Vilar Gave Select Access to IPOs
Aaron Lucchetti. Wall Street Journal. (Eastern edition). New York, N.Y.: Jun 3, 2005. pg. C.1
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Abstract (Document Summary)
At a time when IPOs often soared in their first day of trading, Mr. [Alberto Vilar]'s firm,
Amerindo Investment Advisors Inc., channeled most of the IPO shares it received to a
small group of wealthy clients investing through an offshore account, the filings say. But
until 2002, his mutual fund geared to smaller investors, Amerindo Technology Fund,
didn't receive any of the shares, the filings say. The IPO policy was unorthodox,
especially for a fund that invested in fast-growing new companies. It is unclear whether
the policy will become part of the investigation that has now enveloped Amerindo and its
two founders, Mr. Vilar and Gary Tanaka. Last week, federal prosecutors charged Mr.
Vilar, 64 years old, and Mr. Tanaka, 61, with illegally taking millions of dollars from
clients to make charitable donations and buy thoroughbred horses, among other things.
The SEC has reviewed Amerindo's IPO practices on several occasions over the years,
say people familiar with the matter. The Amerindo IPO policies were disclosed annually
in forms filed with the SEC. In 2003, Mr. Vilar said in a written response to questions
from The Wall Street Journal that he and Mr. Tanaka hadn't been investors in the
offshore account that received the IPOs. William Smith, an Amerindo spokesman, said
the firm didn't get big-enough IPO allocations to distribute them to all clients and added
that the offshore account didn't collect extra performance fees common among hedge
funds that could give investment managers an incentive to put the most lucrative
investments in such accounts.
Full Text (959 words)
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MONEY MANAGER Alberto Vilar, who was charged last week with stealing millions of
dollars from a client, gave only some of his investors access to hot initial public offerings
during the technology boom of the late 1990s, according to his firm's regulatory filings.
At a time when IPOs often soared in their first day of trading, Mr. Vilar's firm, Amerindo
Investment Advisors Inc., channeled most of the IPO shares it received to a small group
of wealthy clients investing through an offshore account, the filings say. But until 2002,
his mutual fund geared to smaller investors, Amerindo Technology Fund, didn't receive
any of the shares, the filings say. The IPO policy was unorthodox, especially for a fund
that invested in fast-growing new companies. It is unclear whether the policy will become
part of the investigation that has now enveloped Amerindo and its two founders, Mr. Vilar
and Gary Tanaka. Last week, federal prosecutors charged Mr. Vilar, 64 years old, and
Mr. Tanaka, 61, with illegally taking millions of dollars from clients to make charitable
donations and buy thoroughbred horses, among other things.
Amerindo wasn't criminally charged, but the Securities and Exchange Commission sued
the firm and its two founders this week, requesting that a temporary receiver be
appointed to oversee Amerindo. Late yesterday, a judge ordered the appointment of a
monitor, rather than receiver, to watch over client accounts. Amerindo is cooperating
with the authorities and didn't object to having a monitor.
Mr. Vilar, whose lawyer has denied the allegations, and Mr. Tanaka, whose lawyer
couldn't be reached, are scheduled to appear at bail hearings today.
The SEC has reviewed Amerindo's IPO practices on several occasions over the years,
say people familiar with the matter. The Amerindo IPO policies were disclosed annually
in forms filed with the SEC. In 2003, Mr. Vilar said in a written response to questions
from The Wall Street Journal that he and Mr. Tanaka hadn't been investors in the
offshore account that received the IPOs. William Smith, an Amerindo spokesman, said
the firm didn't get big-enough IPO allocations to distribute them to all clients and added
that the offshore account didn't collect extra performance fees common among hedge
funds that could give investment managers an incentive to put the most lucrative
investments in such accounts.
Some observers question whether the firm's less-wealthy mutual-fund investors should
have had the same chance to participate in the first- day IPO gains as wealthy investors
in the offshore account. "Why entitle one account to buy the IPOs?" asked Tamar
Frankel, a law professor at Boston University. While noting that Amerindo disclosed its
policy, Ms. Frankel questioned why Amerindo's mutual fund was buying some of the
same stocks at higher prices in the months after IPOs. "The adviser should be fair to all
clients," she said.
The mutual fund now has about $100 million in assets, after an estimated $4.3 million
was withdrawn early this week, according to AMG Data Services. In the summer of 1999,
Amerindo received 100,000 shares in the IPO of software company Ariba Inc., according
to remarks by Mr. Tanaka in a December 2000 Wall Street Journal article. As Ariba's
shares soared in the days following the IPO, the Amerindo mutual fund bought 144,000
shares at a price at least twice the IPO price, according to the fund's regulatory filings.
The Amerindo spokesman noted that the fund didn't buy Ariba at its peak, but instead
bought shares "at a price that was at least 25% cheaper" than the first-day closing price.
Amerindo also bought shares for its mutual fund or other clients from 1998 to 2001 after
getting shares at a lower IPO price in at least five other companies -- Priceline.com Inc.,
Portal Software Inc., Juniper Networks Inc., Broadcom Corp. and Internap Network
Services Corp., people familiar with the companies said.
The investment firm, which manages $1 billion -- down from about $7 billion at the
market peak in 2000 -- has said in SEC filings that the offshore investors who got the
IPOs had a higher "risk tolerance" than investors in Amerindo's mutual fund and other
clients, making IPOs more suitable for the offshore account. Mr. Smith, the spokesman,
noted that the fund was marketed as an investment that would buy shares after a
company went public, avoiding IPOs to keep away "hot- money" investors whose moves
in and out of funds could harm performance. During regular audits of Amerindo in 1992
and 1996, SEC officials reviewed the firm's IPO policy, he added.
SEC rules require fund companies to either divide stock, including IPOs, among the
funds they manage on a fair basis, or to disclose the method they use.
Still, many fund firms manage to share IPOs among hundreds of clients. And regulators
recently have been particularly sensitive to situations where money managers have
competing loyalties in making investment decisions. Last year, the SEC settled civil
charges against a small fund firm for claiming to distribute IPOs among its clients when it
actually steered all of its IPO allocations in 1999 to a small fund and one other account it
managed.
At a court hearing yesterday, a federal judge appointed Robert Knuts, a former SEC
lawyer, to monitor the Amerindo accounts and watch over the distribution of the assets
to investors and review past transactions. Amerindo's lawyer, Eugene Licker, said the
firm has about $500,000 in cash and has outstanding receivables that could bring in
additional cash.