Hedge Fund Manager Gets Prison

The former Marin County hedge fund manager, with a penchant for Warriors basketball, got 14 months in prison for wire fraud Tuesday in a scheme that cost investors $6 million, federal prosecutors said.

Lawrence Goldfarb, 55, of San Anselmo, founded Baystar Capital II, a profitable private investment fund, but diverted its proceeds to feather his own luxury lifestyle, despite a pledge to the government to repay investors.

He primarily made short-term investments in various illiquid, difficult-to-value investments, known as side pockets, according to prosecutors.  Baystar made $8 million investment in Island Fund in 2003, which returned more than $16 million over several years, according to the government.

Proscutors accused Goldfarb of diverting those funds, without consulting his investors, to other investments in which he had an economic interest.  The scheme allegedly cost his investors $6 million.

In 2011, Goldfarb agree to repay $12 million as part of a deferred prosecution agreement with the U.S. Attorney’s office and the Securities and Exchange Commission.

But he failed to meet the terms of the agreement and instead spent money on a luxury lifestyle, including private air travel, vacations and $43,000 on Warriors basketball tickets.

U.S. District Judge William Alsup concluded that Goldfarb breached his DPA agreement.  Goldfarb pled guilty to a single count of wire fraud and was sentenced by Alsup to the 14-month term.  He will also serve a three-year probation term.  He begins his prison term November 5.

Case:  U.S. v. Goldfarb, No. CR11-0099WHA


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