New York (HedgeCo.net) – The SEC has charged a well known Bay Area hedge fund manager and philanthropist with concealing more than $12 million in investment proceeds that he owed investors in his fund. Lawrence Goldfarb agreed to pay more than $14 million to settle the charges.
The SEC speculates that Goldfarb and his company Baystar Capital Management LLC (BCM) diverted cash to other entities he controlled, ultimately funding a real estate venture and a San Francisco record company.
The SEC also alleged that Goldfarb comingled investor funds in a bank account that he used to pay for unauthorized personal expenses including charitable donations.
According to the SEC’s complaint filed in federal district court in San Francisco, Goldfarb and BCM maintained some investments in a “side pocket” into which investors in the hedge fund – Baystar Capital II, L.P. – had limited visibility.
“Hedge fund managers may not use side pockets to obscure their activities from investors.” Robert Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, said, “Hedge fund managers need to honor their obligations to investors, and investors should pay close attention to the discretion that managers wield over side pocketed investments.”
“Without admitting or denying the SEC’s allegations, Goldfarb and BCM consented to permanent injunctions against violations of certain provisions of the federal securities laws and to pay disgorgement of $12,112,416 and prejudgment interest of $1,967,371, which will be distributed to the fund’s investors. Goldfarb also agreed to pay a $130,000 penalty, be barred from associating with any investment adviser or broker, and be barred from participating in any offering of penny stock.” The SEC said.
Editing by Alex Akesson
For HedgeCo.net
alex@hedgeco.net
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