invest at least $5.8 million in a supposed "hedge fund" and other investment vehicles. Applegate guaranteed an annual rate of return to these investors and promised to make up any losses out of his own pocket. The Complaint alleged that in reality, Applegate's "hedge fund" was a Ponzi scheme in which Applegate misappropriated investor funds, using them to finance an unrelated personal business, pay personal expenses, and reimburse or pay "investment returns" to earlier investors. To further this Ponzi scheme, Applegate mailed to investors false monthly client statements reflecting securities holdings and returns that did not exist."

How was Mr. Applegate able to "send false monthly client statements"?

Here is where the story turns more interesting than the SEC's dry recital of facts.

In a story Businessweek did last October, they state that the SEC claimed Applegate was:

"able to gain investors' trust, in part because he showed them business cards from Westerville, Ohio-based, Regis Securities, a brokerage where he had been working since January. Applegate told investors that he was running a hedge fund for Regis called Applegate Investments, and produced false monthly client statements for them, the SEC alleges". (my emphasis)

Business cards?! Jim Rockford had a fistful of business cards to establish his numerous false identities!

And what of the Regis Securities connection? Well according to the article,

"Regis Securities' president, Robert Cargin, said that Applegate's alleged scheme had been going on for years, beginning at another brokerage. "He had this program basically concealed when he joined our firm," Cargin said." (my emphasis)

So Regis Securities innocently facilitates a fraud by allowing their reputation to be used to gain trust, could this be a cause of action in tort? Should Regis have been more careful in checking what their broker was sending out? How did they supervise Mr. Applegate?

Technorati Tags: ponzi scheme, applegate, investors, personal expenses, personal business, hedge fund, investment vehicles, investment returns, investor funds, restitution, sentenced, invest

Posted by michael webster at 1:35 PM | Permalink | Comments (0) | TrackBacks (0)

On September 28th, 2006 a Shrewsbury investment adviser was charged with fraud today by a federal Grand Jury in connection with a scheme that bilked 15 investors of approximately $13 million.

The investment adviser charged is Amit Mathur. The entire indictment can be read here.

The SEC charged Mathur and others last year, which revealed a number of interesting details about this hedge fund fraud.

First, how did Mathur convince investors about the pedigree of his firm?Apparently, he simply stole the materials copying Entrust Northeast's website.

Second, how did Mathur think he was going to close down his little hedge fund fraud. The hedge fund had large trading losses, legitimate losses. How did Mathur make money with losing trades? Simple, 90% of the commission owed to the brokerage doing the trades were kickbacked to Mathur.

Third, how did he keep his investors convinced of his skill? The oldest trick in the books, fake statements of return. Why bother taking the time to doctor a cheque, when you can easily doctor a statement as Charles Ponzi completely understood.

Fourth, some of the money Mathur stole from his investors wound up in real estate deals -which actually made money! But Mathur apparently would rather scam than be honest, the Yellow Kid would have understood this.

Fifth, the largest investor lost over $11 million was a well respected banker.

The moral: due diligence has to be continuous.

Technorati Tags: mathur, investment adviser, hedge fund, fraud, investors, federal grand jury, entrust, shrewsbury, indictment, amit, stole, pedigree, convince, legitimate, brokerage

Posted by michael webster at 10:04 AM | Permalink | Comments (0) | TrackBacks (0)

According to documents filed by the Receiver in the Bankruptcy of Kirk Wright and his companies, the total bill to the bankrupt's estate, as of the end of July was $830,000 more or less. The dockets for the Kilapatrick Law Firm can be read here.

Now recall that a) Kirk Wright and his companies have no representation in the bankruptcy, b) the receiver had no role to play in securing Kirk Wright's physical custody, and c) the main assets of the estate are real estate located in Georgia and California. There has been an auction for the property in Georgia, which returned approximately $2 million to the estate, of which $1.7 remains for the investors, once the lawyers and receiver have been paid.

What concerns me, on behalf of the investors, is that there appears to be no effective mechanism for the creditors of the estate to challenge the value of what their $830,000 actually bought in legal services. It is of course the creditor's money that is paying for the receiver and the receiver's lawyers. How do they effectively challenge what they paid for?

