The Developer Behind a $90 Million Penthouse

You can put your spare $90 million into buying 2 million shares of Facebook (FB), or you can spend it snapping up one luxury penthouse apartment in New York. A 10,923-square-foot duplex atop One57, one of the city’s tallest buildings, has sold for that record price tag. While the buyer’s name isn’t public—all we’re told is that the buyer is a family who are not from a former Soviet state—the name of the man behind the luxury development is no mystery: Gary Barnett, the president of Extell Development.

Barnett, a former diamond trader, started his company in the 1990s and soon took on a number of attention-getting projects, including buying Enron’s new Houston headquarters after the company’s collapse and developing the W Hotel in New York’s Times Square. Barnett has conquered a field dominated by family dynasties and REITs to become the second most powerful person in New York real estate, according to the Commercial Observer. “Long considered a lone wolf for his tendency to ruffle feathers of his contemporaries … the developer is beginning to be taken more seriously by his peers,” the paper wrote earlier this month.

One57 is Barnett’s highest-profile project—literally: The 90-story building is 1,005 feet tall. It has a premier location across from Carnegie Hall, just south of Central Park. In a market where developers are layering on extravagance to attract wealthy buyers from Russia and Asia, Barnett gushes about the luxury of One57. “Look at this kitchen,” he told the Observer. ” Where will you find a kitchen anywhere like this? It’s the best, and we have two of them.” The kitchens feature built-in wine cabinets and custom cabinetry from the bespoke British designer Smallbone of Devizes.

While Barnett’s the developer of One57, he’s not the one who will profit most from the sales. The real money goes to two Abu Dhabi-based funds that have a majority investment in One57 after putting $650 million into the project, according to a 2011 story in the Wall Street Journal. Barnett has just 10 percent.

He has other flashy properties in the works, including a glassy Hyatt in Times Square with a rooftop bar and renovations to convert the old Helmsley Carlton Hotel on Manhattan’s Upper East Side into apartments. He also is hoping to outdo himself, with plans for another tower just one block away from One57 that will be 245 feet taller. No word yet about the kitchens in that one.

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‘Criminal Club’ Charged in $62 Million Trading Scheme on Dell

January 19, 2012, 12:06 PM EST By Patricia Hurtado and Bob Van Voris

Jan. 19 (Bloomberg) -- Seven men, including fund managers and analysts, were charged by the U.S. with forming a “criminal club” of friends and co-workers who reaped almost $62 million from insider trading in Dell Inc. shares.

Manhattan U.S. Attorney Preet Bharara alleged that the scheme included one trade that earned a $53 million illegal windfall for Level Global Investors LP co-founder Anthony Chiasson and his fund. The insider-trading ring, which involved five different hedge funds and investment firms, is the largest identified by the U.S. to date to involve a single stock, federal authorities said.

Chiasson, Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC, Jon Horvath, a hedge fund analyst in New York, and Danny Kuo, a fund manager for Whittier Trust Co. in South Pasadena, California, were taken into federal custody yesterday, said Janice Fedarcyk, head of the Federal Bureau of Investigation’s New York office.

The charges “paint a stunning portrait of organized corruption on a grand scale,” Bharara said yesterday at a news conference. “It describes a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information. It was a club where everyone scratched everyone else’s back.”

Galleon Group Scale

The U.S. said the illegal profits earned as a result of the scheme were almost of the same “magnitude of fraud we proved in the Galleon Group insider trading scheme,” Bharara said.

A five-year insider-trading probe by Bharara’s office and the FBI has resulted in charges against 63 people, Fedarcyk said. More than 50 have pleaded guilty or been convicted after trial since 2009, including Galleon Group LLC co-founder Raj Rajaratnam.

Rajaratnam, was found guilty in May and is serving 11 years in prison, the longest ever for insider trading. He made $72 million from his illicit tips, evidence showed. Several other technology company employees and fund managers have been convicted of receiving nonpublic information as a result of the probe.

At yesterday’s press conference, Bharara displayed a flowchart placing Sandeep Goyal, a former Dell employee, at the center of the ring. According to the U.S., an unnamed person in the Dell investor-relations department passed secret earnings information to Goyal, who passed it on to Jesse Tortora of Diamondback.

