Regulator Sues Hedge Fund Firm

Wood River Capital Management was sued Thursday by the Securities and Exchange Commission, which said two hedge funds managed by founder John Whittier amassed an “extraordinary position” in one small-cap stock, Endwave Corp.

The lawsuit, filed in U.S. District Court in New York, contends that in July, Wood River’s stake in Endwave accounted for more than 65% of assets in the funds, which claimed to have $265 million under management.

“Several investors made their decisions to invest in Wood River based on promises of diversification,” the SEC suit says.

The hedge fund reported on Oct. 7 to the SEC that it owned 4.29 million shares of Endwave Corp., a Sunnyvale, Calif.-based supplier of wireless-communications equipment.

The SEC’s suit also contends that Wood River failed to file stock ownership reports that are required when a fund’s position exceeds 5% or 10% of the issuer’s shares outstanding. At one point, Wood River owned more than 40% of Endwave’s shares outstanding, the SEC said.

Whittier, 39, a former analyst at Donaldson, Lufkin & Jenrette Inc., was named as a defendant in the lawsuit. Whittier agreed to put his funds into receivership and said he did not break any securities laws, his lawyer said.

Whittier “has consented to place the funds into receivership and to a partial freeze on his personal assets,” attorney Elliot Peters said. “There was no self dealing. There was no personal enrichment. There was no fraud.”

Hedge funds are lightly regulated investment firms that are usually open only to high-net-worth investors.