John H. Whittier, a former hedge fund manager and the founder of Wood River Partners LP and its offshore company in the Cayman Island, has pled guilty to carrying out a securities fraud scheme that cost investors $88 million. Whittier had been charged with four counts of securities fraud for his part in the scheme that mislead investors into thinking that he was keeping risks minimal while pursuing a broad and diverse investment strategy when in fact, he was doing the opposite.
He knowingly failed to make the mandatory public filings that would have revealed his concentrated holdings with one stock. In addition, after acquiring 80% of Endwave Corp’s common stock, he hid any interest earned by not making beneficial-ownership disclosures to the SEC. He also placed 80% of his U.S. hedge fund’s $127 million portfolio in Endwave, instead of placing the money in different investments as he had promised investors. He had vowed that only 10% of the fund’s money would be invested in an one stock.
Aside from owning the hedge funds in the U.S. and abroad, Whittier also owned and controlled a capital management company, which served as the investment adviser to the funds.
What Happened:
A company that Whittier had been managing investments for ended its relationship with him because of worries about suspicious and problematic trades involving Endwave stock. The company then liquidated its holdings, which caused a huge price drop that resulted in the U.S. hedge fund losing value. Margin calls were triggered at Wood River Cayman, which had also heavily invested in Endwave stock. Because of this, Whittier could not meet a number of margin calls and numerous brokers started liquidating the funds’ Endwave stock positions. Whittier told investors that he did not have the liquidity to pay redemption requests, and he and his funds eventually went out of business.
Prosecutors had also charged Whittier with trying to execute a similar scheme involving MediaBay Inc, another publicly traded company, when he falsely told its lawyers that he controlled just 9.6% of the stock. Whittier actually owned 23% of the stock, but the lawyers filed an SEC form revealing the smaller amount because of his false statement.
Whittier has pled guilty to one count each of failing to make a beneficial interest filing for MediaBay and Endwave, as well as one count of securities fraud. As part of his plea agreement, Whittier will forfeit $5,535,517 to the U.S. He could face up to six years in prison and a maximum fine of more than $5 million or two times the gross loss or gain from the crime that he committed.
If you are an investor who has lost money because of the misconduct of a broker, hedge fund manager, or other member of the securities industry, contact Shepherd Smith and Edwards immediately. Records show that asking a securities fraud attorney to represent you will improve the chances of you recovering your losses. Shepherd Smith and Edwards has helped thousands of investors get their money back.
Idaho hedge fund manager pleads guilty, Investment News, June 7, 2007
Related Web Resource:
Another Fishy Hedge Fund, Businessweek.com, October 13, 2005
SEC Files Emergency Enforcement Action Against John H. Whittier and the Wood River Hedge Funds Alleging Fraud, SEC.gov, October 13, 2005