The SEC is now requiring fund managers to report more information by revising Form ADV disclosures. In this article, Mr. Scharfman explains that it is still important to perform operational due diligence regardless of changes made to ADV disclosures and the yellow flags to look for when doing so. The piece also encourages investors to be aware of the fact that just because the SEC might require more information from funds, does not mean that there is as much quality in the documents as there is quantity.

To read the full Institutional Investor article, please click here.

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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.

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Opal Financial Group’s investment consultants conference provides a unique environment for developing dialogue between plan sponsors, managers and consultants. The role of the institutional consultant is more important than ever in making investment decisions, often being asked to take on more than just the evaluation of investment managers. This event will feature panel-driven discussions focused on specific investment techniques of fixed income and hedge fund managers, the evolving role of institutional consultants, the manager evaluation process, transition management, investing in global markets, and more.

The event will take place on March 7, 2011 at the Grand Hyatt Hotel in New York City. To register for the event here, please click here.

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It is expected that Mr. Scharfman will discuss the developing role of operational due diligence, considerations for integrating operational risk into the asset allocation process, and techniques for family offices to integrate operational due diligence into their investment process.

The event will take place on December 2, 2010 at the W Hotel Lakeshore, Chicago, IL. To register for the event here, please click here.

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A new paper has been released by Corgentum Consulting, the preeminent provider of the industry’s most comprehensive hedge fund operational due diligence reviews for investors, entitled Hedge Fund Audits: Scope, Materiality, Audit Opinions and Operational Risk.

This paper provides an introduction to audit opinions, the concept of audit materiality and audit scope in the context of assessing operational risk in hedge funds. Also discussed in this paper are several commonly held misconceptions regarding the work of hedge fund auditors.

The paper can be found in the Research section of the www.Corgentum.com website, or via direct link here.

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Stanley Chais was a Beverly Hills, California investment advisor who operated feeder funds which allocated capital to Madoff funds. He passed away on September 26, 2010 from a rare blood disease at the age of 84.

The Chais death is the third major death surrounding the Madoff scandal. The first was investor’s Rene-Thierry Magon de la Villehuchet’s suicide and the second being the death of Jeffry Picower (see previous post regarding Picower).

Chais was accused in a pending Securities and Exchange Commission lawsuit of feeding about $1 billion — virtually all the funds he collected from investors — into Madoff’s multibillion Ponzi scheme. Specifically Chais managed three funds which invested with Madoff: 1) the Lambeth Company, 2) the Brighton Company and the 3) Popham Company. Although he withdrew $500 million before the collapse of the Madoff funds, Chais maintained that he was also a victim and was not complicit. Here is the SEC complaint against Chais.

Chais also facing a lawsuit from the Madoff trustee, Irving Picard which was filed on May 1, 2009 Irving Picard, bankruptcy trustee for Madoff Securities, filed a lawsuit against Stanley Chais.  The complaint alleges he “knew or should have known” he was deep in a Ponzi scheme when his family investments with Madoff averaged 40% and
sometimes soared as high as 300%. It also claims Chais was a primary beneficiary of the scheme for at least 30 years, allowing his family to withdraw more than $1 billion from their accounts since 1995 – money that belonged to Madoff victims. The Picard complaint is here.

Chais was also facing a lawsuit from filed on September 23, 2009, California Attorney General Jerry Brown seeking $25 million in penalties and restitution for victims.

Chais was a large philanthropist and his philanthrophy, the Chais Family Foundation, closed in December 2008 as a result of losses associated with Madoff.