Circle of Friends

Tortora, Horvath, Kuo and Spyridon “Sam” Adondakis, a Level Global analyst, were friends who shared inside information on public technology companies, including Dell, prosecutors said. The ring traded the information in 2008 and 2009, according to the U.S.

Tortora passed the inside information on Dell to Newman before the computer maker announced its first- and second- quarter 2008 earnings, according to the U.S. Newman made $3.8 million in illegal profits for his hedge fund from trading on the information, according to the U.S. Tortora also passed tips to Kuo, Horvath and Adondakis.

Adondakis passed the Dell information to his colleague Chiasson and others at Level Global, according to the charging documents. They allegedly traded on the tips for $57 million in illegal profits.

Adondakis, Tortora and Goyal pleaded guilty last year to securities fraud and conspiracy charges that were unsealed yesterday, Bharara said. They are cooperating with the government’s investigation, he said.

‘More Disturbing’

Robert Khuzami, the head of enforcement at the U.S. Securities and Exchange Commission, which filed a related suit yesterday against the defendants, said the cases describe actions “far more disturbing” than insider trading committed by someone who obtains one illegal tip.

The actions by the SEC and prosecutors “lay bare an organized network of analysts and fund managers who set up and used a corrupt network to obtain inside information,” Khuzami said. “These cases, along with Galleon and expert networking cases, reflect systemic dishonesty and exposes a deeply-embedded level of corruption.”

Horvath, 42, is an analyst at Connecticut-based hedge fund Sigma Capital Management LLC, said a person with knowledge of the matter who wasn’t authorized to speak because the information wasn’t public. He was arrested by the FBI yesterday at his home in Manhattan, the U.S. said, and released on a $750,000 bond after a court appearance before U.S. Magistrate Judge James Cott in New York.

‘Honesty and Integrity’

“Throughout a more than 10-year career as a respected investment analyst, Jon Horvath has conducted himself with honesty and integrity,” Horvath’s lawyer, Steven Peikin, said after court. “He has done nothing wrong,’” and the charges against him “will be shown to be meritless,” Peikin said.

Chiasson, 38, used inside information to win for his Level Global fund what the U.S. said was a single “enormous bet” of $53 million on Dell earnings, prosecutors claimed.

“This is the largest single trade ever charged in the Southern District in an insider-trading case,” Assistant U.S. Attorney David Leibowitz said yesterday at a bail hearing, referring to the federal jurisdiction that includes Wall Street.

Greg Morvillo, Chiasson’s lawyer, argued that Leibowitz was attributing to his client trades made by others at Level Global.

Chiasson’s Bail

Chiasson, who turned himself in to U.S. authorities yesterday morning, was released on $2.5 million bond to be secured by $1.25 million in cash or property and three co- signers. Morvillo said in court that his client is innocent of the charges.

“He will be here to defend these charges, whether it’s tomorrow, next month or next year,” Morvillo told Cott.

Newman, 47, was released on a $3 million bond after appearing in U.S. District Court in Boston yesterday.

Kuo, 36, who was arrested yesterday in California, was released on $300,000 bond after appearing in federal court in Los Angeles.

Newman of Needham, Massachusetts, Chiasson of New York, Horvath of New York and Kuo of San Marino, California, are each charged with one count of conspiracy to commit securities fraud and one count of securities fraud. They face as long as 25 years in prison if found guilty, prosecutors said.

Goyal is a former junior technology analyst at Neuberger Berman, said Alexander Samuelson, a company spokesman. Goyal left the firm this month. Goyal, who didn’t trade on the information, was paid about $175,000, by Tortora through an intermediary, for the tips, Bharara said. Goyal worked for Dell at its corporate headquarters in Round Rock, Texas, from 2003 until the summer of 2006, prosecutors said.

Justine Harris, a lawyer for Adondakis; Jessica Margolis, who represents Goyal; Alfred Pavlis, who represents Newman; and Ralph Caccia, who represents Tortora, didn’t return phone messages seeking comment yesterday.

