Search This Blog

2 Feb 2007

Former Head of Hedge Fund Faces 20 Years For Fraud

John H. Whittier, the former head of Idaho hedge-fund company Wood River Capital Management LLC has been indicted on criminal charges that he engaged in a securities fraud scheme that allegedly cost investors $88 million. The SEC originally filed civil charges against Whittier and WRC back in October 2005. Whittier could serve as much as 20 years on each count.

Whittier has been charged with securities fraud, failure to disclose a beneficial interest in 5% or more in a publicly traded security and two counts of failing to disclose a beneficial interest of 10% or more in a publicly traded security.

Prosecutors alleged Thursday that Whittier, from fall 2004 to September 2005, schemed to defraud investors in the company's U.S.-based Wood River Partners LP and Cayman Islands-based Wood River Partners Offshore Ltd. hedge funds by acquiring beneficial ownership of more than 70% of the common stock of EndWave without disclosing that ownership as required by the SEC.

The government said Whittier also accumulated beneficial ownership for the Wood River U.S. fund and other managed accounts of more than 20% of the common stock of New Jersey digital media and publishing company MediaBay Inc. without disclosing that ownership as required by the SEC.

Prosecutors alleged that Whittier falsely represented to investors that the funds had a broad investment strategy and no investment would ever constitute more than 10% of their holdings, he also falsely represented to investors that the U.S. fund was audited by outside auditors.

Ex Morgn Stanley Employee Pleads Guilty In Hedge Fund Conspiracy

Ira S. Chilowitz, former employee of the brokerage firm Morgan Stanley & Co has pleaded guilty to four counts relating to the theft of information regarding hedge funds, conspiracy, transportation of stolen property, theft of trade secrets, and unauthorized computer access. He faces a total maximum sentence of 26 years' imprisonment and a maximum fine of $850,000.

Chilowitz was charged with conspiracy and unauthorized computer access, according to a criminal complaint unsealed in July of last year.

Federal prosecutors charged Ira Chilowitz with stealing the confidential pricing information from Morgan Stanley’s hedge fund prime brokerage group and passing it on to a “co-conspirator’’ at a midtown company that provides advisory services to hedge funds.

From about December 2005 until about February 2006, Chilowitz conspired with another individual, who was a former Morgan Stanley client service representative, to misappropriate the Client Rate List and to transmit it, via e-mail to his partner. Morgan Stanley provides financial and administrative services to numerous hedge funds and the data in the Client Rate List is not generally known to the public and is valuable to competitors of Morgan.

Chilowitz admitted in court during his guilty plea that he took the confidential and proprietary information from Morgan Stanley because it would potentially assist him in generating business for a consulting firm they had planned to launch.