LAWFUEL – US Legal Announcements – MICHAEL J. GARCIA, the United States Attorney for the
Southern District of New York, announced that former hedge fund
manager JOHN H. WHITTIER, the former manager of the Wood River
Partners, L.P. (“Wood River U.S.”) and Wood River Partners
Offshore, Ltd. (“Wood River Cayman”) hedge funds, was sentenced
this afternoon in Manhattan federal court to 36 months in prison
following his May 2007 guilty plea to charges of securities
fraud. The charges stem from a scheme that resulted in investor
losses of approximately $88 million.
According to the Indictment and statements made during WHITTIER’s guilty plea proceeding: WHITTIER operated and managed the Wood River U.S. and
Wood River Cayman hedge funds. In offering and marketing
materials, and in presentations to hedge fund investors, WHITTIER
promised that he would pursue a broad investment strategy and
operate those hedge funds with a diverse portfolio containing a
variety of investments.
In particular, WHITTIER assured investors that a maximum of 10 percent of the hedge funds’ holdings would be invested in the stock of any one company.
Contrary to his representations, WHITTIER invested approximately
85 percent of Wood River U.S.’s $127 million portfolio in a
single stock. Specifically, from the fall of 2004 through
September 2005, WHITTIER accumulated beneficial ownership —
through Wood River U.S., Wood River Cayman, and other accounts
under his control –- of approximately 80 percent of the common
stock of Endwave Corporation (“Endwave”). WHITTIER also falsely
informed investors that the Wood River U.S. hedge fund was being
audited when, in fact, it was not.
WHITTIER, furthermore, purposefully failed to make the
required filings with the United States Securities and Exchange
Commission (“SEC”), which would have disclosed his ownership
interest in Endwave to both his hedge fund investors and the
public. The SEC requires filings disclosing beneficial ownership
of five percent or more of a publicly traded stock, and further
disclosure if ownership exceeds ten percent.
In mid-September 2005, a dramatic drop in Endwave’s
stock price caused the value of the Wood River U.S. hedge fund
portfolio to drop and triggered margin calls by certain of the
hedge funds’ brokers. Similar margin calls were triggered at
Wood River Cayman, which had also accumulated significant
holdings in Endwave, contrary to WHITTIER’s promises. Because
such a large portion of the Wood River U.S. and Wood River Cayman
funds’ assets were invested in Endwave stock, WHITTIER was unable
to meet certain of these margin calls, and various brokers began
liquidating the hedge funds’ Endwave stock positions. Around the
same time, WHITTIER informed investors that he could not pay
investor redemption requests because of liquidity problems. By
approximately October 2005, WHITTIER and the Wood River funds
were no longer doing business. As a result of WHITTIER’s fraud,
investors in the Wood River U.S. and Wood River Cayman hedge
funds lost approximately $88 million.
In addition, in July 2005 WHITTIER acquired a
significant ownership interest in a second publicly traded
company called MediaBay, Inc. (“MediaBay”). WHITTIER then
intentionally failed to file required documents with the SEC
disclosing his beneficial ownership of MediaBay securities in
excess of 10 percent. WHITTIER instead falsely informed
securities lawyers whom he had retained that he owned only
approximately 9.6 percent of MediaBay’s stock. As a result,
WHITTIER’s attorneys filed a form with the SEC that fraudulently
misrepresented that WHITTIER controlled only approximately 9.5
percent of MediaBay’s common stock when, in fact, WHITTIER was
the beneficial owner of approximately 23 percent of MediaBay
stock.
WHITTIER, 41, resides in Hailey, Idaho. He was ordered
to forfeit to the United States the sum of $5,535,571. WHITTIER
was ordered to surrender to begin serving his sentence on January
15, 2008.
Mr. GARCIA praised the investigative work of the
Securities and Exchange Commission and the Federal Bureau of
Investigation.
Assistant United States Attorney STEVEN D. FELDMAN is
in charge of the prosecution.
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