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.

Markets
EDU

New Oriental Education Making a Comeback?

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China-based shell merger company New Oriental Education & Technology Group (EDU) took an anvil ride in July, when a Muddy Waters report questioned many of the company's claims. The company's shares fell 35% when the report was released on July 18, but more recently positive news, including regulatory approval of consolidation accounting, has New Oriental on the uptick. Share prices moved up on Oct. 15, when New Oriental, which bills itself as the largest provider of private educational services in China, announced that Securities and Exchange Commission staff voiced no objection to the accounting behind merging some business units into the company's consolidated financial statements. The SEC's approval of accounting practices is, of course, hardly an endorsement of the company or its stock. But the news did bring on a flurry of trading after New Oriental shares opened at $19.34 on Oct.

Markets

Q3 Growth Capital Formation Bucks Summer Lull

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Emerging growth companies (EGCs) accelerated fund raising during a traditionally sleepy time for the capital markets this year, although market participants suggest that small cap issuers still must crest steep challenges to find cash – let alone “friendly” money in the private placement market. EGCs raised $3.2 billion in 105 growth equity private placement transactions (EPPs) in the third quarter, according to PlacementTracker, a service of Sagient Research. While activity and dollar volume decreased from the second quarter (145 EPPs; $3.8 billion), it still represented a significant improvement over the third quarter of 2011, when issuers raised $2.4 billion in 86 deals. (The growth capital EPP dataset includes issuers with a minimum stock price of $1 and market capitalizations of $10 million to $1 billion. It excludes equity lines, unknown structures, deals with floating and reset pricing, and at-the-market offerings.)

Companies issued 43 shelf offerings, making registered deals the most-used structure in the third quarter.

Markets
John Kirkland, Ironridge Global

A New Growth Equity Investor’s Solo Approach

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Despite recording more deal and dollar volume in the third quarter versus last year, companies continue to face a tough financing climate, said John Kirkland, managing director with San Francisco-based investor Ironridge Global IV. Much of the difficulty stems from bad actors and toxic deals that have cast the PIPE market as “a rogues’ gallery,” he said. Subsequently, all investors get painted with a broad brush so that the “good tend to get weeded out with the bad,” he added. “It’s extremely hard for issuers to find money right now, and it’s only getting harder for investors to do deals,” he said. “The fact that (in September) we were at a fantastic conference (hosted by former placement agent powerhouse Rodman & Renshaw) at Rockefeller Center, and a week later they cease to exist, is indicative of the problems in the microcap space.