The U.S. Securities and Exchange Commission (SEC) has charged the owner of independent broker-dealer John Thomas Financial, and a Houston-based hedge fund manager with working together to defraud investors.

According to the securities regulator, Anastasios “Tommy” Belesis” and George R. Jarkesy Jr. worked closely together to launch two hedge funds that raised $30 million from investors.

Jarkesy, as a part of the scheme, supposedly led investors to believe that he was making all the investment decisions.  In reality, Belesis was in charge of directing some investments from the hedge funds into a company in which his firm was invested, according to the SEC.  In addition, Belesis “also bullied Jarkesy into showering excessive fees on John Thomas Financial, even in instances where the firm had done virtually nothing to earn them,” the SEC said.

Jarkesy was charged by the SEC with violating his firm’s fiduciary duty to its investors by catering to Belesis.  The regulator charged that he inflated the valuation of the funds, which increased the fees he collected.  He then diverted the money to John Thomas Financial.

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Bank of New York Mellon, the world’s largest custodial bank, has been accused by investors of neglecting to properly review Medical Capital’s dealings before lending them investor money.  By doing so, Bank of New York Mellon is breaching its fiduciary and contractual obligations to those investors.

According to court documents, Bank of New York Mellon agreed to settle all claims brought by investors in class-action litigation, two related litigations and the receiver.

Eligible investors will share a $90.68 million cash payment, plus the $13.6 million to be sought out in fees and $1.8 million to be sought out in expenses.

Bank of New York Mellon denied wrongdoing and stated they agreed to settle to avoid the risks and costs of litigation, according to court papers.

“We are pleased to be putting this matter behind us,” bank spokesman Kevin Heine said.

The settlement is pending court approval.

Source: Investment News

In a recently filed Securities and Exchange Commission (SEC) lawsuit, a freeze on a Swiss Goldman Sachs account linked to possible insider trading in H.J. Heinz company was extended.  According to the complaint, these options were purchased for $90,000 the day before Heinz agreed to sell to Warren Buffett’s Berkshire Hathaway, Inc. and 3G Capital (a Brazilian investment firm), giving $1.7 million in profits to the investors.

The securities regulator believes that the timing and size of the trades were suspicious due to the lack of trading history in Heinz stock over the last half year.

U.S. District Judge Rakoff approved the emergency court order to freeze assets in a Swiss trading company in order to prevent the investors from taking the profits out of the account.  In order for the court to unfreeze the accounts, the investors were encouraged to appear in court.  At the court hearing, no investors showed up.  ”The can hide, but their assets can’t run,” said Rakoff.

The FBI started a criminal investigation five days after the acquisition occurred, according to a spokesperson for the bureau.

The Heinz board is being accused of self-dealing.  The complaints also allege breaches of fiduciary duty and aiding and abetting.

Source: Reuters

Due to a federal appeals court ruling, people who lost money by investing in funds that funneled their money into Bernard Madoff’s Ponzi scheme are not entitled to recover their losses in the same way that direct victims can.

The appeal was brought by 17 investors who had invested in limited partnerships known as Spectrum Select.  These partnerships sent their money to two hedge funds overseen by Tremont Group Holdings Inc., one of Madoff’s largest “feeders”. It was determined that these indirect investors could not recover from the estate because they were not Madoff customers.

According to the decision, it is customers, not indirect investors, who may draw up to $500,000 each from a fund overseen by the Securities Investor Protection Corp (SIPC) to the extent they cannot recover losses from a bankruptcy estate.

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