What makes this a timely concern is the recent reports of law firms padding their legal bills. Of course, I am not saying that I have any knowledge of whether the receiver's interim demand for fees is reasonable or not. Nor do I have any knowledge about the dockets.

But, what I can say is, that the practice of law works only when the adversarial system is fully engaged. And I am concerned that the adversarial system is not engaged fully in the receiverships and bankruptcies.

Technorati Tags: bankruptcy, investors, georgia, physical custody, bankrupt, creditors, lawyers, auction

Posted by michael webster at 11:28 AM | Permalink | Comments (2) | TrackBacks (0)

Journalists and academics approach the social world holding two different and sometimes incompatible ways of measuring risk in the world. For example consider what the Wall Street Journal thinks is important about the investment opportunity known as as PIPE: Lawyer Tied to Past Small-Stock Scam Takes Up Contentious 'PIPE' Deals. John Emshwiller writes:

"In 1991, Manhattan attorney Edward Grushko pleaded guilty in a Las Vegas federal court to conspiring to commit securities fraud, part of what government investigators said was a scheme to cheat investors through small-company stock offerings. While a felony conviction usually costs an attorney his law license, a provision of New York state law allowed Mr. Grushko to receive just a three-month suspension.

In recent years, the 50-year-old Mr. Grushko has turned his legal talents again to the field of small-company stocks, this time in connection with transactions that some contend harm the companies and their shareholders. And once again, Mr. Grushko is practicing in a contentious corner of the securities markets.

For the past few years, he and his law firm, Grushko & Mittman, have appeared regularly in connection with a new crop of small-company financing deals with the name of PIPE, or private investment in public equity. Critics use more pejorative descriptions, including "toxic converts" and "death-spiral financings."

Now if I am doing due diligence on this business opportunity, Edward Grushko's fraud conviction is a large enough red flag for me to run away, and run away screaming.

But what do the academics think? Well, at a curiously named blawg, Truth on the Market, Bill Sjostrom opines:

"In a typical PIPE, a company privately negotiates a sale of unregistered equity or equity-linked securities to institutional investors. As part of the deal, the company agrees to register the resale of the equity securities, typically within 30 days. The securities are priced at a discount to the applicable public market price to reflect the fact the original issuance is unregistered. PIPEs offer a number of advantages as a financing technique, including quick time to market (no pre-offering delay for SEC filings, abbreviated documentation) and an equity financing option for companies with market caps or deal sizes too small for a registered equity follow-on offering.

The Journal article, however, does not focus on the advantages of PIPE deals. Instead, it seems to try to vilify them."

If someone from Mr. Grushko's firm offers me a pipe, I am not smoking it - I don't care what the theoretical basis for the pipe's advantage is. A convicted fraudster wants to put a carcinogenic substance in my portfolio. Not buying.

Technorati Tags: company stock, stock scam, stock offerings, felony conviction, wall street journal, company stocks, manhattan attorney, new york state, securities fraud, government investigators, investment opportunity, contentious, contend, new york state law

Posted by michael webster at 3:03 PM | Permalink | Comments (0) | TrackBacks (0)

Kirk Wright has asked the Court to order a change of venue for his fraud trial. According to documents filed with the Court, the public defender has argued that as a result of the pre-trial publicity surrounding Mr. Wright's incarceration it is impossible for him to obtain a fair trial in Atlanta. The public defender argued that since bankruptcy proceedings have been largely reported, primarily in Atlanta papers, Mr. Kirk is thought of as someone who has done something sufficiently bad to have had his assets taken away.

The Government's opposition to the motion emphasizes that the publicity surrounding the bankruptcy has very little to do with the allegations of fraud, that the stories have been even handed, and that the defendant has failed to discharge his burden of proof.

The best part of this motion is the list of articles written about Kirk Wright, which are available here. Happy reading!

Technorati Tags: pre trial publicity, fraud trial, bankruptcy proceedings, public defender, change of venue, atlanta, burden of proof, incarceration, defendant, allegations

Posted by michael webster at 7:56 AM | Permalink | Comments (0) | TrackBacks (0)

NFL Seeks Dismissal of Hedge Fund Suit, according to Forbes. According the the Forbes article, "The NFL and its union say a lawsuit filed by six current and former players seeking to recoup $20 million they lost in an alleged fraud scheme should be dismissed, arguing in part that league players are solely responsible for their own finances."

