Court Finds Hedge Fund Manager in Contempt

San Francisco (CN) - A federal judge found a Bay Area hedge fund and its manager in civil contempt for not paying more than $13 million still owed on a judgment in a securities fraud case and threatened jail time if the judgment is not satisfied.

U.S. District Judge William Alsup ruled that hedge fund manager Lawrence Goldfarb and his company Baystar Capital Management made only three payments totaling $80,000 toward the judgment.

Goldfarb did not pay any of a $130,000 civil penalty lodged against him personally and the defendants did not make their September 2011 installment payment of $1.025 million or the entire balance, which was due in March 2012, according to the ruling.

The ruling indicates that after the final judgment Goldfarb spent over $300,000 total on personal luxury expenses. He spent $40,000 on season tickets to Golden State Warriors basketball games for 2010 and 2011 and renewed his tickets for the 2012 season. He also chartered a plane three times in 2011, for a total cost of around $45,000, in addition to running up hotel bills in Beverly Hills, Sonoma and Palm Springs and spending lavishly on his engagement party.

Goldfarb claims many of the charges "were incurred prior to the default on the September payment and were made in good faith in full belief the September payment would be made through the revenue from the OM note," according to the ruling.

Goldfarb claims OM Records failed to repay a $1.5 million promissory note it owes him.

Defendants argued that Goldfarb's attempts to assign his assets are enough to show they attempted to satisfy the judgment.

Alsup did not accept the argument, however, ruling that "Goldfarb's attempt to satisfy the judgment by assigning illiquid interests in Magna and the OM promissory note does not amount to substantial compliance with the final judgment. Defendants had a year to liquidate assets. They failed to do so. In fact, defendant Goldfarb turned down an offer of $7.6 million to buy his interest in Magna," a real estate fund.

The ruling continued: "At minimum, failure to accept the $7.6 million offer, which would have satisfied approximately half the final judgment, shows a lack of good faith to substantially comply with the judgment. This order also notes that while defendant Goldfarb has recounted, by way of declaration, his efforts to assign or sell various of his assets, the record does not include documentation of any of these efforts."

Alsup also noted that since the entry of the final judgment, "Goldfarb has spent hundreds of thousands of dollars on various personal indulgences, instead of paying down the outstanding balance of the final judgment." He noted the renewal of the Warriors tickets, the charter flights, and a chartered yacht.

According to the ruling, the record includes other expenses made on luxury items but "there is no need to recount every such expense. The point is made. Instead of paying down money owed on the final judgment, defendant Goldfarb chose to continue to support his luxurious lifestyle. Defendants did not make a good faith effort to comply with the final judgment. Thus, this order finds defendants Goldfarb and Baystar to be in civil contempt of the final judgment."

Alsup concluded by appointing a receiver to take control of defendants' assets and threatened incarceration should defendants fail to satisfy the judgment.

The Securities and Exchange Commissioned filed suit against the defendants in March 2011. The commission is represented by Marc Fagel.

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