UBS Willow Fund's use of Credit Default Swaps Causes Investor Loss

The UBS Willow Fund, ostensibly a distressed debt fund, was a closed-ended fund recommended and sold by UBS to its clients.  This product utilized credit default swaps (“CDS”), which are essentially contracts whereby one party shifts the risk of a default onto the CDS seller in exchange for an agreed upon premium.  These are highly speculative investments.  Unfortunately for the Willow Fund, it invested in CDS involving European sovereign debt.  This gamble by UBS did not pay off, and investors are now paying the price. 

Last October, investors found out the Willow Fund, which was valued in 2006 at $500 million, was being liquidated.  As reported by the New York Times, the Willow Fund suffered losses of almost 80 percent in the first three quarters of 2012, and as a result, drastically switched investment strategy away from distressed debt, and into highly speculative CDS. 

Some UBS investors were unaware they held investments in such a speculative product, and now investors are out millions of dollars.  Investment fraud may be found on a variety of grounds, including that these investments were unsuitable for certain investors.  If you held UBS Willow Fund and believe you may have lost value in your investment due to securities fraud, please contact Block & Landsman to discuss how we may be able to assist you in recovering your assets.

SEC Charges Houston-Based John Thomas Capital Management Group with Fraud

The Securities and Exchange Commission (“SEC”) instituted a cease-and-desist proceeding against John Thomas Capital Management Group, George Jarkesy Jr., John Thomas Financial (“JTF”), and Anastasios “Tommy” Belesis.  The case centers on Jarkesy, who is accused of fraudulent conduct while managing two hedge funds – John Thomas Bridge and Opportunity Fund LP I, and John Thomas Bridge and Opportunity Fund LP II.  In addition to fraudulent actions in connection with these two funds, Jarkesy is accused of funneling Fund money into JTF and Belesis in the form of bloated funds to the broker-dealer.

The Funds, which had assets over $30 million at their peak, were also known as Patriot Bridge and Opportunity Fund LP I and LP II, and the advisers were known as Patriot28 LLC. 

Belesis is accused of demanding and obtaining de facto control over investment decisions at the Funds, despite representations Jarkesy was responsible for all investment decisions.  It is alleged this sham was perpetrated to insulate Belesis from liability.  Further, it is alleged Jarkesy and John Thomas Capital Management breached their fiduciary duty by diverting a large amount of fees to JTF and Belesis from the Funds via borrowing companies.

In a particularly egregious email sent from Jarkesy to Belesis after Belesis had berated Jarkesy for not delivering enough fees, Jarkesy responded, “We will never retreat we will never surrender and we will always try to get you as much [fees] as possible, Everytime [sic] without exception!” 

The SEC Order, which can be viewed here, alleges Jarkesy incorrectly valued the Funds’ holdings on multiple occasions and in multiple different assets.  Further, it alleges John Thomas Capital Management’s sales material contained multiple misrepresentations designed to make the Funds appear legitimate. 

If you were the victim of this allegedly fraudulent scheme, please contact the securities fraud attorneys at Block & Landsman to discuss your matter.