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Yorkville Advisors handed over key documents to SEC in 2009 to aid probe

Thursday, August 26, 2010
Opalesque Industry Update – New Jersey-based hedge fund Yorkville Advisors told its investors that it had provided key information to the Securities and Exchange Commission (SEC) in 2009 as part of the regulator’s scrutiny over the firm, it was reported.

Forbes revealed in an article yesterday (article here), that the firm, which currently manages $864m, was instructed by the SEC in Aug-2009 to “supply certain information” regarding Yorkville Advisors and YA Global Investments. YA Global Investments is Yorkville’s main fund.

Yorkville complied, according to some 2009 audited financial statements obtained by Forbes. However, the statements did not provide details of the information it gave the SEC, and only said it was being scrutinized by the regulator amidst tightening regulation and oversight.

Launched by then 38-year-old Mark Angelo in 2001, Yorkville Advisors is one of the major hedge funds focused in PIPEs investing. Its own variation on PIPEs is a structured product called a standby equity distribution agreement, says Forbes, which like most PIPEs often causes the stock of the company receiving the investment to drop and resulting in Yorkville’s funds collecting discounted shares.

A Private Investment in Public Equity (PIPE) is a purchase of stock in a company at a discount to the current market value per share for the purpose of raising capital. A traditional PIPE is one in which stock is issued at a set price to raise capital for the issuer. And a structured PIPE, on the other hand, issues convertible debt.

A report cites that Yorkville had entered into $762m in PIPE deals since 2001, which saw the underlying stocks fall 38% on average in the first year alone.

The YA Global Investments fund, formerly called Cornell Capital Partners, reported returns of 6.04% last year and 6.22% in 2008. It reported a net investment loss of 0.09% in 2009 and net investment income of 5.43% in 2008.

A 2009 auditor’s report include investments valued at $804m, which was 94% of partner’s capital plus the amounts due to certain Yorkville special purpose vehicles (SPVs), “whose fair values have been estimated” by Yorkville Advisors “in the absence of readily ascertainable fair values.”

Yorkville could not meet redemptions requests in 2008 and restructured its operations, creating SPVs and giving redeeming investors the option of receiving either stock or stakes in the SPVs.

Yorkville goes abroad
Early this month, Yorkville inked a proprietary equity financing in Israel by finalizing a $10m Standby Equity Purchase Agreement (SEPA) with Orckit Communications Ltd., a dual listed NASDAQ and Tel Aviv Stock Exchange (TASE) telecommunication provider, reported Sys-con.

Yorkville pioneered SEPA in 2001 to offer companies a variable and cost effective means to raise capital. The first SEPA deal with Israel was closed in 2008. Then in 2009 and early this year, Yorkville continued building new relationships in the region with established companies like Pangaea Real Estate, a respected brand in Israel, Europe and North America.

Yorkville Advisors officially launched an Asia Pacific head office in Hong Kong to capitalize on current financing gap in Asia, in April 2009. The unit later appointed a senior advisor for Japan, who is based in Tokyo and focuses on originating and structuring transactions in Japan, one of Yorkville’s priority markets in Asia.

PIPE investors see opportunities in healthcare, biotech and financial services
A survey made by Kramer Levin Naftalis & Frankel LLP and Rodman & Renshaw LLC, and released by MergerMarket in Sept-2009 showed that PIPE managers see opportunities in healthcare, biotech and financial services. At the same time, the study revealed that these investors hope to maintain the level of their portfolios, or increase their investment activities over the next 12 to 18 months (See Opalesque Exclusive: here).

Reid Drescher, Founder and Portfolio Manager at New York-based Cape One Financial which manages a PIPE hedge fund, also forecasted last year a rise in alternative energy transactions, to be driven by the government’s new regulation and compliance as well as financial support within the space. "Many of the alternative energy projects we were looking at are much more viable now than they were 12 months ago," he said.
- Komfie Manalo

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