Bankrupt Banker: Lancer Group hedge funds

Lancer Group hedge funds' founder and four other people were charged with defrauding investors out of more than $200 million

Lancer Group hedge funds' founder and four other people were charged with defrauding investors out of more than $200 million by manipulating market prices and overvaluing securities, according to a federal indictment unsealed Wednesday. The grand jury indictment charges former fund manager Michael Lauer and the others with conspiracy and six counts of wire fraud. The indictment said the fraud took place between 1999 and 2003, the year the Lancer Group's assets were frozen by the Securities and Exchange Commission. At the time, the SEC contended that the fraud at three hedge funds managed by Lancer could top $1 billion. The Lancer Group was eventually placed into receivership, with investors filing millions of dollars in claims against the firm. The indictment said the fraud involved manipulation of closing market prices of shell companies based in Boca Raton so that they reached certain fiscal targets. Lauer also allegedly overvalued securities held by the Lancer Group, luring more investors into the funds, and falsified key documents. Lauer, who had offices in New York and Connecticut, was paid more than $40 million in fees from the hedge funds he was managing, according to the indictment. Two attorneys who have represented Lauer in the past did not return telephone calls and e-mails seeking comment. Prosecutors said he was arrested in New York on Tuesday and was being held without bond. Three others accused in the case _ Milton Barbarosh, Laurence Isaacson and Eric Hauser _ were freed on $500,000 bail each after appearing in court Tuesday in Miami. The indictment identified Hauser as the Lancer Group's head trader, Isaacson as chief of some of the shell companies in which Lancer invested and Barbarosh as head of an appraisal firm that provided advice about investments to the hedge funds. Barbarosh also allegedly had financial interests in some of those entities. "We are, of course, asserting Mr. Barbarosh's innocence," said his attorney, Michael Pasano. Attorneys for the others did not respond to telephone and e-mail messages. The whereabouts of the fifth defendant _ Lancer Group manager Martin Garvey _ weren't immediately clear. Court documents in the SEC case listed a past address for Garvey in New Jersey. The charges carry combined maximum penalties of 125 years in prison and fines of more than $1.7 million for each defendant. The receiver appointed by the court in the SEC case to manage Lancer's assets and handle claims from investors reported in 2006 that about $633.6 million should be paid out. Some Lancer assets were sold off, including an auction earlier this month for a Mercedes-Benz C11 race car that brought $2 million.Five individuals who defrauded hedge fund investors of more than $200 million dollars have been indicted on charges of conspiracy and wire fraud, Assistant Attorney General Alice S. Fisher of the Criminal Division and U.S. Attorney R. Alexander Acosta of the Southern District of Florida announced today. Defendants named in the indictment, unsealed today in Miami, are Michael Lauer, Martin Garvey, and Eric Hauser, co-owners of management companies which directed the hedge funds, and Laurence Isaacson and Milton Barbarosh, who had financial interests in Boca Raton, Fla.-based “shell” companies in which the hedge funds invested. All of the defendants are charged with one count of conspiracy to commit mail, wire and securities fraud and six counts of wire fraud. If convicted, each of the defendants faces a maximum sentence of 20 years and a $250,000 fine for each count of wire fraud and five years and a $250,000 fine for the conspiracy count. The indictment also seeks forfeiture of their criminal proceeds.According to the indictment, Lauer, as founder and primary manager, formed and directed several hedge funds, collectively known as the Lancer Group hedge funds. From October 1999 to July 2003, Lauer and his co-defendants manipulated the closing market price of thinly-traded shell company securities to falsely inflate the value of the Lancer Group hedge funds. Lauer, Isaacson, and Barborosh identified “shell” companies, including ones owned by Barbarosh, in which the Lancer Group would buy large quantities of “restricted” stock at pennies per share in private transactions. Lauer, Garvey and Hauser next directed brokers to buy a small amount of the same securities for the Lancer Group at a much higher open market price and to make additional small purchases to drive up the price to a closing “target price.” Lauer then falsely valued all of the securities held by the Lancer Group, including those restricted shares obtained for pennies per share, at the much higher closing price, which falsely boosted the 20 percent performance fees paid to the management companies; induced new investors to buy into the funds; and kept existing investors in the funds. To cover up and perpetuate the scheme, the indictment alleges, Lauer also created fake portfolios of the securities supposedly held by the Lancer Group and obtained falsely inflated appraisals of the shell companies through Isaacson and Barbarosh. An indictment is merely a charge. All defendants are presumed innocent until proven guilty.

Lancer Group hedge funds' founder and four other people were charged with defrauding investors out of more than $200 million

Lancer Group hedge funds' founder and four other people were charged with defrauding investors out of more than $200 million by manipula...