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.

Permalink

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.

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.

To refresh memories regarding Mr. Stanford’s alleged crimes and his passion for cricket see the previous post here and here – and some good lessons on operational due diligence.

The first day of jury selection has ended in the oft-delayed trial of jailed Texas financier R Allen Stanford, who is accused of bilking investors out of $7billion in a vast Ponzi scheme. A federal judge spent Monday questioning 80 potential jurors. Stanford emerged in chains.

In other Stanford news, Bloomberg is reporting that the SEC is asking a judge to determine a payout plan for Stanford victims.

Here are old videos of Stanford in his own words talking about Antigua:

And video of Stanford being treated after being beaten by fellow inmates in prison:

Click here to discuss this post.

Permalink.

At the panel sessions, it is anticipated that Mr. Scharfman will focus the discussion on upcoming trends in operational risk in alternative investments including hedge funds and private equity funds. Other topics which are anticipated to be discussed include the role of operational due diligence consultants such as Corgentum in designing a comprehensive operational due diligence solution, and operational due diligence challenges institutional investors can expect in 2012.

The panel Mr. Scharfman will moderate will be entitled, “Investing in Alternatives” and will take place on Wednesday February 15, 2012 at the Astor Crowne Plaza in New Orleans, LA.

To register for the event here, please visit the conference website.

Click here to discuss this post.

Permalink.

The panel will be entitled, “Hedge Fund Opportunities” will take place on Friday March 2, 2012 at the Crowne Plaza Times Square in New York, NY.

It is anticipated that Mr. Scharfman will discuss evolving trends in hedge fund operational due diligence for 2012, the benefit to investors towards working with operational due diligence consultants such as Corgentum, and the benefits of incorporating risk considerations into the hedge fund portfolio construction process.

To register for the event here, please click here.

Click here to discuss this post.

Permalink.

During the operational due diligence process investors can take a number of measure to evaluate the quality and robustness of a firm’s valuation policies and procedures. Additionally, investors should inquire as to how transparent such valuation procedures are and whether any testing of such procedures is conducted. A key element of any valuation process should be independent oversight and pricing sources.

A recent example which demonstrates the importance of valuation is the case of Michael Balboa. It is being reported that Mr. Balboa was charged with fraud and conspiracy. It has been alleged that he made investments in illiquid bonds in Nigeria and Uruguay. Prosecutors allege that he worked with two brokers to inflate the values of the bonds. One of the brokers Gilles De Charsonvillne (as well as Balboa) was also sued by the Securities and Exchange Commission. The SEC received help from the Bermuda Monetary Authority with the investigation. This article talks about how such efforts are part of the SEC’s new risk analytics division. The events allegedly took place in 2008 while Balboa ran a fund for Millennium Global Investments. Balboa reportedly earned 40% of the fees from from the fund’s $844 million under management or approximately $6.5 million. Millennium Global said it had reported Balboa’s “rogue behavior” to both U.S. and British authorities.

According to this website for the Russia Forum 2010, “Michael Balboa has over 15 years of experience in EM instruments. Prior to establishing ARAM Global, he was Managing Director of Emerging Credit and the Millennium Global Emerging Credit Fund at Millennium Global.

Mr. Balboa’s career began at Salomon Brothers (1992-95), after which he co-managed the Strategos Fund, an EM hedge fund founded in 1995. He then joined Greenwich Europe and was actively involved in the management of the top performing Rainbow Advisor’s EM funds (2003-06) as well as the Rainbow Macro Fund. Mr. Balboa is a graduate of Hofstra University.”

Balboa parted ways with Millennium Global in 2009. His current employer, ARAM Global, said he is currently on leave from the firm….

Click here to discuss this post.

Permalink.

A hedge fund manager for FrontPoint Partners was sentenced to five years in prison on Friday, November 18th. Joseph Skowron pled guilty in the summer of 2011 to insider trading which resulted in Morgan Stanley avoiding $30 million in trading losses. According to the New York Times, Skowron enticed French doctor,  Yves Benhamou, to give him “confidential results about clinical drug trials.” In addition to selling HGSI Human Genome Sciences stock before the news of its downfall was made public, Skowron and Benhamou agreed to deceive the Securities and Exchange Commission (SEC) by withholding information from them regarding their endeavors. Dr. Benhamou also pled guilty to charges he was brought up on, and will be sentenced next month.

Here is a video about the arrest:

Because Skowron obtained access to material non-public information and took advantage of it to benefit himself, he caused many people to lose their jobs and money. Although it is possible to receive non-public information legally, it is what you choose to do with that information that can become a potential problem. In the case of Skowron, not only did he go searching for insider information, but he also acted upon the information he received. It was the action he chose to take, that led him down the path he is now traveling. Ironically, Chip, as he is referred to in the industry, made Galleon Group one of his victims. Galleon Group was the hedge fund managed by Raj Rajaratnam, who was sentenced to 11 years in prison for insider trading not long ago. The charges that surrounded Skowron destroyed FrontPoint, which was one of the most prestigious firms on Wall Street. Skowron is forced to pay $8 million in forfeiture and fines to the government.

This is a perfect example of the need for operational due diligence firms. A simple list of investigative procedures, if properly executed, could have prevented Skowron, and several others, from committing this white-collar crime. By conducting a comprehensive review of a hedge funds’ exposure to, operational strengths and weaknesses regarding the hedge fund manager, and a hedge fund’s exposure to material nonpublic information, it will decrease the chance of insider trading as well as other operational risks. It is with due diligence that we can identify any below-the-surface issues within a fund, and find out about people like Skowron, so that investors can make more informed decisions before investing.

Click here to discuss this post

Permalink

A jury recently handed down a sentence which found that the Galleon Group’s founder Raj Rajaratnam was convicted of insider trading. Bloomberg is reporting that jury never argued during 12 days of secret deliberations that he was innocent.  Instead the focus was on what sentence to give Rajaratnam. Here is a post about the Galleon verdict entitled, Galleon’s Fait Accompli : Investor’s Move the Dial Towards a Conservative Approach to Hedge Fund Research, on the Corgentum Consulting blog and some videos from the trail and verdict:

http://youtu.be/YKbqdE_BA5w

Click here to discuss this post.

Permalink.

The article is entitled, “Protection Racket – Investors rely on independent administrators like Citco to okay hedge fund books. But who’s watching these bookkeepers?” .

The article features Corgentum Consulting Managing Partner, Jason Scharfman discussing the role of hedge fund administrators in the investor operational due diligence process. Mr. Scharfman says, “ Part of the reason big-name administrators are winning more hedge fund assets is that they offer a false appearance of comfort and illusions of due diligence. Investors are still very much on their own in the hedge fund arena, ” says Mr. Scharfman.

The full article can be read on Forbes.com , in print editions of Forbes magazine for the week of April 25, 2011 or via direct link.

Click here to discuss this post.

Permalink.