Actually, the main argument is more sophisticated and does not depend at all upon the interpretation of the clause in the collective bargaining agreement, quoted above.

The NFL's Player's Association's brief makes its clear that its main point is that a) whether the NFL and NFL Player's association owed the plaintiffs a duty can only be determined by interpreting the collective agreement, b) to determine the duties owed under the collective agreement requires the applicability of a Federal Law on Labour and not State Law on Negligence. Federal Law does not recognize a cause of action of mere negligence asserted against the Union for failing to ensure that screening program worked.

In essence, the NFL and NFL Player's association are saying that although the collective bargaining agreement established the existence of a screening program for financial advisors, nobody should have relied upon their screening duty as a matter of law because they could not have sued the NFL Player's association for negligence, only a failure of a duty of fair representation.

At the Daily Caveat Blog, they suggest a different issue "the NFL, for its part, is also in the crosshairs, but claims that the players bear sole responsibility for their finances. The League is asking for the suit to be dismissed and the NFL players' association is taking a similar tact. Both entities contend that they player contracts state that, in any case, arbitration - not litigation - is the remedy specified in player contracts. How the league will explain away the apparent total negligence of giving its endorsement to known fraudsters is a separate issue." The pleadings do not, however, claim that the NFL and NFL Player's association knew that Kirk Wright was a fraud. So I don't see that the Daily Caveat has accurately reported the legal issues.

None of this should obscure the fact that the NFL's screening program failed totally, and should be reviewed so that it can add to the SEC's compliance program and stand as a mere fig leaf.

Technorati Tags: nfl player, kirk wright, negligence, federal law, union, collective bargaining, hedge fund, fraud scheme, collective agreement

Posted by michael webster at 7:34 AM | Permalink | Comments (2) | TrackBacks (0)

The Wall Street Journal, paid subscription, has a very interesting story on failed hedge funds, WSJ.com - Failed Hedge Fund Haunts Celebrities.

According to the story, "A trustee liquidating Bayou Management LLC, a failed Connecticut hedge fund, is attempting to reclaim more than $100 million from investors, including a fund called Sterling Stamos in which the owner of the New York Mets baseball team, Fred Wilpon, has a stake. In a separate matter, a Long Island family is suing several fellow investors in a bogus hedge fund called Sterling Watters. Among defendants: a former official of the Securities and Exchange Commission. Those cases, like the Lipper case, are pending in state Supreme Court in Manhattan. Individuals who profited "should be sharing the pain," says Jeff Marwil, the federal trustee in charge of liquidating Bayou. "Our goal is to equalize in a fair and equitable fashion."

The basic legal theory here is restitution: those individuals who obtained benefits from a ponzis scheme, received a benefit which was mistakenly conferred upon them - the mistake being that the hedge fund was was solvent at the time it made the distribution. Ponzi schemes are insolvent from the get go, and any transfer of money from the later investors to the earlier investors is under the mistake, induced by the schemers, that scheme is solvent. There was no intention of the transferor to gift his or her money to the transferee, and so the proper legal theory for the later investors to recover their money from the earlier investors is restitution: restitution does not require that the transferee committed a wrong in obtaining the money, only that it would be wrong for the transferee to retain the money.

Technorati Tags: sterling stamos, new york mets, hedge fund, fellow investors, securities and exchange commission, wall street journal, wsj, trustee, lipper, hedge funds, fred wilpon, mets baseball, equitable fashion, management llc, baseball team, watters, haunts, restitution, suing

Posted by michael webster at 8:16 AM | Permalink | Comments (0) | TrackBacks (0)

The FBI announced yesterday that "a Waltham man was charged today in federal court with defrauding more than fifty victims in an investment fraud scheme. The Information alleges that from approximately January, 2001 to October, 2005, Mark Conway acted as the managing partner of Groundswell Partners LLC, the General Partner and management company for Groundswell Capital LP, a quantitative systematic hedge fund doing business in Massachusetts. It is alleged that as managing partner, CONWAY made numerous misrepresentations to investors including that the hedge fund would follow a specific market timing investment strategy devised in part by Mark Conway . It is alleged that in fact, Mark Conway , the sole trader for the fund, ceased using the promised investment strategy without notice to, or the approval of, the investors. In order to hide this deviation from the promised strategy, Mark Conway created and distributed false documentation for the purpose of inducing investors to transmit additional investment monies, concealing the true status of the hedge fund account and its trading history, and causing existing investors to leave their funds under Mark Conway's management. Mark Conway received a fee for his management of the investment funds." (my emphasis)

Some quick facts: 54 investors have allegedly lost $25 million, in part because it apparently is easy to create false documentation. Do you think that if you were risking on average, $500,000.00, you might figure out whether the documentation was accurate and truthful? Or would this small detail escape your attention?

