Bawag: Austria's Master Plumber

Bawag officials did not respond to telephone calls and email requests to comment for this story.

TheStreet.com established the bank's financial ties to the four hedge funds and to LH Financial after reviewing numerous regulatory filings and court documents and talking to people familiar with Bawag and the PIPEs market. (For more on how Bawag's activity was discerned, see this sidebar.)

In the U.S., Bawag is best known for its dealings with Refco, the New York commodities brokerage that imploded four months ago in an accounting scandal allegedly orchestrated by its CEO. Bawag once had a minority interest in Refco and made a $410 million loan to the CEO, Phillip Bennett, just hours before the broker disclosed that Bennett had been hiding hundreds of millions of dollars in customer trading losses for years.

But there's another side to Bawag's relationship with the fallen brokerage. All four hedge funds affiliated with Bawag were once customers of Refco, and Refco helped each resell some of the cut-rate shares they acquired in PIPEs deals. Two former Refco brokers who worked closely with the Bawag funds are being investigated by securities regulators on allegations they engaged in manipulative trading on behalf of another entity.

Most of what can be gleaned about Bawag's behind-the-scenes maneuvering in the PIPEs market concerns LH Financial, a 10-person firm with a prestigious Central Park South address. LH Financial, which is not registered as a brokerage or investment adviser, exists almost exclusively to invest in PIPE deals of $5 million or less.

Founded in 1997, LH Financial is led by Solomon Obstfeld, who is listed in some telephone directories as being a rabbi. Obstfeld didn't return several phone calls or respond to email inquiries.

In 1990, Obstfeld got caught up in a government sting that exposed brokers who allegedly used other people to take a licensing exam for them so they could work in the securities industry. Obstfeld, charged with a misdemeanor, paid a $5,000 fine and was sentenced by a federal judge to a year of probation.

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