No paid bashers????
Hedge Funds
Gryphon Hedge Fund Nears PIPEs Resolution
By Matthew Goldstein
Senior Writer
6/2/2006 7:18 AM EDT
URL: thestreet.com
Gryphon Partners, a Dallas hedge fund, is weighing a settlement with securities regulators over allegations the $265 million money manager engaged in manipulative trading in shares of small-cap companies doing private placements of stock.
Within the past month, Gryphon sent a letter to investors in its flagship Gryphon Master Fund informing them the fund's managers are considering negotiating a settlement with the Securities and Exchange Commission to put the allegations behind them, according to people familiar with the letter.
The allegations of manipulative trading against Gryphon stem from an ongoing SEC inquiry into improper short-selling by hedge funds that invest in so-called PIPEs, or private investments in public equity.The allegations facing Gryphon were first reported by TheStreet.com last November.
The investigation into the $20 billion-a-year PIPEs market has focused on allegations of improper short-selling by hedge funds trying to profit from the usual decline in a company's stock after a PIPE deal is completed. Shares of companies doing PIPEs typically decline in anticipation of a flood of discounted stock coming into the market.
To some degree, every PIPE deal is a bit of a Faustian bargain for a cash-strapped company. In selling discounted stock, or a bond that converts into discounted shares, a small-cap company is often betting that a near-term hit to its stock price is justified by the cash it raises.
In the letter, Gryphon insists it has done nothing wrong and is prepared to fight the SEC if it can't come to an agreement, sources say. But the hedge fund, led by Edwin "Bucky" Lyon III, believes it's in the best of interest of investors to resolve the matter.
Investors in the Gryphon Master Fund also may be asked to approve the use of the fund's assets in an eventual settlement. Investors in Gryphon's Special Situations Fund would not contribute to any settlement regulators. There are no allegations of wrongdoing involving the Special Situations Fund.
Officials with Gryphon, which is not affiliated with the San Francisco-based private equity firm Gryphon Investors, did not return telephone calls. The hedge fund's attorney, Benjamin Rosenberg, declined to comment.
Up until the past few months, Gryphon had been one of the more active investors in the PIPEs market. Since 1999, the first year Gryphon began investing in PIPEs, it has sunk a total of $190 million into these private stock deals, according to PlacementTracker, a research firm. Last year, for instance, Gryphon invested in 29 transactions, making it the 19th most active PIPE investor.
This year, however, Gryphon has invested in only six deals, including PIPEs sold by Pacific Ethanol (PEIX:Nasdaq) and Elite Pharmaceuticals (ELI:AMEX) . There's no indication that any of these recent deals are the subject of the current investigation. But people familiar with the PIPEs market say the SEC inquiry likely has caused Gryphon to become more restrained in its investment activity.
Gryphon's decision to negotiate a deal comes at a time when the SEC has announced significant settlements with other hedge funds that allegedly manipulated shares of companies doing PIPE transactions.
In March, Jeffrey THORP paid a $16 million fine to the SEC to settle allegations his Langley Partners hedge fund complex carried out an illegal short-selling scheme involving 23 separate PIPE deals from 2000 to 2002. Last month, Deephaven Capital Management, the $3 billion hedge fund run by Knight Capital (NITE:NYSE) , paid a $5.7 million fine to settle allegations that on at least 19 occasions it improperly shorted shares of companies doing PIPE deals.
TheStreet.com has previously reported that at least three other hedge funds, Alexandra Investment Management, Cornell Capital Partners and HBK Investments, are being investigated by regulators as part of the PIPEs inquiry.
Some hedge funds have argued the SEC crackdown on the PIPEs market is misguided. They note that, until recently, it wasn't widely understood that it was wrong to short shares of a company while the transaction is still a secret. But this argument doesn't seem to be holding much weight with the regulators.
"When you get material that says it's confidential, it's hard to say, 'I didn't know,' " says Robert Mazzeo, a partner with Mazzeo Song, which represents hedge funds, many of which invest in PIPEs. "If you are in the market all the time, you pretty much know the game.''
The investigation, meanwhile, also is looking at the role of Wall Street brokerages that arrange the deals, and whether any of those firms have engaged in improper insider trading.
Last year, Friedman Billings Ramsey (FBR:NYSE) proposed paying a $7.5 million penalty to regulators to settle allegations arising from its role as the placement agent for a 2001 PIPE deal. The SEC and the NASD have yet to decide to accept firm's settlement offer. The investigation of FBR led to the resignation of the firm's co-founder Emanuel Friedman, who himself is facing possible regulatory action.
In December, a former SG Cowen managing director was sentenced to two months in a federal prison after he pleaded guilty on an insider-trading charge. Prosecutors charged Guillaume Pollet with illegally shorting shares of three companies that were doing PIPE deals, each of which had been arranged and managed by Cowen's investment bankers.
Cowen, which is being spun off by Societe Generale in an upcoming IPO, has disclosed that it too could face regulatory action over Pollet's conduct.
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Author: Kirk Email Print
Discussion: A@P; Amr "Anthony" Elgindy Discussion; Anthony@Pacific
Date: October 23, 2005 8:49 AM
Subject: 10/21/05: An Open Letter to Stockwatch
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10/21/2005 6:20:57 PM
From: Anthony@Pacific
Original Post siliconinvestor.com.
Posting this on behalf of Anthony. Again, his words.
-------------------------------------------------
An Open Letter to Stockwatch:
This is in response to your story dated October 3, 2005. In this story you detail profits in four stocks that you claim I personally made. Your story is not only false, but it is incredibly misleading. The government requested more time to answer our forfeiture filing which you yourself can read in post # 92,426. I strongly suggest you read it, then obtain the filed trading records and issue a correction ON:
1) IMCLONE: I never made a cent shorting IMCL I was long and sold my last share on 1/18/02, three months before any illegal searches were done. Your statement that I made $516,511.00 is completely false. An individual named Kendal McGregor of the Cardinal Hedge Fund made this money. He has never been charged and gets to keep every cent.
2) Micromem Tech: I never shorted this stock. Your statement that I made $272,297.00 is also completely false. An individual named Jeffrey THORPE along with Mr. McGregor made this money. Neither has ever been charged, and they both get to keep every cent.
3) Nano World Projects Corp: I never shorted this stock either. Your statement that I made $45,270.00 is completely false. Once again this money was made by someone else who gets to keep every cent.
4) Freedom Surf: This is the only stock that you mentioned that I did in fact short, but you still managed to get it wrong. I made a profit of $12,000.00 in FRSH with the remaining $28,000 made by someone else who gets to keep every cent. At trial I was not convicted of anything in connection to Freedom Surf.
All of the above information is available in the trading records filed with the Court, so why not be accurate?
The trial began with 41 stocks to defend. At trial they managed to mention 19. Of these 19, I was convicted of inside trading in only 4. My personal gains are roughly $41,000.00. This number increases to approximately $160,000.00 if you include the gains on all 19 that were mentioned, including the 15 that were not proven to a jury.
The prosecutors are trying to hold me responsible for over 9 million dollars that other people made. This is money still in their collective pockets; money I could never have realized. There has never ever been a case where one defendant has been required to forfeit the profits of his convicted co-defendants and the profits of other uncharged parties while all these people are allowed to keep their profits. NEVER! Maybe this is why they need some extra time?
Peace,
A&P
Kirk Lindstrom
suite101.com
Message 21815434
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