Legal
STI

SunTrust under SEC Investigation

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Atlanta-based SunTrust Bank (STI) is under investigation by regulators for alleged mortgage fraud against Fannie Mae. Whistleblowers who worked in SunTrust’s residential mortgage underwriting group filed a whistleblower suit with the Securities and Exchange Commission this spring.  After the Washington, D.C. office of the SEC received the complaint a director of the SEC’s Atlanta office and a forensic accountant were assigned to begin an immediate investigation in the bank. Three people involved in the case told Growth Capital Investor interviews with SunTrust employees who worked in the bank’s mortgage unit started in May, along with an inspection of the methods SunTrust used to qualify prime loans sold to Fannie Mae. SunTrust saw its stock price fall off a cliff in the financial crisis, and subsequently participated in the federal TARP program aimed at shoring up distressed banks. Investors who held the stock valued at $73 a share in October 2007 watched their investment wiped out when it fell to $7 by February 2009.

Legal

SEC’s Hunt for Abnormal Returns Plows Ahead

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The Security and Exchange Commission’s case against PIPE fund Yorkville Advisors serves as a reminder to hedge funds that the commission is preemptively pursuing suspicious behavior without having to rely on complaints or tips from disgruntled investors, employees or competitors. In charging the $1 billion Jersey City-based advisor and two of its executives with scheming to overvalue assets under management, the regulator relied on its “aberrational performance inquiry” initiative, which analyzes the integrity of a fund’s reported returns in light of its strategy, benchmarks, valuation methodologies and other metrics. Inconsistencies between the returns and metrics triggers further investigation. The initiative began as early as 2009 and stemmed largely from the commission’s failure to spot the fraud perpetrated by Bernie Madoff, who that same year admitted to a long-running Ponzi scheme. It cost investors some $18 billion.

Legal

More Sanctions in GlobeTel Fraud Case

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Executives of defunct PIPE issuer GlobeTel Communications Corp. engaged in extensive accounting fraud, according to a court order requiring Timothy Huff, Lawrence Lynch, Joseph Monterosso and Luis Vargas to pay a total of $3 million in disgorgement and penalties. The company raised over $25 million in seven PIPEs issued from 2004 through 2006, according to PlacementTracker data. Investors included funds managed by Nite Capital, Hudson Bay Capital, and Crescent Special Situations. The sanctions came after the Securities and Exchange Commission accused the company's subsidiaries of reporting phony revenues from sales of telecom "minutes" that never actually took place.

Legal
Yorkville Advisors

SEC Accuses Yorkville of Earning Millions From Inflated Fund Values

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Two New Jersey-based hedge fund managers who ran a billion dollar PIPE fund were sued for investor fraud by the Securities and Exchange Commission today. Mark Angelo, 40, and his CFO Edward Schinik, 46, of Yorkville Advisers were pioneers in the PIPE investing space funding small and micro cap companies through convertible debt with warrants to buy stock at a discount. From 2001 through 2008 their funds never showed a negative performance period. But at the end of 2010 investors were suddenly surprised when Yorkville told them the funds' value had dropped 33 percent. The SEC’s complaint alleges Yorkville began inflating the value of its investments during the start of the 2008 financial crisis to earn at least $10 million in fees and entice an additional $280 million from investors. Angelo, Yorkville’s founder, earned a 20 percent fee off the funds’ performance.