Write-Offs: 02.27.09

Posted by Bess Levin, Feb 27, 2009, 5:20pm

$$$ Talking Shop With a Vulture Investor [Daily Intel]

$$$ Criminal Complaint HAS Been Issued For Sir Allen [Clusterstock]

$$$ "A former Chicago nightclub owner whose investment firm, Tsunami Capital, was sued by the federal government amid fraud allegations, has been indicted for allegedly running a Ponzi scheme, authorities said today." [CBN]

$$$ "Oppenheimer: Dropping Coverage

Summary: We are dropping coverage of the U.S. banks and brokers sector, owing to a
reorganization of analyst coverage.

* The decision is unrelated to any awareness on our part of any material change in the fundamental condition of the firms. Rather, it stems from a reorganization of our financial services coverage.

PERFORM
American Express(AXP $12.57)
Bank of America(BAC $5.32)
Capital One Financial Corporation(COF $12.98)
Charles Schwab(SCHW $12.92)
Goldman Sachs Group, Inc.(GS $92.15)
JP Morgan Chase & Company(JPM $23.05)
Morgan Stanley(MS $21.33)

UNDERPERFORM
Citigroup Inc.(C $2.46)
UBS AG(UBS $9.64)
Wells Fargo & Company(WFC $14.40)"

Subject: Westridge Message from President Cohon

Dear Faculty, Students and Staff:

If you have been following media reports, you may have read that the University filed a lawsuit recently in connection with our investment in a fund operated by a group of individuals and companies known as Westridge. You also may have read that yesterday two individuals from this group were arrested and charged with fraud in connection with the operation of these investment funds. I am writing to provide you with some basic facts about Carnegie Mellon's investment, and to inform you about the steps we have been taking, and will continue to take, to preserve and recover our investment.


This particular investment was made from the University's Long Term Pool (LTP). As a reminder, our LTP consists mostly of endowment assets, but also includes certain working capital and capital reserves of the University. As of December 31, 2008, the LTP assets were valued at approximately $933 million.

The investment assets in the LTP are diversified across various global asset classes, including certain "traditional" assets (e.g., U.S. and non-U.S. public equities; fixed income investments) and certain alternative assets (e.g., private equity funds; hedge funds; real estate funds) pursuant to an asset allocation set by the Investment Committee of the University's Board of Trustees. The individual investments in the LTP are managed by a large number of external investment managers.

In late 2007, one of Carnegie Mellon's LTP investment consultants recommended several U.S. equity managers and highly recommended an investment in a fund offered by Westridge. The Westridge fund was represented to be a low-risk, enhanced indexing strategy that closely tracked the S&P 500 index. Carnegie Mellon made two separate investments in this strategy in April and May, 2008. As of January 31, 2008, the reported balance of our investment in the Westridge fund was approximately $49 million.

On Friday, February 13, 2009, we learned from the National Futures Association (NFA) that it had suspended the memberships of two individuals associated with Westridge because of their failure to cooperate with an NFA audit. Those individuals are Paul Greenwood and Stephen Walsh, who owned interests in Westridge and operated the fund.

After learning of this action by the NFA, the University took swift action to protect its investment. We reached out to the NFA, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to obtain as much information as possible about the status of our investment, and we have cooperated fully with those agencies in their investigative efforts.

Also on February 13, we immediately requested a full redemption of all funds that the University had invested with Westridge.

On February 20, Carnegie Mellon, along with the University of Pittsburgh (another investor in Westridge), filed a lawsuit in the United States District Court for the Western District of Pennsylvania, seeking among other things, injunctive relief to prevent dissipation of assets. The Western District Court issued a Temporary Restraining Order that same night, freezing relevant assets.

Yesterday, there were significant developments relating to this matter, many of which have been reported in the media. Greenwood and Walsh were arrested by federal authorities and a criminal complaint was filed against them in the United States District Court for the Southern District of New York. Separately, the CFTC and the SEC each filed lawsuits against Greenwood, Walsh, certain corporate entities and other individuals in the United States District Court for the Southern District of New York.

In connection with the SEC and CFTC lawsuits, the Court issued temporary restraining orders late yesterday, freezing the various defendants' assets and accounts, and appointing a temporary receiver.

While we do not yet possess sufficient information to estimate with confidence the likely timing or extent of our potential recovery of our investment, I assure you that we will continue to pursue this matter aggressively.

At this time, it is not possible to identify the amount of our losses due to this apparent fraud. Indeed, this is likely to take some time, as the legal and regulatory actions are pursued. Whatever the loss, we do not expect that it will have an immediate impact on the University's operating budget. It is more likely that the impact, if any, will be felt in future years.

I will continue to closely monitor this matter and will keep our campus community apprised.

Jared L. Cohon

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