Technorati Tags: mark conway, investors, partner, fbi, investment strategy, hedge fund, investment fraud, groundswell, fraud scheme, timing investment, sole trader, false documentation, market timing, waltham

Posted by michael webster at 11:39 AM | Permalink | Comments (0) | TrackBacks (0)

Steve Atwater was one of the former NFL players who were defrauded by Kirk Wright and his hedge fund IMA. Interestingly, Atwater was also an intern at IMA. Steve Atwater and five other NFL players are now suing the NFL and the NFL Player's Association claiming that the NFL did not perform the due diligence on Kirk Wright that they contracted for. As a result, the plaintiffs claim they lost $20,000,000.00 collectively in this business opportunity.

How much did they spend collectively on their due diligence - $1500.00 per player or $9,000.00 collectively.

Was this too little money? Should they have spent more? Should they have looked at other due diligence programs? What do you think?

Technorati Tags: due diligence, nfl players, nfl player, steve atwater, ima, hedge fund, business opportunity, suing, irrelevant, invest, lost

Continue reading "What is the Price of Due Diligence? For Steve Atwater it was the .5 percent solution." »

Posted by michael webster at 10:13 PM | Permalink | Comments (0) | TrackBacks (0)

A number of details have emerged from the amended indictment against Kirk Wright, which appear not to have been reported in the various news accounts, here and here. No one seems to have read in detail either the indictment or the FBI's news release. The news reports continue to talk about an $185 million ponzi scheme and the disappearance of most of that sum.

But, it is very unlikely that Kirk Wright ever had anything like $185 million under his control, or the control of his hedge funds. As the indictment makes clear, he is alleged to have lied about both where the money was being invested, and how much money the various funds had in their control.

To accomplish this, the indictment alleges that he simply put the investor's money in an account called, I suppose, creatively, the "IMA expense account" and used the proceeds of it to pay himself, and his partners. The indictment the alleges that he simply sent false statements by mail to his clients and counted on them being happy with what the statements reflected.

Charles Ponzi used a similar scheme in 1919. As Donald Dunn, writes "after receiving notification of their 50% return, Ponzi could imagine the activity". While some would rush to cash in on their good fortune, "others would take their time, convinced by the fact that they had a one cent post card, they also had a 50% return on their investment. They would read the card over, show it to their wives and relatives. ... Back at their jobs, at the restaurants, at the recreation halls, they would tell others of their stupendous good fortune -and the ones they told would come running. Each satisfied customer would become a salesman, self-appointed." (my emphasis)

As many of the ponzi scams have shown, the ability to manufacture false returns or statements of accounts in critical to the success of the scam, or fraud. And as one astute reader has already pointed out, "It seems that money deposited into a legitimate custodial account is then deposited into a "black hole" with no further accountability". Are the institutions who provide the custodial accounts innocently enabling fraud? Do they have any liability for this, if so? Interesting questions.

Technorati Tags: ponzi scheme, charles ponzi, indictment, news reports, news release, donald dunn, money, fbi, hedge funds, expense account, ima, proceeds, kirk wright

Posted by michael webster at 3:03 PM | Permalink | Comments (7) | TrackBacks (0)

The lawsuit against the NFL and the NFL's Players Association by Steve Atwater and others because the union recommended hedge fund manager Kirk Wright as a registrant in a union investment program.

The complaint can be read here. The complaint is fairly straightforward, but the link between Wright's improper registration by the defendants, as a registered financial advisor, and the losses suffered by the plaintiffs is not clear, in my opinion. Wright is alleged not to have certain tax debts outstanding, which should have precluded his being registered by the defendants.

