Hedge fund manager found liable for fraud in connection with two PIPEs

By Angela McDaniels

Tacoma, Wash., Sept. 15 - A federal court on Monday found Robert A. Berlacher, several of his investment advisory entities and various hedge funds he managed liable for securities fraud in connection with the funds' PIPE investments, according to a notice from the Securities and Exchange Commission.

The defendants were ordered to pay $352,363.68 in disgorgement. The ruling followed a three-day bench trial in March in Philadelphia in the U.S. District Court for the Eastern District of Pennsylvania.

The SEC filed a complaint on Sept. 13, 2007 alleging that the defendants made materially false representations to issuers in connection with two PIPEs.

In connection with a Radyne ComStream, Inc. PIPE in February 2004, the court found that Berlacher misrepresented in the securities purchase agreement that he did not hold a short position, directly or indirectly, in Radyne securities. Contrary to this representation, Berlacher, after learning about the PIPE, had established a "barrier option" position on a "basket" of securities (i.e., a portfolio of underlying assets), one of which included a short position in Radyne securities.

The SEC said Berlacher's "barrier option" on the securities basket was an exotic derivative product that provided him with leverage and gave him the right to the underlying assets.

Similarly, in connection with a May 2004 International Displayworks, Inc. PIPE, Berlacher misrepresented in the securities purchase agreement that he had not engaged in any transactions in the company's securities when he had in fact, after learning about the PIPE, established a "barrier option" position that included positions in the company as part of its underlying basket of securities, according to the SEC notice.

The court found that the defendants violated the antifraud provision of the Securities Exchange Act of 1934, but they were found not liable for insider trading in connection with the Radyne offering and for fraud in connection with two other offerings.

The defendants include investment advisory entities LIP Advisors, LLC, NCP Advisors, LLC and RAB Investment Co., LLC and hedge funds Lancaster Investment Partners, LP, Northwood Capital Partners, LP, Cabernet Partners, LP, Chardonnay Partners, LP, Insignia Partners, LP and VFT Special Ventures, Ltd.

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