Baystar, Goldfarb Charged With Diverting Side-Pocket Funds

Mar 2 2011 | 10:01am ET

Hedge fund Baystar Capital Management and founder Lawrence Goldfarb were charged yesterday with using a side-pocket to divert money into unauthorized investments and into Goldfarb's own accounts.

But Goldfarb needn't worry about doing any jail time if he can keep his nose clean: The hedge fund manager struck a deferred-prosecution deal, meaning if he cooperates, pays back the full $12 million he took and doesn't break the law again, the wire fraud charges against both him and Larkspur, Calif.-based Baystar will be dropped.

Goldfarb also reached a settlement with the Securities and Exchange Commission, agreeing to pay the $12 million in restitution, as well as another $2 million in prejudgment interest and penalties. Goldfarb is also barred from associating with investment advisers or broker-dealers for the three years of the deferred prosecution agreement.

According to prosecutors, Goldfarb moved some $12 million kept in a side-pocket of his $100 million Baystar Capital II fund into unauthorized investments in a real-estate fund and record company he controlled. He also used some of the money to pay for personal entertainment expenses and charitable donations.

"Goldfarb betrayed the trust of his hedge fund's investors, keeping them in the dark about their investment profits so he could use their money as his own," Marc Fagel, head of the SEC's San Francisco office, said. The "limited visibility" of the side-pocket helped Goldfarb conceal his actions from investors, Fagel added.


In Depth

Q&A: Pantheon’s McCrary Says Private Equity Market ‘Robust’

Dec 17 2014 | 8:32am ET

Dennis McCrary is a partner at Pantheon, a private equity firm with $32.2 billion...

Lifestyle

Cohen Donates $1.5M To GOP Governors Association

Dec 10 2014 | 7:13am ET

The Republican Governors Association raised close to $25 million from October 1...

Guest Contributor

Q&A With Daniel Gallancy: Institutional Interest In Bitcoin Is Growing Steadily

Dec 12 2014 | 7:54am ET

Daniel Gallancy is founder and CEO of SolidX, a provider of total return swaps for...

 

Sponsored Content

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

December 2014 Cover

Futures 2014 person of the year

Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.