Bawag: Austria's Master Plumber

One thing regulators are looking for are instances in which an investor learned of a pending PIPEs deal and shorted the issuer's shares before it was publicly announced. Unlike the sale of discounted shares, this practice is flatly illegal, and it has resulted in enforcement actions over the last two years.

There's no indication that Bawag, the four hedge funds or LH Financial are in trouble with regulators. But over the years, a number of private litigants have filed at least six lawsuits raising allegations of fraud and stock manipulation against some of the Bawag-related entities; Bawag itself was never named as a defendant. Most of those lawsuits have been either dismissed or discontinued.

One instance in which Bawag's behind-the-scene activities became a point of controversy is a bankruptcy proceeding for Mooney Aerospace(MNYG Quote), a San Antonio manufacturer of small, single-engine planes. In that litigation, Paul Dopp, a former Mooney CEO and creditor, has claimed that LH Financial and Alpha Capital never disclosed in regulatory filings that they were acting in concert with Bawag to provide financing to the company.

The bankruptcy judge referred some of Dopp's allegations to federal prosecutors in San Antonio in August 2004. There's no indication prosecutors have seriously purused them.

Notwithstanding the court victories, the Bawag-affiliated entities keep some curious company.

The hedge funds -- Alpha Capital, Austinvest Anstalt Balzers, Austost Anstalt Schaan and Celeste Trust -- were once customers of two former Refco brokers, Matthew Drillman and Jacob Spinner, who were implicated in one of the first manipulative PIPEs trading cases ever brought by securities regulators

The Securities and Exchange Commission has never publicly identified the brokers, nor charged them with any wrongdoing. But people familiar with the inquiry confirmed their identities. The SEC, sources say, is continuing to investigate allegations that the brokers, working at the behest of an investment firm called Rhino Advisors, engaged in manipulative trading on behalf of Amro International, a Swiss hedge fund.