Since its inception in 2001, Cornell has provided financing to more than 120 speculative, mostly money-losing companies, many of which trade shares on the over-the-counter Bulletin Board. In the third quarter of this year, Cornell was the ninth most active PIPEs investor, sinking $38 million into 10 different deals, according to PlacementTracker, a private placement research firm.

The PIPEs market has been a profitable niche for Cornell. In 2004, it realized a $20 million net gain on investments, according to the financial statement. It took in another $3.4 million in investment income.

The investigation of Cornell began in July 2004 with the SEC requesting information about its "funding of and trading" in shares of Bio-One, a defunct nutritional supplement company that had operated out of Winter Springs, Fla. Cornell had been the primary investor in two PIPEs deals that raised $25 million for Bio-One and enabled the company to make two small acquisitions.

By this summer, the SEC investigation had expanded to include eight other companies Cornell had invested in. The audit doesn't disclose the names of the other companies. However, the 13-page report notes that Cornell received a subpoena from the SEC on July 18, 2005, seeking documents "related to the funding of and trading in the common stock of Bio-One and eight other portfolio companies in which the partnership is invested."

Two months ago, the SEC reached a settlement with Bio-One over allegations that its financial statements failed to disclose an August 2004 default on a $15 million promissory note to a company it had acquired earlier that year.

Angelo says the SEC began investigating Cornell because it had provided financing to Bio-One. But he says Bio-One company kept the default on the promissory note hidden from Cornell, too.

"We have no idea why we were named in this, other than that we are an investor," says Angelo. "I have no idea why we were named."

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