Brett S. Messing — First Deputy Mayor Austin Beutner’s right-hand man for making deals and managing city finances — knew what he was talking about when he wrote the book on corporate fraud and how investors are ripped off.
“Forewarned Investor: Don’t Get Fooled Again by Corporate Fraud” it’s called and written by Messing, his hedge fund partner Steven A. Sugarman and TV financial commentator Jim Cramer. It’s now available for less than half price online.
It was published in 2006, the same year Messing was engaged in a kind of corporate fraud of his own, according to a Securities and Exchange Commission complaint that led to him having to pay nearly $2 million in penalties last March 16 even as he was playing a key role in putting together the deal to get BYD, the Chinese green tech giant, to locate its U.S. headquarters in LA.
Using his hedge fund, GPS Partners, Messing engaged in an illegal short-selling stock scheme six times in 2006 and 2007 involving initial public offerings of securities that netted him as little as a penny a share but involved millions of shares.
His profits came from innocent investors who clearly had not read his book about being fooled.
Given the state of City Hall’s well-documented mismanagement of nearly every department and its descent toward bankruptcy, who better to manage its program of subsidies and giveaways to business to buy jobs and take over handling the DWP’s billions as chief financial officer than Brett S. Messing?
It was the best day, in public relations terms, of Antonio Villaraigosa’s second term in office, April 30, six weeks after Messing agreed to the SEC’s cease and desist order without admitting or denying guilt.
Messing stood in the crowd at a press conference run by his boss Beutner so Gov. Arnold Schwarzenegger, the mayor and other city, county and state officials could announce boastfully the roles they played in helping BYD invade America and sell Chinese-manufactured electric cars to a nation hungry for cheap clean energy products.
With a $300 million investment for 10 percent of the new U.S. operation from Warren Buffett, BYD was setting up its American headquarters in Los Angeles and hiring 100 workers thanks to red tape being cut and a lot subsidies such as tariff reductions and a guarantee that anyone who buys one of BYD’s all-electric cars will have a charging station installed within seven days by the DWP.
To listen to the politicians who have overseen record unemployment and city and state budget deficits, you’d have thought our troubles were over.
Maybe they are. BYD Chairman Wang spoke eloquently, in Chinese, of just how big this deal could be someday as he shared a vision of how his company will grow with its mastery of advanced technology for batteries that can store enormous amounts of electricity, high-efficiency solar panels and the best and cheapest electric cars ever built.
Apart from all the pats on the backs for themselves, the politicians all credited pulling off the deal to the public relations event’s master of ceremonies, First Deputy Mayor Beutner, the dollar-a-year former corporate takeover wizard and graduate of the Goldman Sachs school of financial manipulation, and now interim general manager of the DWP.
Ever humble, Beutner praised his business development team for the deal, especially Messing for working “tirelessly” on it. Now, he wants to name Messing chief financial officer of the DWP, according to insiders, so he can manipulate ratepayer money to achieve the conflicted goals of a utility that has lost all credibility and is mired in confused and contradictory agendas.
“In 2006, GPS and Messing violated the former version of Rule 105 of Regulation M, “Short Selling in Connection with a Public Offering,” in five instances, and in 2007 GPS and Messing violated the current version of Rule 105 in one instance. As a result, GPS obtained profits of more than $1.1 million,” the SEC filing says.
It accuses Messing of having “engaged in transactions prohibited by Rule 105 in connection with purchases of securities in public offerings made by Washington Real Estate Investment Trust (“WRE”), W&T Offshore, Inc. (“WTI”), MCG Capital Corp. (“MCGC”), Luminent Mortgage Capital Inc. (“LUM”), NorthStar Realty Finance Corp. (“NRF”), and Kinder Morgan Energy Partners LP (“KMP”). As portfolio manager, Messing was generally responsible for the trading at GPS, including the trades at issue here.”
With insider access and knowledge, he would short sell shares in the five-day restricted period before public offerings and then on the day the shares were released buy and sell shares for tiny profits, sometimes using complex algorithms to trade hundreds of times a day in small numbers of shares.
“The Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondents’ Offers.
“Accordingly, …it is hereby ORDERED that:
“A. Respondent GPS shall cease and desist from committing or causing any violations and any future violations of Rule 105 of Regulation M under the Exchange Act.
“B. Respondent Messing shall cease and desist from committing or causing any violations and any future violations of Rule 105 of Regulation M under the Exchange Act.
“C. Respondent GPS is censured.
“D. Respondent Messing is censured.”
Messing and GPS were ordered to surrender the $1,151,271 in illegal profits that were gained, pay interest of $132,900 and penalties of $575,635.
Case closed. Messing already was hard at work for the good of the people of Los Angeles, putting together subsidies and fast-tracking job creating deals to get jobs for the 260,000 unemployed workers in the city, revive the economy and generate revenue to avoid municipal bankruptcy.