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Wednesday, April 29, 2009

Former Head Securities Trader for Lancer Group Hedge Funds Pleads Guilty to Conspiracy to Commit Mail, Wire and Securities Fraud

WASHINGTON - The former head securities trader for Lancer Group hedge funds pleaded guilty on April 28, 2009, to one count of conspiracy to commit mail, wire and securities fraud, Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney R. Alexander Acosta for the Southern District of Florida announced today.

Eric Hauser, 65, pleaded guilty before U.S. District Court Judge Adalberto Jordan in Miami. Hauser admitted to participating in a scheme to manipulate trading of stocks owned by the Lancer Group hedge funds. Sentencing for Hauser is scheduled for July 10, 2009.

Hauser was one of five defendants charged in an indictment unsealed in February 2008 in Miami. Also charged in the indictment are Michael Lauer and Martin Garvey who, along with Hauser, were co-owners of management companies that directed Lancer Group hedge funds’ activities, and Laurence Isaacson and Milton Barbarosh, who the indictment alleges had financial interests in Boca Raton, Fla.-based "shell" companies in which the hedge funds invested. All of the defendants were charged with one count of conspiracy to commit mail, wire and securities fraud, and six counts of wire fraud. A trial date has not yet been set for Lauer, Garvey, Isaacson or Barbarosh.

According to the indictment, Lauer, as founder and primary manager, formed and directed several hedge funds, collectively known as the Lancer Group hedge funds. From October 1999 to July 2003, Lauer and others allegedly manipulated the closing market price of thinly-traded shell company securities to falsely inflate the value of the Lancer Group hedge funds. Lauer, Isaacson and Barbarosh allegedly identified "shell" companies, including ones owned by Barbarosh, in which the Lancer Group would buy large quantities of "restricted" stock at pennies per share in private transactions. According to the indictment, Lauer, Garvey and Hauser next allegedly directed brokers to buy a small amount of the same securities for the Lancer Group at a much higher open market price and to make additional small purchases to drive up the price to a closing "target price." Lauer then allegedly falsely valued all of the securities held by the Lancer Group, including those restricted shares obtained for pennies per share, at the much higher closing price, which falsely boosted the 20 percent performance fees paid to the management companies; induced new investors to buy into the funds; and kept existing investors in the funds.

To cover up and perpetuate the scheme, the indictment alleges, Lauer also created fake portfolios of the securities supposedly held by the Lancer Group and allegedly obtained falsely inflated appraisals of the shell companies through Isaacson and Barbarosh.

An indictment is merely a charge. All defendants are presumed innocent until proven guilty.

The case was investigated by the FBI and is being prosecuted by Senior Litigation Counsel Jack Patrick of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Harold Schimkat of the U.S. Attorney’s Office for the Southern District of Florida.

Press Release Number: 
Updated September 15, 2014