Saturday, February 3, 2007
The U.S. Attorney's Office for the Southern District of New York charged John H. Whittier with one count of securities fraud and three counts of failing to disclose to the SEC the ownership interest in companies in which hedge funds managed by Whittier had a substantial interest. He owned Wood River Capital Management, which operated two hedge funds with over $120 million in assets. According to a press release (here), the hedge funds took large positions in two companies, Endwave and MediaBay, in violation of the funds' operating agreements that limited the investment in any one company to 10% of the assets. The release states:
WHITTIER’s scheme to defraud hedge fund investors and the general investing public involved, among other things, falsely representing to investors that he would pursue a broad investment strategy -- that no investment would ever constitute more than approximately 10 percent of the hedge funds’ holdings -- and purposefully failing to make required public filings that would have disclosed his concentrated holdings in one stock.
In order to conceal the hedge funds' large stakes in the company, Whittier is accused of intentionally failing to file the SEC disclosure forms required when a individual or group controls over 5% of a company's stock. Due to the large stakes in the companies, which suffered substantial drops in their share prices, the government accuses Whittier of causing the hedge funds to lose $88 million, and that the violation of the agreements requiring diversified investments constitutes securities fraud. (ph)