Unfortunately, I don't see the link between the losses suffered because Kirk Wright allegedly stole money from the investors and his having tax debts. Yes, Kirk Wright should not have been approved as financial representative because of these tax debts - but his tax debts didn't cause the losses. (Unless, of course Kirk Wright paid his taxes with his investors money.)

There has to be link between the misrepresentations -ie that Kirk Wright was up to date with his taxes- and the losses suffered because Kirk Wright allegedly used the investors money inappropriately. It is simply too easy to say as the plaintiffs do, in paragraphs 67 and 68, that "had we known about this tax issue" we would not have invested our money with Kirk Wright.

But this will be an interesting lawsuit to follow.

Technorati Tags: tax debts, Kirk Wright, union investment, hedge fund manager, steve atwater, investors, nfl, money, financial representative, financial advisor, investment program, registrant

Posted by michael webster at 9:01 PM | Permalink | Comments (2) | TrackBacks (0)

The criminal trial of Kirk Wright, for one count of mail fraud -alleging mailing a false statement to investor Steve Atwater, continues on July 10th, 2006 with the hearing of the SEC's motion regarding varying the pretrial release order. Recall, that when Wright was arrested in a Miami, he did obtain bail conditional upon a payment of $1,000,000 and that the funds for bail come "from a legitimate source". The conditions for the surety bond have not been met, according to the SEC's submission.

Technorati Tags: mail fraud, surety bond, steve atwater, pretrial release, legitimate source, sec, submission, kirk wright

Posted by michael webster at 8:55 PM | Permalink | Comments (0) | TrackBacks (0)

The Law Firm of "Motley Rice LLC, one of the nation's largest all plaintiffs litigation firms, today announced that it has filed suit against the National Football League (NFL) and the NFL Players Association for its endorsement and recommendation of the financial advisory services of Kirk Wright and his firm, International Management Associates (IMA). The suit, filed in United States District Court, Northern District of Georgia, is on behalf of several current and former NFL football players, including NFL Pro-Bowl players Steve Atwater and Blaine Bishop, who utilized the NFL's security department services and the NFL Players Association's Registered Financial Advisor Program". Here is a current list of news stories about Kirk Wright, the Cleveland story is very interesting.

This lawsuit is an interesting development, and when both the complaint and answer are finalized I look forward to review them. Now what is the relevance of this lawsuit for purchasers of franchises or business opportunities?

Technorati Tags: nfl players association, motley rice, national football league, steve atwater, litigation firms, cleveland story, blaine bishop, kirk wright

Continue reading "New Defendants in Kirk Wright Lawsuit" »

Posted by michael webster at 9:45 PM | Permalink | Comments (3) | TrackBacks (0)

According to court documents in the bankrucpty of Kirk Wright's hedge funds, Mr. Wright invested approximately $6 million with GTO Development LLC, in three real estate projects.

GTO Development LLC is a Los Angeles based real estate development company, whose CEO is Mr. Fred S. Shaffer. They appear to be redeveloping the Old Spaghetti Factory restaurant on Sunset Blvd, in Hollywood, ArrowHead Canyon Eastes, and fighting a battle with residents who want their building declared an historical site, which would restrict or eliminate the redevelopment.

Very recently, June 15, 2006, GTO was one of the sponsors of a conference on the redevelopment of Vine Street in Hollywood. According to the California Corporate website, there is also a GTO Development II LLC.

Here is what is odd about all of this. Do you think that Kirk Wright could have legitimately convinced his investors to invest $6 million in somewhat illiquid real estate developments in Los Angeles?

Technorati Tags: development llc, gto, los angeles based, real estate development, old spaghetti factory, hollywood, sunset blvd, vine street, court documents, hedge funds, shaffer, arrowhead, bankrucpty, kirk wright

Continue reading "Kirk Wright's LA Connection - GTO Development LLC" »

Posted by michael webster at 10:19 AM | Permalink | Comments (2) | TrackBacks (0)

On June 5th, 2006 having satisfied the Court that he had no money for legal representation, Kirk Wright's criminal case is going to be defended by the public defender. The pre-trial is set for June 19th, 2006.

In the bankruptcy of IMA and the associated companies, the creditors meeting is at the end of month and almost 900 creditors have the ability to file a proof of claim. As far as I can tell, the receiver has not had his account passed or approved by the Court, yet. It will be interesting to review that account.

