Bawag Quits PIPEs Market

In 2004, LH Financial was the second-most prolific PIPEs investor in the country based on the number of 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.

LH Financial is the official investment adviser to Alpha Capital, the main vehicle through which Bawag has invested in the PIPEs market the past two years.

LH Financial also has ties to Martin Schlaff, a controversial 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.

It's not clear what implications Bawag's decision to withdraw from the PIPEs market with have for LH Financial, a 10-person operation that is not registered with either the Securities and Exchange Commission or the NASD. A phone call to LH Financial, located in an office on Manhattan's Central Park South, was not returned.

In the press release, Bawag implied that it didn't directly invest in PIPE deals, but got involved as an intermediary on behalf of its customers.

"Bawag would only ever have been involved in such transactions as an intermediary for its customers,'' the release said.

It's possible that Bawag's board decided to exit the PIPEs business because it felt it was attracting negative publicity. The bank's role in providing the last-ditch loan to Bennett has made it a prime target for Refco creditors in the bankruptcy proceeding. Sources say federal prosecutors investigating the Refco scandal have been asking lots of questions about Bawag's dealings with the brokerage.

Bennett was indicted on securities fraud charges shortly after the broker disclosed that he had been hiding hundreds of millions of dollars in customer trading losses for years.