Hedge Fund Manager Agrees to Pay Full Restitution in Deferred Prosecution

SAN FRANCISCO—Lawrence R. Goldfarb and his company, BayStar Capital Management, LLC, entered into a deferred prosecution agreement with the United States Attorney’s Office today, United States Attorney Melinda Haag announced.

In entering the agreement, Goldfarb 52, of Larkspur, Calif., admitted to committing wire fraud in violation of 18 U.S.C. § 1343. Goldfarb was the general manager of a hedge fund named BayStar Capital II, L.P. As the fund’s general partner, Goldfarb had unlimited discretion to invest in a “side pocket” as long as he notified the investors about any realized gains. The side pocket yielded approximately $16 million in distributions, $12 million of which Goldfarb reinvested in companies he owned. Goldfarb failed to disclose to most of the investors the extent of the distributions in the side pocket and how he used and invested those distributions.

In the deferred prosecution agreement, Goldfarb has agreed to cooperate fully, pay complete restitution of $12,112,416 to the investors, and to be disbarred for three years from association with any broker, dealer, or investment advisor. Goldfarb has also agreed to a settlement with the SEC on a related complaint filed today. In exchange for his agreement, the United States agreed to defer the prosecution and dismiss the charges upon the defendants’ fulfillment of the terms of the agreement.

Jonathan Schmidt is the Assistant U.S. Attorney who is prosecuting the case with the assistance of Elizabeth Garcia and Ponly Tu. The prosecution is the result of a two-year investigation by the Federal Bureau of Investigation.

Further Information:

Case #: CR 11-0099 WHA