Technorati Tags: creditors, criminal matter, pre trial, public defender, money, criminal case, legal representation, kirk wright

Posted by michael webster at 4:39 PM | Permalink | Comments (1) | TrackBacks (0)

According to Court documents, the receiver for Kirk Wright's group of IMA companies obtained an order requiring production of documents regarding certain accounts held at Charles Schwab, production order. The documents are to be delivered by June 14th, 2006 to the receiver.

Technorati Tags: charles schwab, court documents, ima

Posted by michael webster at 4:44 PM | Permalink | Comments (0) | TrackBacks (0)

Was Steve Atwater a shill for Kirk S. Wright? I don't know the answer to this, but Mike Tierney's revealing article a few days ago would have me concerned for several reasons. As reported by Mike Tierney, Atwater received compensation of 1.5% per referral. Let us work some numbers here. If I gave Wright $1,000, expecting a the historical IMA return of 20%, then after Atwater took his take, Wright would have only had $985 to work with. If Wright could actually produce in one year a return of 20%, ie $1200, then Wright would have had to make $215, or roughly 43/197 or 22.3% return.

Is the difference between 20% and 22.3% significant enough to alert someone performing due diligence? Should have Steve Atwater known he was enabling, even innocently, scam?

Well, the master of this scam was Charles Ponzi., and he cut his sales force in for 10% - and with a 50% payout in 3 months. So Mr. Atwater's referral commission is not out of line, but was it disclosed to the investors? If so, did they realize the significance of how much more return and therefore risk IMA funds had?

Technorati Tags: steve atwater, charles ponzi, mike tierney, due diligence, received compensation, shill, ima, enabling, investors

Posted by michael webster at 10:44 PM | Permalink | Comments (2) | TrackBacks (0)

Some interesting details about Mr. Kirk Wright have emerged from the Court files in Miami, where Mr. Wright was arrested. As readers will recall, part of Mr. Wright's method was to give his investors phoney statements which showed large returns. Apparently as late as February 15, 2006 Mr. Wright was insisting that Ameritrade was holding the funds. Searches by the Ameritrade staff showed only funds of approximately $150,000, and not the $150 or $160 million Mr. Wright was claiming. It took the Director of Compliance for Ameritrade at little more than a week to confirm that Ameritrade only held $150,000 for Wright's companies. Amusingly enough, the 800 number of the Ameritrade statements used by Mr. Wright were also in error; no such number nor address is connected to Ameritrade. One other company was related to IMA, J&B Oxford & Company was also located by the Director of Compliance, but the account was closed.

How was Mr. Wright able to get away with not showing the investors what he invested in and where the money was? Was it a secret?

Technorati Tags: ameritrade, phoney, 800 number, ima, kirk wright

Continue reading "Kirk Wright - The Miami Stopover" »

Posted by michael webster at 8:41 AM | Permalink | Comments (3) | TrackBacks (0)

The Wall Street Journal's Law Blog commented on a news wire service story about the receiver for the bankrupt Bayou funds trying to recover money from investors who were paid out from the insolvent scheme. According to the news wire service, "Bayou filed lawsuits against former investors who allegedly received fictitious profits and an inequitably large return of their principal investments. Marwil said that he expects that "Bayou will file additional suits against the remaining former investors to recover proceeds of fraudulent conveyances for the benefit of innocent investors who have received little, if anything, from Bayou." (my emphasis)

The WSJ Law Blog, complains, perhaps only in jest that "So imagine you're a former investor in Bayou who had no idea the fund was a fraud but luckily cashed out of your investment just before the house of cards collapsed. You received a nice return on your investment and used it to, say, make that down payment on the country house you always wanted. Now, investors who got burned are coming after you, asking you to give your principal investment and profits back so they can be redistributed equally to all Bayou investors. Oy."

This is demonstrates yet another aspect of improper due diligence in what turns out to be a scam or fraud. If you don't lose your money right off the bat, then the aggrieved bankrupt estate is going to come after you on the theory that the estate was insolvent when it transferred the money to you, so back it goes to be shared with the all the other unfortunate souls. It will be interesting to see how this plays out in the Courts.