Here is a video from CNBC about the Chais death:

In other Madoff news, Bernard Madoff’s wife Ruth Madoff has been spotted in New York City at Midtown’s Le Pain Quotidien. Here’s the video:

Ruth Madoff had a new red harido (previously her hair was blond). Ms. Madoff was so dedicated to her previous blond hairstyle that she visited her salon, Pierre Michel, every six weeks for the last 10 years. After the Madoff scandal broker she was told that she could no longer enjoy her routine of sitting with a glass of Poland Spring water while Giselle, a colorist often cited in Vogue and Allure, wielded the foils. “Oh my g-d,” Madoff uttered, as ABC News advanced towards her. This video also features Madoff victims advocate Ronnie Sue Ambrosino. By the way the a website for the Madoff victim’s network is: http://bernardmadoffvictims.org.   When Ruth Madoff was asked if she had any words regarding her husband’s victims, she said nothing. Perhaps it makes sense she’s keeping mum, since no one knows what federal prosecutors may or may not be up to….

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This paper provides an introduction to some key considerations for investors to consider during the operational due diligence process, as they begin to evaluate hedge funds in the new Dodd-Frank environment.

The paper can be found in the Research section of the www.corgentum.com website, or via direct link here .

Here is a video featuring the bill’s sponsors Rep. Barney Frank (D-Mass.) and Sen. Chris Dodd (D-Conn.) discussing the passage of the legislation:

Here is a video from a panel discussion about whether Dodd-Frank will work:

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The Huffington Post is reporting that in jail Madoff applied to run the budget of the Butner Prison’s landscaping crew, he didn’t get the job. “Yeah right I’d hire him as a clerk,” remarked the inmate in charge of the crew. “All our money’d be missing!”

Nicknamed “Camp Fluffy“, Madoff’s prison even features a soundproof music room — and periodic “special treats” like popcorn and cotton candy.

Madoff apparently spends his time reading law books, John Grisham, and Dean Koontz–when he’s not working his job in the prison cafeteria. Here is a clip of the show:

I wonder who else might be joining him in prison shortly…..

In other Madoff news, it is being reported that Judge Burton Lifland (the US judge overseeing the liquidation of Madoff’s assets) has asked a court in Gibraltar to transfer seized funds to pay victims, according to a court documents.

Specifically the judge issued a a judgement ordering Vizcaya to pay 180 million dollars to government-appointed trustee Irving Picard overseeing the liquidation of Bernard L. Madoff Investment Securities (BLMIS). Vizcaya had allegedly deposited180 million dollars in off-shore accounts in the months before the Madoff scam was revealed. The judge, in perhaps an interesting letter rogatory example and display of the principles of comity ,  asked the Gibraltar court to release $73.08 million dollars it had seized from local Vizcaya accounts last year.

“I ask for your support to ensure the successful enforcement of the default judgement by transferring the funds… within your court’s jurisdiction to this court or to Irving H. Picard,” Burton wrote. “I believe that it would be in the best interest of the BLMIS estate to turn the Gibraltar funds over.”

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Here is the trailer:

Mr. Gecko is most famous for the line, “Greed, for lack of a better word, is good.“ Here the clip where Mr. Gecko says the famous line at a stockholder’s meeting:

This new movie revisits Mr. Gecko 23 years later, after he is released for stock manipulation and other securities crimes.

In this film, Mr. Gecko tries to warn the world of the 2008 financial crisis (before it happens). Along the way he crosses paths with a hedge fund’s prop trader, Jacob, (played by Shia LeBouf). In a plot twist Jacob suspects, who else but the hedge fund manager for the death of his mentor….

In the pre-Madoff environment, and particularly in the 1980′s when the first Wall St. film takes place, business and operational shenanigans, may have foolishly been subject to lesser degrees of due diligence – which is perhaps why they either went undetected or grew out of control (i.e. – Ivan Boesky)

All this made me think in the post-Madoff environment if the Gordon Gecko’s of the world would still stand up to modern due diligence techniques? ….

Perhaps maybe this theatrical shareholder’s speech sums it up best:

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Corgentum – Working with Investors to Evaluate and Monitor Operational Drag® in Hedge Funds

The paper is available for download in the research section of  www.Corgentum.com or here.

Hedge Fund Operational Due Diligence: Operational Drag

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