A federal judge in San Francisco sentenced former Larkspur-based hedge fund manager Lawrence "Larry" Goldfarb to 14 months in prison over pocketing $6 million from "side pocket" investments and diverting money from $12 million in court-approved paybacks to avoid prosecution, the U.S. Attorney's Office said Wednesday.

[caption id="attachment_96240" align="alignleft" width="145"] Larry Goldfarb, in a picture he posted to his blog in November 2013[/caption]

After pleading guilty to one count of wire fraud in April, Mr. Goldfarb, 55, previously of San Anselmo, was sentenced Tuesday by district judge William Alsup to the prison time followed by three years of supervised release. The sentence is set to start Nov. 5.

At issue was Mr. Goldfarb's work as managing partner of Baystar Capital II, LP, a fund primarily that made short-term investments. It also invested in various illiquid, more difficult-to-value investments referred to as "side pockets," according to prosecutor Melinda Haag and FBI Special Agent in Charge David Johnson.

Around 2003, Baystar II made an $8.4 million side-pocket investment in Island Fund, LLC. Over the next several years, that investment returned more than $16 million.

Without consulting or informing the investors in Baystar II, however, Mr. Goldfarb invested a substantial amount of those returns in other entities, including some in which he had an economic interest.

When investors asked about Island Fund distributions, he told them they weren't yet eligible, yet they were, and didn't tell the investors about distributions or his reinvestment of them. Prosecutors said that scheme bilked the investors out of about $6 million.

In March 2011, Mr. Goldfarb entered into a deferred prosecution agreement with the U.S. Attorney’s Office and a consent judgment with the Securities and Exchange Commission. He agreed to a payment schedule for about $12 million in restitution and disgorgement of the investments.

After making some of the payments, Mr. Goldfarb failed to make the agreed payments, according to Ms. Haag.

"The court determined that instead of paying the agreed upon restitution and disgorgement, Goldfarb spent hundreds of thousands of dollars on various personal indulgences, including Golden State Warriors season tickets, private air travel and vacations," she said in the sentencing announcement.

The court concluded that Mr. Goldfarb had breached the March 2011 agreement, denied his motion to dismiss the criminal charge against him and allowed this prosecution to proceed. He pleaded guilty to the one count of wire fraud on April 16.