Hedge Fund Manager's Spending Spree Will Cost Him -- and Taxpayers

Date: Wednesday, June 27, 2012
Author: Ginny LaRoe, The Recorder

SAN FRANCISCO — It seemed as if the worst was behind him. But a former tax attorney and hedge fund manager who had settled investment fraud charges is back in court fighting the feds.

Lawrence Goldfarb, accused of misusing funds at his company, BayStar Capital Management, is supposed to be paying $14 million to investors as part of a deal with the Securities and Exchange Commission. Instead, he's spent lavishly on basketball tickets, chartered flights and a Pottery Barn shopping spree, court records say.

That didn't sit well with U.S. District Judge William Alsup, who recently held Goldfarb in civil contempt and even contemplated, but decided against, locking up the Marin County man.

"The record is clear that, at least since entry of the final judgment in March 2011, defendant Goldfarb has spent hundreds of thousands of dollars on various personal indulgences, instead of paying down the outstanding balance on the final judgment," Alsup wrote in a June 20 order. The judge detailed spending on luxury hotels, an $11,666 engagement party at Goldfarb's San Anselmo home and more than $100,000 on Golden State Warriors tickets.

Goldfarb has paid only $80,000, plus interest, toward the SEC judgment, and instead used his resources "to continue to support his luxurious lifestyle," Alsup's order says.

And now he's apparently so broke that taxpayers will have to pick up his legal bills.

Alsup — without objection from Goldfarb — set up a receivership to take control of his finances. Goldfarb was expected to be able to pay off his judgment by selling off some real estate and by cashing in on a promissory note from another business venture, but those plans haven't worked out.

Meanwhile Alsup put in place a $10,000-a-month spending cap.

"He is not going to be living high on the hog," Alsup said at a May hearing.

That's not the end of Goldfarb's troubles. Federal prosecutors are renewing their criminal case. For that, he's set to get the services of his defense counsel at Sideman & Bancroft for free, since he now qualifies for appointed counsel. On Friday, U.S. Magistrate Judge Nathanael Cousins agreed to appoint Goldfarb's retained lawyer, San Francisco partner Richard Nelson, who previously said in court papers that Goldfarb hasn't been paying him, and that the "receivable is substantial." In the parallel criminal proceeding, Assistant U.S. Attorney Jonathan Schmidt charged Goldfarb in 2011 with wire fraud over allegations he misused investor funds. Goldfarb had gotten a deferred prosecution deal, contingent on his good-payments toward the SEC judgment, among other requirements.

But when he didn't meet his restitution deadline, prosecutors in April had him arraigned. That turn of events prompted Sideman & Bancroft at one point to ask to withdraw as counsel, citing the substantial resources it would take to deal with the "complex" case and Goldfarb's inability to pay. Wrote Alsup: "The law firm of Sideman & Bancroft has ample resources to be able to handle this matter without prejudice to its viability." When the firm took on Goldfarb as a client, it was "well aware that if it became counsel in the case there might come a day when a judge would require Sideman & Bancroft to stay as counsel in the case, even if they had to work for free, there being no automatic right to withdraw," Alsup wrote.

"Most firms in the position of Sideman & Bancroft would have obtained a retainer sum sufficient to cover expenses and fees. But evidently Sideman & Bancroft did not do so."

After that order, however, Nelson was appointed by the court for the criminal matter and he and partner Steven Katz remain on the docket in the civil case. Nelson declined to discuss the case.

Goldfarb had previously worked at Skadden, Arps, Slate, Meagher & Flom and at Milbank, Tweed, Hadley & McCloy, his website says.