You know that friend of yours, who’s really a great girl with looks and personality and that special something who, inexplicably, is constantly drawn to scumbags? That sort of magnetism seems to be at work between PIPEs and hedge funds run by people who are/or are involved with criminals, as discussed in Forbes’s “Sewer Pipes,” this week. If you suspect that your neighbor was able to afford that gold-plated Statue of the David on his front lawn because his hedge fund posted some fantastic returns last year—almost too fantastic, you should check it out. We’ll just offer you some interesting facticles on the phenomenon’s poster child, Eugene Grin (and his younger brother, David):
+Originally from Ukraine, Eugene Grin became a vacuum cleaner salesman when he landed in the U.S. in 1979. Then he worked as a broker of penny stocks, among other investments, at F.N. Wolf & Co., the boiler room shut down by regulators in 1994. At Wolf one of Grin's clients was Gilbert Bornstein, a 54-year-old unemployed man who invested $32,000 with Grin after being convinced he could safely double his money through penny stocks. Bornstein was soon stuck with $27,000 in losses. Nine years later a New York State judge determined that Grin owed Bornstein $40,000. Grin has yet to pay that bill, and the judgment remains outstanding. "He was superwealthy," Grin shrugged [while talking to Forbes], by way of an excuse. "There was money in the family."
+ The Grins financed Francis O'Donnell, who has gotten to know the feds pretty well. Taking over as chief of Searchhound.com, an OTC bulletin board stock in 2003, O'Donnell changed its name to Coach Industries, quickly built up a controlling stake in the Cooper City, Fla. firm and started acquiring limousine companies. Laurus backed him with a $6 million loan. On Jan. 5 O'Donnell pleaded guilty to being an associate of the Genovese crime family. The indictment also claimed that an FBI agent posing as a drug dealer was asked to launder proceeds through Coach in exchange for a fee.
+ The Grins invested $1.5 million in April 2004 with Magic Lantern Group, which marketed Canadian educational videos. Their introduction to the company came through National Financial Communications , owned by Geoffrey Eiten, a Needham, Mass. newsletter writer who flogged companies and claimed to show readers "how to make 5,000%" on their money. Magic Lantern's biggest backer was Lancer Management Group, a New York City hedge fund that blew up amid accusations of fraud.
Sewer Pipes [Forbes]