There has been new developments regarding the ongoing case of Bernard Madoff. While Madoff is serving a 150 year sentence in prison, his daughter-in-laws will now be paying the price for him and his son’s infamous Ponzi scheme.

Just last week, new claims were filed against the Madoff family in an Irving Picard $255 million complaint. The case has been revised to include both Deborah Madoff and Stephanie Mack to the “$54.5 million in claims for unjust enrichment,” The Washington Post reported. The wives are also being sued for $3 million that was given to them.

Although it has been said that a judge might end up barring these claims, Picard could still sue for unjust enrichment and constructive trust, said US Bankruptcy Judge Burton Lifland in Manhattan. It is, however, too late to charge the Madoff son’s wives with all of the other past charges brought up on the family.

Picard is still trying to retrieve investor money lost during Madoff’s Ponzi scheme.

Mark Madoff, the son of Bernie Madoff, committed suicide in December 2010.

Stephanie Mack, Mark Madoff’s wife, speaks out about her husband’s suicide after Madoff Ponzi Scheme

Click here to discuss this post.

Permalink

Click here to discuss this post 

Permalink

The private equity study showed that 78% of those who perform operational due diligence on hedge funds do not perform due diligence on private equity.  68% of those 78% plan to do operational due diligence on private equity funds in the future- and most plan to do so in the next year.

Mr. Scharfman was quoted in the article, PE Manager: LPs back office inspection set to rise, written by Nicholas Donato. He said, “Institutional investors exhibit a post-Madoff type mentality where tougher questions are being asked around fund operations; the kicker being better relations for those GPs able to pass their expectations.”

 It is evident that even the most basic level of an operational due diligence review is becoming more common and essential within the private equity space.

To read the full PE Manager article, click here. (Subscription required)

Also, to read Corgentum’s  private equity study,  visit their website at www.Corgentum.com or click here.

Click here to discuss this post.

Permalink  

Corgentum’s study shows that out of all Limited Partners surveyed, 87% of investors perform some sort of operational due diligence. However, only 24% use operational due diligence consultants. This means that 62% of the 87% who perform due diligence, use internal resources.

Often, employees who are performing operational due diligence internally, have other obligations, making operational due diligence far from their primary job. This could potentially allow small important details to fall between the cracks.

 This study also shows that investors feel that they are at higher risk when investing in hedge funds as opposed to private equity funds. In fact, 74% of investors said that they perform operational due diligence on hedge funds, but not private equity funds.

Corgentum’s Managing Partner, Jason Scharfman, was quoted in the piece saying, “This study shows that private equity investors have not yet moved beyond Madoff, and are still lagging behind their hedge fund counterparts in the resources they are dedicated towards performing operational due diligence.”

In light of this recent research, Jason Scharfman will release his newest book, Private Equity Operational Due Diligence: Tools for Evaluating Liquidity, Valuation and Documentation (Wiley & Sons) on April 10, 2012.

Also authored by Mr. Scharfman, Hedge Fund Operational Due Diligence: Evaluating the Risks (Wiley & Sons).

Click here for the full Opalesque article. (subscription required)

Click here to reserve your copy of Private Equity Operational Due Diligence.

Click here to discuss this post.

Permalink  

The Benefits of Private Equity Operational Due Diligence- Paving the Way Ahead, covers the basics of an operational risk review as well as teaches you how to choose the right ODD consultant.

Topics covered include:
• Why Limited Partners should consider working with an operational due diligence consultants to assist in performing operational due diligence
• Why Limited Partners should perform operational due diligence on private equity funds, including a deeper look into government regulation and ongoing monitoring and the future of operational due diligence.

If you want to learn more about Private Equity Operational Due Diligence, pick up Corgentum’s, Managing Partner, Jason Scharfman’s new book, Private Equity Operational Due Diligence: Tools for Evaluating Liquidity, Valuation and Documentation, available everywhere April 10th.

For a must have book for hedge fund investors, Jason Scharfman’s Hedge Fund Operational Due Diligence book is also available.

Click here to discuss this post. 

Permalink

Mr. Scharfman is quoted in the piece explaining how Japan’s regulatory structure is a bit behind the United States and Europe.

“The Securities and Exchange Surveillance Commission (SESC) hasn’t accused AIJ of any wrongdoing, but that will change if it’s proven that AIJ hid funds overseas in the Cayman Islands. And it should be noted that Japan’s regulatory structure is only now catching up to those of the US and Europe.”

Mr. Scharfman also points out:

“Japanese investors, culturally, have been less inclined to put the screws to fund managers,” he says. “In other regions, post-Madoff, investors have realized that they have to look past any cultural hang-ups or not wanting to embarrass somebody or not be forward and ask certain questions. Japan has been behind the curve a little bit and they’re only now catching up.”

Furthermore, this article raises other due diligence issues pertaining to technology. Now, more than ever, investors are looking for specific documents from fund managers as a means to diving deep on the due diligence process. Mr. Scharfman was also quoted saying, “People are struggling with what to do with all the documents they receive when conducting due diligence and then how they analyze those documents. The solution will come down to how to organize and mine data that is generated in the due diligence process.”

To read the entire article, click here (subscription required).

Click here to discuss this post.

Permalink.

Corgentum Consulting’s, Jason Scharfman’s article, “Due Diligence Techniques for Success: Why Fund Managers Try to Manipulate Due Diligence,“ was featured on TabbForum, a news and opinion hub for the financial industry.

In this article, Mr.Scharfman discusses the importance of transparency between fund managers and clients. He explains how in situations like the AIJ scandal, fund managers would not even allow investors to perform any type of due diligence and that this is a red flag for investors.

Investors who are new to the due diligence process are often hesitant to ask tough questions of the fund managers, however they should take control of the process. The main goal of due diligence is to avoid risk. By performing due diligence correctly, investors can insure that they are investing their capital with the right manager.

To read the full article click here (subscription required).

Click here to discuss this post.

Permalink

This recent AIJ story has pushed operational due diligence into the forefront of important trends for investors. Because of the AIJ crisis, operational due diligence is on the minds of allocators looking to invest in hedge funds, private equity funds as well as other traditional funds.

Mr. Scharfman stresses the importance of operational due diligence regardless of fund size, reputation or popularity. He was quoted in the article saying, “In the case of AIJ, underfunded Japanese pension funds seemed to have placed profits ahead of common sense.” He also commented on the crucial roles pension fund managers should play when it comes to overseeing assets. “The job of pension fund managers is to exercise due diligence and protect assets, not simply chase high returns.”

The full article is available on Bloomberg website or via direct link here.

Click here to discuss this post.

Permalink.

The panel will take place at the The Radisson Blu Aqua Hotel Chicago on Thursday May 31 at 8:30am in Chicago, IL.

Mr. Scharfman plans to discuss the following topics:

- Ways to effectively perform operational due diligence on emerging managers

- Current trends in the private equity space

- Ways that Limited Partners can effectively communicate operational due diligence concerns to general partners

Click here to sign up for the conference.

Click here to discuss this post.

Permalink

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.

Click here to discuss this post.

Permalink.