NakedShorts

Whittier sentenced, sort of

So farewell then, John Whittier
Your hedge fund was called Wood River
But now you are going
Up the river. But not for long.

Your investors took a haircut
And so did you. Only three years
Instead of 10-12 and change.
Did you have an SEC CDS? Or were
Your Dad’s pals grateful
For the tax deduction?

“We have here a basically good man
who did some very bad things,”
Said the judge. Curious, because
The evidence says you are a lying,
Thieving, two-bit dirt bag. With
A sob-story. As they all have. 

I’m sincerely sorry, you said.
I bet you are. I bet you are.
Mostly for being caught.

With apologies to E.J. Thribb (17½)

Hedge fund manager gets 3 years in fraud case
by Paritosh Bansal
Reuters Oct. 15 2007

Heading up the (Wood) river

So farewell then, John Whitter, for the next 15½-19½ years, headed—like his investors—up the creek without a paddle after he admitted splashing an $88 million endwave. Quote of note:

“I knew at the time that what I was doing was wrong. I have embarrassed myself and my family and caused harm to my investors,” Whittier told US District Judge Jed Rakoff. “I am sincerely remorseful.”

Especially about getting caught. Whittier’s sentencing is set for Oct. 15, on which date he seems in line to pay a considerable premium over that not-so-long ago awarded to Scott Sacane, erstwhile principal of Durus Capital Management, for a not dissimilar stunt.

Hedge fund manager pleads guilty to fraud
By Christine Kearney
Reuters May 31 2007

We've Been Scr*wed, investors claim

And, thanks to a source who prefers to remain anonymous, the Wood River investors’ suit:

Eurycleia Partners LP et al vs UBS Securities LLC

Two things:

1. Street lore has it that UBS’s initials actually stand for U’ve Been Scr*wed.
2. Coming next week: A recounting of some recent aggressive marketing adventures of Wood River investors’ counsel Reed Smith, in which will be named at least some hedge funds that might have profitably been more profligate in their due diligence.

New body found in Wood River

It’s taken 18 months, but the inevitable Wood River investor law suit showed up this week, according to The Wall Street Journal today. The core allegation is that UBS, the fund’s prime broker from late 2004 until summer 2005—just months before the implosion—used its knowledge of manager John Whittier’s concentrated, and undisclosed, position in Endwave Corp (ENWV) to its own advantage.

The investors charged that UBS traders used knowledge of Wood River's undisclosed outsize Endwave stake to bet against the stock with short sales of 3.5 million Endwave shares...Instead of ensuring disclosure of the Endwave stake by Wood River, the lawsuit said, UBS “designed a scheme to co-opt that fraud [by making] improper use of its position and nonpublic information to manipulate the market for Endwave stock...”

In another dramatic and unpredictable development:

“UBS intends to defend itself vigorously against these allegations,” a spokeswoman for UBS said in a prepared statement.

It’s not clear whether that’s the same UBS Chatty Kathy, then characterized as “people familiar with the situation,” who, when the story first broke in Oct. 2005, said that UBS hadn’t suffered losses from its Wood River relationship. Or, for that matter, the same spokeswoman for UBS who several weeks (and some polite reminders) ago promised to get back to NakedShorts on the moderately fascinating question of what happened with all those futures brokerage accounts it bought from ABN-Amro last year.

Lawsuit Against UBS Spotlights Prime Brokers [$$]
By Randall Smith
The Wall Street Journal May 23 2007

Earlier NakedShorts coverage

Things you thought I’d missed

What a week. Some things that didn't quite slip by…

S. Omeone writes “Here’s some quality research you may be interested in reading…” delivering a Bear Stearns London Equity Research note on the potential impact of the PAAM scam on the wider Man Group (EMG.L). I believe that he refers principally to the paragraphs on the second page entitled Comment, What are the real risks?, and Valuation – A Worst-Case scenario. Quality research indeed, and further evidence that The Financial Times is not the only London institution supping freely at the font of Man’s less than entirely forthright mouthpieces.

And, speaking of Bear Stearns, a different S. Omeone notes that with Ted Sihpol having got both Eliot Spitzer and the SEC off his back “speculation is that now… it’s time for the hammer to fall.” He refers to the long-awaited settlement of the SEC’s action against Bear for its significant role in making the mutual fund scandal possible; Bear has added to its litigation reserves to cover its exposure, and dropped a number of relatively low-level employees off the back of the bus.

SEC jumps in Wood River

The US Securities and Exchange Commission late today filed an emergency action against John H. Whittier and his various Wood River entities, choosing as its venue the decidedly less-than-bucolic surroundings of downtown New York and the US District Court for the Southern District of New York.

