Hedge Funds Side Pockets Lawsuit

Hedge Funds Side Pockets Lawsuit

SEC Lawsuit Alleges Hedge Fund Kept $12m Side Pocket

The Securities and Exchange Commission has filed a lawsuit against a California hedge fund manager alleging that he set aside $12 million of investors' money in a side pocket.  Lawrence R. Goldfarb of Baystar Capital Management is accused of diverting his investors money to other investments and trying to allude regulators by claiming the money was in accounts of companies that no longer existed.
Authorities contend that the manager, Lawrence R. Goldfarb, through his company Baystar Capital Management, diverted investors’ money to other entities, including a real estate fund. The S.E.C. claims that Mr. Goldfarb, a former Credit Suisse banker, tried to hide his actions by shifting money into the accounts of companies that no longer existed.
Mr. Goldfarb, who neither admitted nor denied wrongdoing, agreed to pay $14 million to settle the charges, the commission said.
The case centers on side pockets, segregated accounts that hedge fund managers use to set aside thinly traded or illiquid investments. During the financial crisis, hedge funds stuffed billions of dollars into such accounts. But investors complained that the funds did not value the accounts properly and used them to hide investments that performed poorly.  Source

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