SAN FRANCISCO |
Tue Mar 1, 2011 3:54pm EST

SAN FRANCISCO (Reuters) – A Bay Area hedge fund manager settled civil charges that he secretly diverted more than $12 million in proceeds to other entities he controlled, securities regulators announced.

Lawrence Goldfarb, of Baystar Capital Management in Larkspur, California, allegedly redirected the money from a fund that it managed worth more than $100 million at its peak, the U.S. Securities and Exchange Commission said in a court filing on Tuesday.

Attorneys for Goldfarb did not immediately respond to a request for a comment.

In addition to managing Baystar, Goldfarb also ran LRG Capital Group, which promotes itself as a global investment, banking and advisory boutique, the SEC said in its filing.

According to LRG’s website, Goldfarb previously worked at Credit Suisse (CRP.N) as a partner and director of mergers and acquisitions. Before that, he was an attorney at law firms including Skadden, Arps, Slate, Meagher Flom, the website says.

Representatives for Credit Suisse and Skadden had no immediate comment.

Goldfarb transferred funds from a “side pocket” investment, which is commonly used by hedge funds to separate illiquid assets from the rest of the fund’s investments, the SEC filing said.

Instead of returning money to fund investors, Goldfarb diverted it to several entities he controlled, including a separate real estate fund, a San Francisco record company and various other private companies.

According to the SEC filing, Goldfarb asserted his constitutional right to remain silent and refused to answer SEC questions about his management of the fund, called Baystar Capital II.

A spokesman for the U.S. attorney’s office in San Francisco declined to comment.

Goldfarb agreed to pay more than $14 million to settle the SEC case, including nearly $2 million in prejudgment interest and a $130,000 penalty.

He will also be barred from associating with any investment adviser or broker.

(Reporting by Dan Levine, editing by Maureen Bavdek and Matthew Lewis)

Article source: http://www.reuters.com/article/2011/03/01/us-sec-hedge-idUSTRE7206X920110301