Bawag: Austria's Master Plumber

In a shadowy corner of Wall Street where cash-strapped companies go begging for their lives, one foreign bank stands out, both for the scope of its involvement and the measures it has taken to conceal it.

Over the last nine years, Bank fur Arbeit und Wirtschaft, or Bawag, the Austrian financial group best known for its ties to Refco, has quietly become a key player in an obscure but booming market where public companies seek last-ditch financing via private placements of new stock. Known as private investment in public equity, PIPE offerings have grown from a backwater into an $18 billion-a-year financial frontier dominated by hedge funds and other sophisticated players.

Even by the murky standards of the PIPEs market, Bawag's role is hard to pin down -- and that appears to be by design. Austria's fourth-largest bank uses a network of foreign hedge funds and a small New York investment firm to do its bidding in PIPEs, rarely linking its name to any transaction even though its fingerprints are stamped on scores of them.

TheStreet.com has found that Bawag is either a significant investor or controlling shareholder in at least four foreign hedge funds that are active players in the PIPEs market: Alpha Capital, Austinvest Anstalt Balzers, Austost Anstalt Schaan and Celeste Trust, all of which are based in the tiny European country of Lichtenstein. Bawag also has a financial interest in LH Financial Services Corp., an obscure New York investment firm that has sunk more than $70 million over the past two years into about 150 different PIPEs deals, almost all of them penny-stock companies.

In 2004, LH Financial was the second most prolific PIPEs investor in the country by transactions, placing money in 102 different deals, according to PlacementTracker, a research firm. The pace slowed in 2005, when LF invested in about 45 deals -- still good enough to rank in the U.S. top 10.