In the case of Neulan Midkiff, the receiver actually got money not just from and innocent investor, but from an innocent bystander. Neulan Midkiff purchased a home for a $1 million, but financed it with ill gotten gains, and renovated it with money equally tainted. Ultimately, Neulan Midkiff defaulted on his payments to the vendor, being in jail and all. The innocent vendor had to pay the receiver back almost $300,000 to get their house back - now that is really annoying.

Posted by michael webster at 9:51 PM | Permalink | Comments (0) | TrackBacks (0)

According to documents filed in the bankrucptcy of IMA and its affiliates, "Funds from IMA accounts totaling $6,050,000 were invested by Kirk Wright in these [real estate] projects[in Los Angeles]. Negotiations are near completion and due diligence activities are underway between a potential purchaser of this Debtor's interests, GTO and the Trustee. The Trustee's intent is to present the offer to the Court in a motion and hearing for a section 363 sale as soon as the "stalking horse" purchaser's due diligence is complete. The Trustee has been contacted by other entities who have expressed an interest in acquiring the Debtor's interests in these projects."

The Trustee is also the federal receiver for the assets of Mr. Kirk S. Wright and reports "Assets recovered in the Receivership estate as of April 30, 2006 include the following: House, Marietta, GA. Loft Condo, Atlanta, GA, Duplex house, Fairburn, Ga, 2005 Bentley Continental GT, 2000 Jaguar XK8, Aston Martin, 1967 BMW 2000CS,Furniture, fixtures, artwork.These assets and others are being marketed and sold in the Receivership estate. The estimated liquidation proceeds of these items may be in the range of $1.5 million to $2.2 million."

So for those who are counting, $7.5 to $8.2 million found, and only another mere $172 or 173 million to go.

Technorati Tags: due diligence, trustee, kirk wright

Posted by michael webster at 9:41 AM | Permalink | Comments (1) | TrackBacks (0)

The SEC offered the following evidence that there should be a finding of either danger to the community or risk of flight which would be sufficient to detain the defendant pending trial.

a. "By way of proffer at the Florida detention hearing, the Government established that although approximately $100 million was deposited with IMA and IMAAG over the past several years, IMA's client assets during the Fall of 2005 and Winter of 2006 totaled less than $500,000."

b. "It was undisputed at the hearing that the defendant was made aware of the existence of the federal warrant since March 2006, never surrendered or made his whereabouts known, and operated under false identities. He was also advised by his former counsel that the FBI was actively looking for him, and that he must turn himself in. Defendant never did so. Ultimately, he was arrested at the Ritz Carlton Hotel in Miami Beach, Florida, where he had been staying with his wife under a false name (Mark Lakean) since May 14, and where he had been paying cash."

c. "At arrest, the agents discovered the defendant had bank debit cards under the alias Lakean. The defendant also stated that he had altered his own Georgia driver'slicense to bear the name Lakean, and he possessed a false identification card under a different name, Bryce Buchman. The agents also found an "Exacto" knife and laminating materials, of a sort that could be used to manufacture identity cards."

d. "The Government proffered that bank records show the defendant made two cash withdrawals - preceded by transfers of funds from IMA/IMAAG accounts --in the amount of $500,000 total, in January 2006."

e. "Moreover, the Government proffered that the arresting agents discovered approximately $30,000 in cash in the defendant's belongings at the hotel. The defendant also admitted that he had purchased a 2004 Mercedes with cash, and had put $40,000 in cash down towards the purchase of a Miami condominium. The remainder of the $500,000 cash hoard secreted by the Defendant in January 2006 is unaccounted for. The agents also discovered real estate listings for a property in Puerto Rico. "

f. "The Government proffers that the defendant's wife was personally advised of the existence of the arrest warrant in March 2006. She told the FBI that she did not know of her husband's whereabouts, and had only one telephone number for him (which the FBI discovered was discontinued or inactive). She promised that she would contact the FBI if she heard from the defendant. She did not do so. Instead, she was found by the defendant's side at the pool of the Ritz Carlton, when he was arrested. In the hotel room, the defendant had seven cellular phones in his possession. His wife also had multiple cellular phones. The Government submits that this activity indicates an intent to conceal their communications and ultimately the defendant's location. It also suggests the defendant was receiving assistance from his wife and/or that his wife was not cooperating with the FBI to the extent she assured she would. "

What was Mr. Wright's response to all of this?