FBI Searches

In November 2010, FBI agents from New York and Boston executed search warrants at the offices of Level Global and Diamondback, hedge funds founded by former employees of SAC Capital Advisors LP.

Level Global told clients last February that it was shutting down -- eight years after David Ganek and Chiasson founded the hedge fund -- because of the U.S. probe.

Steven Goldberg, a spokesman for New York-based Level Global, didn’t return a call seeking comment on the arrests.

Diamondback, in a letter to investors yesterday, said it has cooperated with U.S. authorities. It said Newman left the firm after the 2010 search and Tortora resigned in April 2010.

Civil Complaint

The SEC’s civil insider-trading complaint was filed in Manhattan federal court against all seven men, Diamondback Capital and Level Global. In addition to the alleged Dell insider trades, the SEC claims members of the ring traded on inside information about chipmaker Nvidia Corp. Level Global made at least $15.6 million in illegal profits on its Nvidia trades, the agency claimed.

Peter Neiman, of Wilmer Hale, a lawyer for Diamondback Capital, declined to comment on the SEC lawsuit. MaryJeanette Dee, a lawyer for Level Global, didn’t immediately return a voice-mail message left at her office seeking comment on the suit.

During the trial last year of James Fleishman, a former executive at Primary Global Research LLC, witnesses testified that he helped employees of technology companies pass nonpublic information to his expert-networking firm’s fund manager clients. Fleishman was convicted of conspiracy charges related to insider trading.

One witness, Mark Anthony Longoria, a former Advanced Micro Devices Inc. employee, described how he passed secret tips and other information about his company to fund managers, including Adondakis.

Primary Global

Bob Nguyen, a former Primary Global analyst who pleaded guilty and agreed to cooperate with the U.S., testified at Fleishman’s trial that Tortora was a client of Fleishman’s who got nonpublic information about technology companies through the Mountain View, California-based research firm.

Daniel Devore, a former global supply manager of Dell, pleaded guilty and is cooperating with the U.S. insider-trading investigation.

The criminal case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan). The civil case is Securities and Exchange Commission v. Adondakis, 12-00409, U.S. District Court, Southern District of New York (Manhattan).

--With assistance from Saijel Kishan, Katherine Burton and Edmund Lee in New York, Janelle Lawrence in Boston and Edvard Pettersson in Los Angeles. Editors: Andrew Dunn, Peter Blumberg

To contact the reporters on this story: Patricia Hurtado in New York federal court at pathurtado@bloomberg.net; Bob Van Voris in New York federal court at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Pandit to Get $80 Million Old Lane Cash

July 01, 2011, 12:19 PM EDT By Donal Griffin

(Updates with Citigroup spokeswoman’s comment in sixth paragraph.)

July 1 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit, who took a $1 salary after his bank received the most taxpayer assistance of any U.S. lender, is poised to collect $80 million from other payments and awards that may eventually total more than $200 million.

Pandit, 54, will get the $80 million from Citigroup’s purchase of his Old Lane Partners LP hedge fund tomorrow, according to regulatory filings. The deal brought him to the lender in July 2007. JPMorgan Chase & Co., which remained profitable through the financial crisis, has disclosed about $90 million in awards for CEO Jamie Dimon since 2007.

“Pandit, his $1 pay notwithstanding, cannot be considered modestly paid,” said Graef Crystal, a compensation expert and Bloomberg News consultant based in Las Vegas. “Taxpayers saved this bank, and he’s getting a bundle while shareholders are getting shortchanged on the stock price.”

Pandit’s $80 million is the last of the $165 million New York-based Citigroup agreed to pay for his share of Old Lane four years ago. The bank has since awarded him compensation, including stock and options, worth about $63 million when he received them. This includes a $1.75 million salary he got in January, replacing the $1 he told Congress he would take in February 2009 until the bank turned a profit. In May, he entered into a company profit-sharing plan which will give him an additional $25 million if the company meets analysts’ estimates.

Citigroup Shares Fall

The Old Lane payment also caps the end of six months in which Citigroup shares have fallen 12 percent amid investor concern that bank earnings will decline, placing the lender 13th on the 24-company KBW Bank Index. The shares have fallen about 92 percent since the Old Lane deal closed and 87 percent since Dec. 11, 2007, the day Pandit was appointed CEO.

