NJ Hedge Fund Under FBI Investigation After Partner and Investors’ Money Becomes MIA
According to FINalternatives, Osiris Fund, a New Jersey based hedge fund, is under investigation after one of its’ partners, Peter Zuck fled with investor’s money. Osiris was unlike typical hedge funds in that it allowed investors to invest only a $150,000 minimum into the fund, as opposed to the standard $1 million. 
Michael Spak, one of the three partners in the fund, reported Zuck to the FBI. He said that the situation was currently under investigation. Osiris was started in 2009 and Spak told FINalternatives, “The fund is a ‘hedged’ fund in the truest sense of the word. Our team’s objective is to immunize the volatility of the portfolio which in turn allows us to produce better than average returns consistently.”
Interestingly enough, according to Bloomberg data, the fund ranked third out of 3,527 top performing global hedge funds in April 2010. Since the start of the investigation, no money has been recovered and Zuck is nowhere to be found.
It was announced that Zuck was arrested in 1995 and spent over a year in jail for “misconduct by a corporate official.” Hedge fund operational due diligence would have revealed these public records as well as identified any other questionable aspects of the fund to investors. Investors should be wary of investing in a fund without performing any bit of ops dd because fraud is much more common than we think… 
Click here to discuss this post.
Corgentum’s Inaugural Monthly Email Blast- Due Diligence News
Corgentum Consulting recently sent out their first-ever email blast- Due Diligence News!
Due Diligence News is a look into the world of operational due diligence. It contains current articles relevant to the industry, as well as links to different blogs. The email also contains a listing of industry events and news specific to Corgentum. It will be issued on a monthly basis.
You can become a subscriber by clicking on the Contact section of the Corgentum Consulting website.
Corgentum will also release its new monthly newsletter, Operational Due Diligence Insights in February. The newsletter will contain original content featuring accounting and back office due diligence insights, fund regulatory and compliance developments, information security, and Corgentum Managing Partner Jason Scharfman’s Private Equity Operational Due Diligence book release details.
Check out the Corgentum Consulting website for future information on their quarterly webinar series planned for March.
Click here to discuss this post.
Greenlight Capital Fined by FSA – David Einhorn’s Insider Tips
David Einhorn’s Greenlight Capital has run into trouble in the UK for insider trading.
Reuters is reporting that Britain’s Financial Services Authority (FSA) said on Wednesday it had fined Einhorn 3.64 million pounds ($5.67 million) and his Greenlight Capital 3.65 million pounds for market abuse.
Greenlight rose to prominence in credit crunch for shorting Lehman Brothers bank.
The story goes that Einhorn (a prolific poker player) learned from a telephone conversation, held with a broker in 2009, that British pub company Punch Taverns was on the verge of a significant equity fundraising, prompting Einhorn to sell down his holdings before an expected fall in the shares, the FSA said in a statement.
This decision allowed Einhorn (who wrote a book called Fooling Some of the People All of the Time, A Long Short Story) to avoid losses of around 5.8 million pounds, the FSA said. “The FSA accepted that Einhorn’s trading was not deliberate because he did not believe that it was inside information. However, this was not a reasonable belief,” the FSA said. “This was a serious case of market abuse by Einhorn and fell below the standards the FSA expects, particularly due to Einhorn’s prominent position as President of Greenlight and given his experience in the market.”
According to the Wall St. Journal, Mr. Einhorn stated, “We believe that this action is unjust and inconsistent with the law and with prior FSA enforcement precedent. However, rather than continue an arduous fight, we have decided to put this matter behind us and concentrate on managing our business.”
Mr. Einhorn continued, “We have always strived to set an example of good conduct and ethics, and we take compliance very seriously. We didn’t believe in 2009, and we don’t believe now, that there was 
anything wrong with our conduct and our actions. The fine is for trading in advance of a decision that had not been made, and the FSA concedes we did not believe we had any inside information. We did not enter into any confidentiality agreement, we explicitly requested that we not be given confidential information, and we do not believe we were given any such information. Further, all the witness testimony supports our view.”
Reportedly, ts he FSA said Einhorn gave instructions to sell all of Greenlight’s holdings in Punch a “matter of minutes” after the telephone call, on June 9 2009. At the time these instructions were given Greenlight held 13.3 percent of Punch’s issued equity, and over the next four days Greenlight sold 11,656,000 Punch shares, thereby reducing its holding in Punch to 8.89 percent.
Punch announced a fundraising of 375 million pounds on June 15 2009. Following the announcement the price of Punch shares fell by 29.9 percent, the FSA said. While the regulator said the trading infraction was inadvertent and not deliberate, the fine may put some tarnish on 
43-year-old Einhorn, a stalwart of the hedge fund community who is known for public crusades against abuses by public companies. Einhorn has targeted Green Mountain Coffee Roasters, claiming the company’s accounting practices and long-term earnings power are questionable.
Here is a video calling his views about Green Mountain Coffee into question:
While the average U.S. hedge fund lost about 5 percent in 2011, last year Einhorn’s flagship fund rose 2.9 percent. However, the hedge fund manager lost out on a high-profile bet last year when his effort to buy a significant minority stake in the New York Mets broke down over the summer. He is a life-long fan of the baseball team.
Einhorn isn’t the first fund manager to be fined in the UK for insider trading. In 2006 the FSA fined former GLG fund manager Philippe Jabre a then-record 750,000 pounds after he was found guilty of insider trading on a convertible bond sale for Japan’s Sumitomo Mitsui Financial Group. ($1 = 0.6416 British pounds)
Here are some videos of Einhorn talking about his investing style and views:
Understanding a hedge fund’s compliance procedures and the way in which it deals with and may be exposed to material non-public information is an important part of the operational due diligence process.