Mr. Wright "argued that he was not evading federal authorities but rather was avoiding 'threats' that he claims had been made to him and his family by some of the investors. He also pointed to the fact that his counsel initially discussed surrender, although with demands, as evidence that he was not a risk of flight. Defendant also produced family members, including his mother, who offered to put up property for bond. "

What a better place to avoid threats from unhappy clients than jail?

Posted by michael webster at 9:13 PM | Permalink | Comments (7) | TrackBacks (0)

A month ago, Amanda Cantrell, a CNNMoney.com staff writer, had a thoughtful piece on the difficulties in recovering assets from a fraud, in this case Kirk Wright's hedge fund fraud. She listed all of the standard difficulites, including trying to enforce a U.S. Judgment against offshore assets. Remember a judgment only allows the creditor to intercept funds owed to the debtor, if the jurisdiction which has the asset recognizes the underlying action as valid. Sometimes this can require a separate trial on the merits.

Business Opportunities frauds or scams are no different, but the recovery rate, at least from the FTC figures, is notably less. I estimate, using data that the FTC produced from 1993-2000, that the actual recovery to the public from Bizop scams is around 5 cents on the dollar. If the Bizop is a scam or fraud, then you are likely going to lose all your money. Think about that - Bizop frauds or scams are so bad that you might as well be throwing your money away -burn it, buy lottery tickets for non-existent lotteries, or buy swamp land. You are simply going to lose your money, if the scheme is a fraud or scam.

What is a even scarier number than 5 cents on dollar?

Technorati Tags: scams, fraud, cnnmoney, offshore assets, frauds, ftc, judgment, money, hedge fund, debtor, intercept, merits, enforce, business opportunities, jurisdiction

Continue reading "Recovery of Funds From a Fraud" »

Posted by michael webster at 4:31 PM | Permalink | Comments (0) | TrackBacks (0)

The Wall Street Journal is reporting that the FBI arrested Kirk S. Wright, the missing hedge fund manager who allegedly "misplaced" $100 million of his clients money. Very little of the money has been recovered, around $200,000. According the article, "Mr. Wright's arrest may offer some optimism to former clients. "The hope is that Mr. Wright will now lead us to the tens of millions of dollars that are still missing," said Timothy Mungovan, an attorney with Nixon Peabody LLP in Boston who represents former investors in Mr. Wright's funds."

Now perhaps we might see an fight between the state receiver and the private investors looking for the missing loot. This should prove to be interesting.

Technorati Tags: nixon peabody llp, wall street journal, private investors, hedge fund manager, money, fbi, loot, optimism

Posted by michael webster at 9:24 PM | Permalink | Comments (5) | TrackBacks (0)

The SEC announced that, yet another "hedge fund", Capital Management Group Holdings has been charged with misappropriating funds and misleading investors. The scheme had all the hallmarks of a typical hedge fund ponzi scam: there was false documentation about risk and reward, there were massive trading losses to the fund, kickbacks from trading commissions for those losses which went to the managers and not the fund, and regulatory defaults were not disclosed.

Over a space of 5 years, it is alleged that Capital Management Group Holdings defrauded some 38 investors of $14 million, or approximately $350,000 per investor.

How does someone with $350,000 to invest not spend enough money to perform the necessary due diligence to avoid this scam? How can you have $350,000 in real hard coin of the realm to invest in a flimsy, talking about dollars scam? Could a simple due diligence model have protected the investors here?

Technorati Tags: due diligence, misleading investors, hedge fund, management group, invest, trading commissions, false documentation, ponzi, kickbacks, hallmarks

Continue reading "Hedge Fund Ponzi Scheme-Capital Mangagement Group Holdings" »

Posted by michael webster at 6:21 PM | Permalink | Comments (0) | TrackBacks (0)

According to Court documents, Applegate:

"Promised investors their return would be 8 percent and that he would take no commission. Instead, his payment would come from any profit above 8 percent. If the investment did not reach 8 percent, he promised to refund their money. "

What is wrong with this deal?

Technorati Tags: risk free investment, treasury bond, treasury rate, money making machine, adage, applegate, court documents, borrow, legitimate, fraud, invest, investors, tests

Continue reading "Gregory Applegate Scam II" »

Posted by michael webster at 9:09 PM |