Fortunately, BayStar's first investor, a convertible arb shop, "gave us $75 m. We made a lot of money for it and here we are."

Goldfarb had done his apprenticeship under the principal of Shoreline Pacific. "He taught me the business, but he believed we needed to go upmarket in the deals we were doing, and he thought the structure of the deals would protect him. I disagreed. We parted company," says Goldfarb.

[...] "When things implode, you're screwed," he says. "We have invested in companies in several sectors in which we should have seen the train on the track. Where the liquidity in the stock (which is key to the hedging mechanism) dried up. We had a credit instrument, but we did a bad job of our credit analysis." He adds, "We have never lost all our money on a deal, but we have lost more than would have liked to. Where we failed [you know wha'ts coming...] is not in the structure of the deal, but in believing that the structure would protect us when in fact the funcamental credit analysis was faulty."

[...] "I make a decision that the company is not going to go bankrupt in the timeframe in which I have the instrument. And I have the deal structured so that if the company fals apart at the very least there is enough capital for me to get my cash or stock."

[...] "Unlike most hedge funds, we hedge with a directly correlative hedge," says Goldfarb.-- Lawrence Goldfarb, 2002-05-01