“It is apples to oranges to compare proceeds from the sale of a business to compensation,” Shannon Bell, a spokeswoman for Citigroup, said in an e-mailed statement.

His own stake has suffered on his watch. Pandit’s shares and options are currently worth about $26 million, most of which is linked to awards the bank gave him in May of this year, according to an analysis by Crystal. Share awards from 2008 have lost most of their value, Crystal said.

One period of Pandit’s tenure that Crystal studied was this year through May 17, when Citigroup’s compensation committee -- chaired by former Alcoa Inc. CEO Alain Belda -- awarded Pandit $10 million in deferred stock, entry to a company profit-sharing plan and stock options that Crystal valued at more than $10 million. Citigroup shares fell 12 percent during the period. The Standard & Poor’s 500 Index, which tracks the performance of 500 U.S. stocks, gained 5.7 percent.

JPMorgan’s Performance

“This raises the interesting question as to why the comp committee decided the war was over and it was time to stage a victory celebration,” Crystal said.

JPMorgan has awarded Dimon, 55, about $90 million since 2007 including stock and options, according to filings, which don’t outline amounts for future awards. New York-based JPMorgan’s shares have declined 17 percent since the day Pandit sold Old Lane to Citigroup, making the firm the fifth-best performer on the KBW Bank Index during the period. Citigroup was the worst-performing.

The U.S. Treasury Department provided a $25 billion bailout to JPMorgan in 2008. The bank, the second-largest in the U.S., repaid the funds in 2009 with a $1.75 billion profit for taxpayers. The lender’s profit for 2011 may be $20.8 billion, according to a Bloomberg survey of 13 analysts.

Five Profitable Quarters

Pandit replaced CEO Charles “Chuck” Prince, 61, who resigned as the bank faced billions of dollars in losses linked to subprime mortgages and related securities. Under Pandit, the bank posted $29.3 billion in losses in 2008 and 2009. The U.S. Treasury bailed out the company with a $45 billion cash injection and a guarantee of more than $300 billion of its riskiest assets.

Some analysts credit Pandit with steering the third-largest U.S. bank toward five straight profitable quarters since then as he boosted lending in emerging markets in Asia and Latin America and shrank the amount of toxic assets the company was carrying on its balance sheet.

The strategy enabled Pandit to pay back the Treasury’s bailout funds and deliver a profit to taxpayers of about $12 billion. The firm may post a $3.1 billion profit for the second quarter and is on course to make a $12.6 billion profit for the year, according to a Bloomberg survey of 12 analysts.

Dick Fuld

Shareholders may benefit. Pandit, who reinstated a 1-cent dividend in May, could introduce an 80-cent payout in 2012, about $2 billion in total, and buy back up to $4 billion of stock, according to London-based Richard Staite, an analyst with Atlantic Equities LLC, who rates the shares “overweight.”

“If Dick Fuld had been able to pull it off, how much would they have wanted to reward him?” said David Knutson, a Legal & General Investment Management credit analyst, referring to the former CEO of Lehman Brothers Holdings Inc., which collapsed in 2008. Pandit “has brought the bank back from the brink.”

Pandit, who’s from Nagpur, India, has almost doubled the firm’s Tier 1 capital ratio, a measure of financial strength, to 13.26 percent at the end of the first quarter from 7.12 percent in December 2007. Customer deposits have grown to $865.8 billion, or 49 percent of total liabilities, from $738.5 billion, or 39 percent, in March 2007, according to Bloomberg data.

Selling Troubled Assets

Citigroup has sold about $300 billion of troubled assets in Citi Holdings, the unit Pandit formed to house and offload the bank’s most distressed businesses and investments. The division still had $337 billion in assets at the end of March, much of it tied to U.S. mortgages, store-branded credit cards and securities.

If Pandit can wind down and sell the rest, regulators may consider the lender less risky than JPMorgan and Bank of America Corp., according to Charles Peabody, an analyst with New York- based Portales Partners LLC.

“$80 million is a drop in the bucket relative to what he’ll get going forward if he turns this thing around,” Peabody said in a phone interview.