Simultaneous with the filing of the complaint, Whittier consented to an asset freeze covering the Wood River entities, an accounting and a partial personal asset freeze, restraint from destruction of evidence, and the appointment of a receiver.

Focusing on the funds’ undisclosed concentration of its holdings in Endwave Corp, the complaint adds little to the sum total of human knowledge about Whittier’s activities disclosed either elsewhere on this site, or to the press coverage to date. Among the new nuggets:

Stinkin’ up the joint

For a mountain stream, lotsa dirty water

The link on The Wall Street Journal’s online edition front page yesterday “Many Red Flags at Wood River Fund” [subscription required] kind of understates the case, so it’s probably a good time to review:

Porkies: A couple of days ago, this site mentioned that NAV Consulting denied a business relationship claimed by Wood River. Since then, Reuters has reported that American Express Tax & Business Services Inc – in the form of several of its successor organizations - has denied being its auditor which brings to two the number of definite porkies directly attributable to Wood Creek principal John H. Whitter. To update the client presentation linked here:

Lies and lying liars

Earlier today, this site posted a link to a Wood River Capital Management client presentation that, among its 23 pages, claimed to use the ‘book keeping’ services of suburban Chicago-based NAV Consulting. Well, not exactly. Reached by telephone this evening, principal Nav Gupta denied ever having “transacted one cent’s worth of business,” with the embattled hedge fund.

Which if nothing else, given the 2004 date on that presentation, which puts some date relatively uncertain on when John Whittier began telling porkies.

As well, the – other – directors of Wood River’s recently-formed offshore fund, employees of Cayman Islands-based administrator dms Management Ltd, met today, and decided to seek Mr Whittier’s resignation from their ranks. Further developments are awaited, as always, with interest.

Common threads: Sammy and John

A. Nother Correspondent drops by, peevishly.

“You forgot to mention the other similarity with Bayou and Wood River - no management fees.” So I did. So add “No management fees” to “Long chatty client newsletters” to the New Red Flags file.

Venting, he adds: “Your point about audit diligence is always my main issue.  Who cares about the back-end diligence (audit) if the front end makes no sense?  Manhattan Fund was supposedly [making money] shorting tech stocks in 1999.  Bayou Fund should have had annual trading commissions to Bayou Securities of over $50 million a year with 1x to 2x daily turnover of $300-400 million in assets.  Enron and Worldcom made no sense to their competitors.” 

Oh, you mean common sense? It’ll never catch on. Apropos of nothing at all, I understand several of these gentlemen are in a meeting this afternoon, wearing their spanking new Wood River Capital Management offshore fund director hats. David, if John happens by, can you have him give me a call please? And I understand a couple of other people are looking for him as well. Just trying to help.

How to raise money 101

A. Correspondent drops by this afternoon:

I was a low-level research scrub at DLJ in the late 90s.  I didn't know John personally, but our time in DLJ's equity research department overlapped for several months, and several of my close colleagues there were close with him personally.  John's biggest claim to fame within DLJ was that he was the son of Ronald Whittier, who was a single-digit-employee-number (or close enough) at Intel. Having family friends in that rarefied air probably helped the fundraising.

No doubt.

A presentation I hope you missed

It’s long, and it’s involved – but the investor letter gave a clue it might be – but thanks to yesterday’s contributor, again, for your delectation I am pleased to submit a Wood River Capital Management client presentation. But, not so fast: From Page 23, “This material is for your information only and is not intended to be used by anyone other than you…” Got it?

Oh, and, most presciently, from Page 22: “Wood River describes an area founded...by thousands of fortune hunters who rushed to the valley…The Wood River Valley is now well known for much more…” Hmmm. And on Page 8: Independent auditors - (the recently spun-off and no longer) American Express Tax & Business Services Inc; Book keepers - NAV Consulting [Upated here]; Legal counsel - Seward & Kissel; Prime brokers - Morgan Stanley and UBS.

Also available in the presentation, but provided separately by another contributor, some background on Wood River’s principal, John H. Whittier:

Dirt request

Real humiliation in this business is getting beaten by BusinessWeek, but that's what happened to me and many others this weekend when Lehman: Burnt by a Hedge Fund? reported a miscellany of alleged shenanigans by Wood River Capital Management, of San Francisco and Ketchum, Idaho, and its principal, John H. Whittier, former co-head of media and communications equity research at DLJ. I know nothing of Wood River, or Whittier, apart from what's in the BusinessWeek story, which also cited earlier Reuters coverage, so:

The usual free lifetime free subscription to NakedShorts and guarantee of anonymity for anybody coming up with documents - private placement memoranda, Whittier's resume, performance information, due diligence reports etc - of interest. Of course, Whittier might just be away for some early-season skiing...or, there again, he may be trying to skate.