Ashbury Capital CEO Mark Yagalla Under House Arrest
Wilmington, Delaware, Oct. 18 (Bloomberg) -- Ashbury Capital Partners LP Chief Executive Mark Yagalla is under house arrest in Delaware today, awaiting arraignment in New York on federal mail fraud charges accusing him of deceiving investors and stealing their money.
Authorities say Yagalla, 23, diverted investors' funds to support an extravagant lifestyle. Yagalla, who lives in suburban Wilmington and reportedly owns a Ferrari and a helicopter, was arrested by the FBI in Delaware yesterday. He was ordered to appear in federal court in Manhattan tomorrow.
U.S. Magistrate Mary Pat Thynge in Delaware instructed Yagalla to hand over deeds to two houses to secure his bail, which was set at $250,000. Yagalla, reached at his home, refused to comment on the charges against him.
Under the terms of bail, Yagalla also had to relinquish his passport, submit to electronic monitoring and remain inside his hilltop home in Greenville, Delaware, until he leaves for New York.
Yagalla has put the house up for sale through Prudential Fox and Roach Real Estate. An ad on the firm's Web site notes: ``Current owner has spared no expense in creating a one-of-a-kind residence.'' The asking price is $1.29 million.
Yagalla bought the Georgian brick mansion in October 1998 and paid $710,000, according to county tax records. He took out a $500,000 mortgage on the house, the records show. Neighbors said Yagalla wasn't often seen outside.
He also bought home in a Las Vegas valued at $1.625 million in October 1999, according to Clark County, Nevada tax records.
But last month, Yagalla transferred title to the house in the Estate at Spanish Trails subdivision to Princess Investments -- a company he controls -- according to the records. No price was listed in the transfer documents, Clark County officials said.
Moved From Maryland
Yagalla had overseen the funds from another home in the Eastern Shore community of Grasonville, Maryland, before moving to his current office in Greenville, according to court records.
He rarely interacted with the other tenants in the three- story brick building that housed Ashbury Capital's offices, said Eileen McNamara, who works for a non-profit organization directly across the hall from the hedge fund.
``He was very quiet,'' McNamara said. ``All you'd get was a good morning or a hello. They never seemed to let anyone in their office.''
Yagalla told investors he was building a $1 billion investment fund that was achieving 80 percent return rates and that he could provide refunds of investors' money in a week, federal prosecutors said.
Last week, when investors began asking for their money, Yagalla went to Las Vegas in an unsuccessful attempt to sell off some assets, including the helicopter, oil wells, jewelry, nursing homes and an interest in a horse.
Political Cash
Investigators may question whether Yagalla used investors' money to make more than $321,000 in political contributions to Republicans over the last two years.
Yagalla contributed $283,500 in ``soft money'' to the Republican National State Elections Committee since May, including a $150,000 donation in August, Federal Election Commission records show.
That's more soft money than such some major Delaware-based businesses contributed in the 1999-2000 election cycle, according to the records. DuPont Co., the world's largest chemical company, gave $19,000, and the U.S. unit of drugmaker AstraZeneca Plc, gave $17,450.
Wilmington-based MBNA Corp., the No. 3 credit card issuer, topped the list of soft money donors from Delaware with $590,000, the records show.
Soft money describes unregulated, unlimited political contributions to political parties. While the money that can't be used to advocate the election or defeat of candidates directly, it can be spent on issues advertising and party-building efforts.
Republican National Committee officials weren't immediately available to comment on the donations, but Delaware Republican Party executives were surprised to hear Yagalla's name was at the top of the list of contributors from the state.
`Prepared to Return It'
``If he's given us money, he shouldn't have, we're prepared to return it,'' said Basil Battaglia, the Delaware Republican Party's state chairman.
Yagalla also donated $37,689 to individual Republican candidates and political committees since 1998, including a total of $2,000 to presidential contender George W. Bush, $1,000 to New York Mayor Rudolph Guiliani's aborted Senate campaign and $22,698 to the National Republican Congressional Committee, the records show.
Records of political contributions may have been among the documents FBI agents seized yesterday in a search of Yagalla's Greenville office. Agents carted away boxes of records and computer equipment during the sweep, fellow tenants in the office building said.
Bell 407 Chopper
Federal law enforcement officials also have been asking questions in Yagalla's hometown of Weatherly, Pennsylvania, residents said today. Yagalla had his Bell 407 helicopter based in town, which is about 50 miles south of Wilkes-Barre, Pennsylvania, said Jay Sleight, his former pilot.
``He'd use the helicopter to fly to New York or Boston on business,'' said Sleight, who stopped flying for Yagalla in January. The helicopter later was used as part of a charter service, he added.
Yagalla was the salutatorian of Weatherly High School's Class of 1995, according to school officials. In a securities offering, he told investors he studied finance at the University of Pennsylvania, according to a U.S. Securities & Exchange filing.
Besides the federal charge, which was based in part on statements from a confidential informant, the U.S. Securities and Exchange Commission yesterday filed a civil suit in New York to freeze Yagalla's assets.
Meanwhile, Lehman Brothers Holdings Inc. has sued Yagalla and Ashbury Capital Management for failing to pay $7.14 million for stock purchased from the securities firm.
If convicted on the federal charges, Yagalla faces as much as five years in prison.
Shares of New York-based Lehman Brothers, which reported $14.2 billion in 1999 revenue, fell $6.88 to $111.13 on the New York Stock Exchange.
Oct/18/2000 20:22 ET
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