by T. GormanPosted on Posted in SECActions

Andrew Caspersen, a former managing principal of Blackstone Group, and a partner at Park Hill Group which raises capital for private equity, pleaded guilty to one count of securities fraud and one count of wire fraud. U.S. v. Caspersen, No. 16-cr-0414 (S.D.N.Y.). The charges are based on claims that he raised millions of dollars using a shell company named to sound like a well known hedge fund. The SEC filed a parallel action. SEC v. Caspersen, Civil Action No. 16-cv-2249 (S.D.N.Y. Filed March 29, 2016).

Andrew Caspersen has been a managing principal at his firm, a registered broker dealer, since 2013, according to the facts detailed in papers from each case. Beginning in 2014, and continuing until his arrest in March 2016, Mr. Caspersen solicited investors for to invest in what he clamed would be secure loans made to private equity firms. In fact none of the money was invested. Rather, he misappropriated the funds. Much of the investor money was lost trading options while other portions were used to pay earlier investors.

In 2015 he formed Irving Place III SPV and established a bank account for the firm, according to the SEC. The name of his firm closely resembled that of a well established hedge fund, Irving Place Capital Partners III SPV. Mr. Caspersen’s firm had no assets, unlike Irving Place Capital Partners.

October 2015 Mr. Caspersen obtained a $25 million investment from a non-profit charitable affiliate of an investment limited partnership. To secure the investment he offered a promissory note that paid 15% annual interest on a quarterly basis. The note was redeemable in 90 days. It was secured by Irving Place III SPV and its supposed assets. The investor wired the funds to the bank account of the entity. Mr. Caspersen took control of the money and diverted it to his personal use.

In March 2016 Mr. Caspersen solicited an additional $20 million investment from the same investor. He also approached a second investor, seeking a $50 million investment. Essentially the same misrepresentations used to obtain the first investment were employed. The first investor had become suspicious and requested that the note be redeemed. Neither investor furnished any money to Mr. Caspersen or his investment vehicle. Sentencing is scheduled for November 2, 2016.

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by T. GormanPosted on Posted in SECActions

A jury was unable to reach a verdict on half of the claims asserted by the SEC against two senior executives of Thornburg Mortgage, Inc., the second largest independent mortgage company in the country. The charges centered on a market crisis era scheme in which the Commission alleged violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A, 13(b)(2)(B) and 13(b)(5) as well as control person liability under section 20(a). Last week the jury, after several days of deliberation, was unable to reach a verdict on charges of fraud and lying to the auditors while finding in favor of former CEO Larry Goldstone and CFO Clarence Simmons on other charges. SEC v. Goldstone, Case No. 12-257 (D.N.M. Filed March 13, 2012).

The SEC claimed that shortly before the filing of the 2007 Form 10-K on February 28, 2008 the institution was suffering from a liquidity crisis. The cash for the long term lender came from the short term capital markets through repurchase or repo agreements. Those agreements required Thornburg to make margin calls if the value of the securities collateralizing them fell below certain thresholds. The company had paid about $2 billion in margin calls and liquidated about $22 billion in mortgage backed securities.

As the mortgage company prepared to file its 2007 10-K its financial condition continued to deteriorate. Adjustable rate mortgage or ARM securities it held dropped in value, although the firm did not take a write down. By late February 2008 the company could not meet the more than $300 million in margin calls it had recently received. At the same time, paying late meant that Thornburg would violate its agreements with at least three lenders. If the firm was declared in default its financial condition would sink further. That default would trigger the cross-default clauses with other lenders which would lead to the seizure of the ARM securities that were the collateral for the loans. Disclosure of these facts would undermine plans to raise additional cash. It would also result in questions by the auditors about the valuation of its ARM securities which could lead to a $400 million write-off.

The auditors were not told about the violation of the lending agreements or that that Thornburg sold some of its ARM securities to make margin calls. Just hours before filing the Form 10-K the company made the final payment on its margin calls. The Form 10-K was approved and certified by defendants Goldstone and Simmons. The filing represented that Thornburg had successfully met its margin calls without being required to sell assets. It also stated that the firm had the ability to hold its ARM securities until they recovered their market value.

Within two hours of filing the Form 10-K the company received more margin calls. Thornburg did not have the capital to meet the calls. Two business days after the filing the mortgage company filed a Form 8-K acknowledging this fact and stating that it had received a notice of default. Five days later on March 7, 2008 Thornburg filed a second Form 8-K announcing that it would restate its days old Form 10-K. When that restatement was filed on March 11 it reflected a loss of $428 million from the write down of its ARM securities. It also reported a loss in the fourth quarter, erasing the previously claimed gain for the period, and acknowledged that the company might not continue as a going concern. Eventually the Thornburg filed for bankruptcy.

The jury was unable to reach a verdict on the key fraud and lying to the auditors charges. It did return a verdict in favor of the defense on charges relating to books and records and certifications.

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