Funds News

Hedge fund manager gets 3 years in fraud case

NEW YORK (Reuters) - The founder of the defunct hedge fund Wood River Capital Management LLC was sentenced to three years in prison on Monday for his role in a scheme that led to about $88 million in investor losses.

U.S District Judge Jed Rakoff during a hearing in Manhattan handed John Whittier, 41, a lower sentence than was recommended in part due to family considerations.

“Mr. Whittier is a very significant component in the development of his autistic child,” Rakoff said. “Bad as what Mr. Whittier did ... people he was cheating were not people who were rendered destitute as a result.”

Whittier had pleaded guilty in May to securities fraud and failing to file required stock holding disclosures with the U.S. Securities and Exchange Commission.

Rakoff also ordered Whittier to forfeit about $5.5 million. He is scheduled to report to prison on January 15.

“I am beyond embarrassed,” Whittier told the judge. “I will always be sincerely sorry.”

Under his initial plea deal with the government, Whittier had faced a sentence of between 15-1/2 years and 19-1/2 years.

Whittier had admitted to amassing an 80 percent stake in Endwave Corp ENWV.O, a small Californian telecoms company, between 2004 and 2005, but failing to disclose the holding to the SEC.

He invested 85 percent of Wood River’s $127 million portfolio solely in Endwave stock rather than diversifying the portfolio, prosecutors said.

Whittier also admitted failing to disclose his interest in New Jersey-based publishing company Mediabay Inc to the SEC.

The criminal case began after investors became concerned in late 2004 when Whittier’s funds could not meet redemption requests, which led to the unraveling of the firm in 2005 and civil action against Whittier both from the SEC and investors.

The collapse of the fund group, based in San Francisco and Ketchum, Idaho, became a poster child for the dangers of investing in lightly regulated hedge funds.

It came on the heels of another hedge fund collapse, Bayou Group, and led to heightened investor due diligence in the lightly regulated asset class, as well as lawmakers’ calls for greater government oversight.