Bawag: Austria's Master Plumber

LH Financial also has ties to Martin Schlaff, an Austrian billionaire who is one of Bawag's biggest individual customers. Schlaff is a partner with Bawag in the Alpha Capital hedge fund, along with other business ventures. A relative of Schlaff's briefly worked at LH Financial.

Schlaff has his own colorful history. The Jerusalem Post recently reported that Schlaff is being investigated by Israeli authorities over allegations he paid $3 million in "bribes'' a few years ago to family members of ailing Israeli Prime Minister Ariel Sharon to promote his business interests in Israel. Authorities suspect that some money may have been wire-transferred from accounts at Bawag.

It's easy to see why Vienna-based Bawag, which was founded in 1922 and has more than $50 billion in assets, would want to shield its role in the PIPEs market, given the unsavory reputation the deals have earned and the sketchy backgrounds of some its big players. Critics say PIPEs are particularly susceptible to abuse by unscrupulous short-sellers -- traders who place market bets that a stock will decline in price -- because they usually involve the sale of stock at discounted prices. The stock of a company announcing a PIPEs deal almost always declines as the market adjusts to the influx of new shares and the likelihood that they will be sold for a quick profit.

In light of those traits, U.S. securities regulators have been conducting a sweeping investigation into the PIPEs market for the past two years, looking for manipulative trading, especially in deals involving penny stocks. To date, the inquiry has resulted in only a few enforcement actions against a handful of small hedge fund managers. But more regulatory actions are on the way, including possible sanctions against Knight Capital(NITE Quote) and Friedman Billings Ramsey(FBR Quote), plus a number of big hedge funds.