Like Magic! Russian Hedge Fund’s Money and Boss Disappear

Posted on January 5, 2015 by admin

Brokerdealer.com blog update is courtesy of The Wall Street Journal’s Bradley Hope.

As part of the membership to Brokerdealer.com, members have free access to an investor database that offers access to many different types of investors including hedge funds. When picking your next investor, whether it be on a national or international level, be sure to pick an investor who you can trust and won’t lose all of the company’s assets like the Russian hedge fund, Blackfield Capital CJSC recently experienced.

Blackfield Capital CJSC was one of Moscow’s hottest hedge funds, hosting glitzy parties and embarking on ambitious plans to expand to the U.S.

The firm’s founder in 2013 even rented a Manhattan apartment for a record-setting price, according to a real-estate broker, and instructed his U.S. staff to buy a $300,000 sports car.

Now, the founder is missing, allegedly along with all of the firm’s assets, according to former employees, in an international mystery that has captivated Moscow’s investment community.

The firm’s employees didn’t know anything was amiss until mid-October, when three men charged into Blackfield’s offices in an upscale complex along the Moscow River in central Moscow, said people who were there.

The men, who didn’t identify themselves, said they were looking for Blackfield’s 29-year-old founder, , according to the people who were there.

But Mr. Karapetyan wasn’t in the office that day or the next, when senior executives explained to the staff of about 50 that there was no longer any money to pay their salaries, said one former senior executive and ex-employees. The executives disclosed that all the money in the company accounts—some $20 million, including investor cash—was also missing, they said. It couldn’t be determined whether investors were from Russia or other countries.

“Our CEO just…disappeared,” said Sergey Grebenkin, one of the firm’s software developers, in an interview.

Efforts to reach Mr. Karapetyan by phone, email and through associates and friends weren’t successful. Other senior executives didn’t respond to requests for comment.

Mr. Karapetyan hasn’t been accused of any wrongdoing. It couldn’t be determined whether the firm was still operating.

Interviews with more than a dozen former employees and executives at rival investment firms in Russia, as well as documents from the U.S., Russia and the U.K., provide a look at the firm’s demise.

Blackfield was launched in 2009 with plans to be on the cutting edge of modern markets. The firm focused on algorithmic trading, or the use of statistical analysis to detect patterns in the markets, on the Moscow Stock Exchange. By 2013, Blackfield traded as much as 2% of futures and options contracts on the Moscow exchange some days, according to former employees and rival firms. Several former employees said Mr. Karapetyan told them the firm once managed as much as $300 million.

For Hope’s entire Wall Street Journal article, click here.

FINRA and MSRB Pair Up Re Pay-To-Play Rules

Posted on January 4, 2015January 4, 2016 by admin

(National Law Review)-FINRA and MSRB Propose New Pay-to-Play Restrictions on Broker-Dealer Solicitors and Municipal Advisors; Rules Will Trigger SEC Investment Advisor Third-Party Solicitation Ban

The following brokerdealer.com update is courtesy of submission to National Law Review by Greenberg Traurig, LLP

On Dec. 16, 2015, the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB) simultaneously filed with the Securities and Exchange Commission (SEC) rule proposals that will have broad and substantial impacts on the political giving of broker-dealers, investment advisers and municipal advisors and their ability to engage in business with governmental entities under SEC, FINRA and MSRB rules.

The FINRA proposal seeks to establish so-called pay-to-play restrictions on broker-dealers that engage in certain distribution and solicitation activities on behalf of investment advisers (third-party solicitors) under new FINRA Rule 2030, on Engaging in Distribution and Solicitation Activities with Government Entities, and associated FINRA Rule 4580, on Books and Records Requirements for Government Distribution and Solicitation Activities. The MSRB proposal would extend to municipal advisors (including certain third-party solicitors) its existing pay-to-play rule applicable to municipal securities broker-dealers, MSRB Rule G-37, Political Contributions and Prohibitions on Municipal Securities Business and Municipal Advisory Business.

The FINRA rules, and in part the MSRB rule amendment, are designed to complement the SEC’s existing pay-to-play rule for investment advisers, Rule 206(4)-5 under the Investment Advisers Act of 1940. When effective, the FINRA and MSRB rules would trigger compliance requirements under the SEC’s ban on third party solicitations on behalf of investment advisers under SEC Rule 206(4)-5, as provided for under SEC staff’s current no-action posture which has put this provision of the SEC pay-to-play rule in abeyance subject to completion of FINRA and MSRB rulemaking.

While each rule has its own unique provisions, the SEC, FINRA and MSRB pay-to-play rules generally create two-year bans, or “time-outs,” from engaging in investment advisory, underwriting/distribution or municipal advisory activities with state or local governmental entities if the investment adviser, broker-dealer or municipal advisor firm or specific professionals within the firm have made political contributions to elected officials of such governmental entities, subject to permitted de minimis contributions. The rules also prohibit such firms and professionals from soliciting or coordinating political contributions by others to elected officials of governmental entities with which they are undertaking or seeking business, or to state or local political parties within any jurisdiction where such business is being undertaken or sought.

In addition, the SEC rule prohibits investment advisers from paying a third-party to solicit on their behalf a governmental entity for investment advisory business unless such third-party is subject to the SEC, FINRA or MSRB pay-to-play rule. The MSRB rule also includes a public disclosure regime that requires quarterly information filings with the MSRB that are made public on the MSRB’s Electronic Municipal Market Access (EMMA) website. Finally, the Commodity Futures Trading Commission (CFTC) also has adopted its own pay-to-play rule for swap dealers entering into swap transactions with governmental special entities, Rule 23.451 on Political Contributions By Certain Swap Dealers. Firms covered by one or more of these pay-to-play rules will need to engage in extensive compliance and recordkeeping activities that take into account the range of activities they undertake and the varying requirements of the applicable SEC, CFTC, FINRA and/or MSRB rules.

The FINRA and MSRB proposals are subject to the SEC’s public comment and approval process, and the restrictions and related requirements would apply only for contributions made after the effective date, which would be a date to be announced no sooner than 6 months after SEC approval.