Citi Holdings is still a concern for investors as they try to determine the assets’ values during a period of global uncertainty, according to Peabody, who changed his rating on Citigroup shares to “hold” from “buy” in January.

Asset Prices

“If asset prices are deteriorating, then it gets tougher to sell those asset prices at par,” said Peabody. “If they can’t unload these assets and they have to raise more common equity at dilutive prices, or if they have to take hits on these assets, then book value would go down in absolute dollar terms.”

This has dragged down Citigroup’s share price more than the 7.5 percent decline registered by the KBW Bank Index this year, Peabody said. Citigroup is among Wall Street lenders that have had their profit estimates chopped by analysts wary of declining revenue and costs tied to the Dodd-Frank regulatory act and capital rules proposed by the Basel Committee on Banking Supervision. This could pare Citigroup’s gains from emerging markets, according to David Trone, a JMP Securities analyst.

“While we concede the international side of the story is attractive, in our view, near-term risks associated with legal/regulatory issues (Basel III, mortgage woes and Dodd- Frank) outweigh any potential upside,” Trone wrote about Citigroup in a note to investors last week.

‘Bad Move’

Pandit introduced a reverse stock split in May, converting every 10 common shares into one new share to attract more institutional investors. Shares are down 7.9 percent since then and the tactic was a failure, according to Richard Bove, an analyst at Rochdale Securities LLC in Lutz, Florida.

“It has been my thought from the start that no institution would buy this stock due to the split but retail investors would dump it due to the split,” said Bove, who has a “buy” rating on Citigroup shares. “It was a bad move. Managements should play less stock market and more company operations.”

Investors have also pulled back this year from emerging markets, where Pandit says the company now earns more than half its profit. The MSCI Emerging Markets Index, which tracks the shares of 824 companies in countries such as Brazil, Russia and India, has failed to gain this year after more than doubling during 2009 and 2010.

Global Banks

Citigroup hasn’t fared as well as some global banks. HSBC Holdings Plc has declined 5 percent so far this year, while shares in Standard Chartered Plc have fallen 5.1 percent. Both London-based banks rely on Asia for more than half their profit.

Standard Chartered’s price-to-book ratio, a measure of investors’ expectations, is 1.6, more than double Citigroup’s. The firm has awarded CEO Peter Alexander Sands compensation of $27.7 million since 2007, according to company filings. Standard Chartered may have a $4.77 billion profit this year, according to a Bloomberg survey of 28 analysts, which would be its eighth successive record annual profit.

Pandit isn’t the only Citigroup executive who has been waiting four years for the last round of Old Lane payouts. Chief Operating Officer John Havens will also get $80 million, while Chief Risk Officer Brian Leach will get $8.6 million, filings show.

The three left Morgan Stanley in 2005 after a dispute with then-CEO Philip Purcell. They started Old Lane in 2006 with $3.7 billion in assets, the second-largest start by a hedge fund that year. Guru Ramakrishnan, another ex-Morgan Stanley executive, was among the Old Lane founders.

Old Lane Purchase

Citigroup bought the fund in 2007 for $800 million and incorporated it into Citi Alternative Investments, the bank’s private-equity, real estate and hedge-fund investment division. Pandit was placed in charge of the unit, which had lacked a full-time CEO for about a year, while Havens, Leach and Ramakrishnan received senior positions within the firm.

Pandit received $165 million from the deal on a “pretax basis” and reinvested $100.3 million into the hedge fund, where it was supposed to remain for four years, according to filings. The bank then shut the fund shortly into Pandit’s reign as CEO, amid a spate of hedge fund failures, purchasing its assets and allowing investors to take their money out.

The bank said that $80 million of Pandit’s cash would remain locked up until July 2011 in an account at Citi Private Bank, the unit that says it caters to one-third of the world’s billionaires.

Citigroup Vice Chairman Lewis Kaden said in an October 2007 interview that the deal was really a way to recruit Pandit and his Old Lane colleagues.

“You start to see the quality of the team,” Kaden said. “If it succeeds, it was a bargain.”

--Editors: William Ahearn, Dan Reichl

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net;

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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