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.

Markets
Terrapin

Spun Fund Keeps Equity Line Focus

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Acqua Wellington Asset Management, for years an active equity line provider to small cap companies, has spun out its Terrapin Opportunity Fund amid a decision to get out of the business, a source close to the situation said. Rob Schacter, the former president of equity line placement agent Reedland Capital Partners, and Acqua Wellington officials will oversee the fund, the person said. Over the last 12 years Acqua Wellington funneled $228 million to issuers in 66 transactions, according to PlacementTracker, a unit of Sagient Research. It made a total commitment of $3.7 billion in those deals. Acqua Wellington’s phones in its New York headquarters were out of service Thursday.

Markets

October Turns Ghoulish for Growth Companies

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Increasing market volatility has played more tricks than treats on growth companies raising funds in equity private placements in October. At least in the short term, the financings have spooked investors. With four trading days left in the month, issuers with market capitalizations from $10 million to $1 billion have raised nearly $1 billion in 32 deals, a deal and dollar volume pace that is roughly on par with September’s $1.3 billion raised in 37 transactions, according to PlacementTracker, a service of Sagient Research. But October EPP issuers have seen their share prices decline an average of 5.8% three days after the announcement of their respective deals, compared with an average of less than 1% over the same period in September. What’s more, 72% of issuers in October have seen their shares decline in the three-day post-announcement timeframe, while in September, less than half saw declines.