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 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.

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The actor has recently teamed up with the FBI to create a video which encourages would be tipsters to come forward with any insider trading news, and outlines, that greed is not good. Here is the video:

Tipsters who decide to turn into rats and go to the government might do better then to follow Douglas’ advice. Whistleblower lawyer David K. Colapinto outlines that, “If they just go to the FBI, they are probably going to get zero,” Colapinto said. “The FBI’s not obligated to do anything for them.”

Colapinto said that if informants want a reward for information that exposes financial fraud, they should consult a lawyer — and file a whistleblower claim with the SEC.

Under the SEC’s , tipsters are entitled to 10 to 30 percent of the money the SEC collects if the whistleblower’s information leads to an enforcement action in which sanctions of more than $1 million are ordered.  The bounties were ordered by Congress in the aftermath of the financial crisis and were intended to be powerful weapond in the war on Wall Street fraud. That being said Harry Markopolos, who reported the Madoff fraud to the SEC for years, got nothing.

Attempting to diagnose whether or not a hedge fund has the potential to be exposed to insider trading scandals can be a critical part of analysis of a fund’s compliance and trading functions during the operational due diligence process. Investors should attempt to evaluate such risks during a review of operational risk factors including personal trading policies.

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• How will SEC registration influence investor due diligence on hedge funds?
• Tools for investors to evaluate financial statement risk
• Considerations when analyzing administrator independence in the valuation process
• Diagnosing information security risks

This newsletter will be available on Corgentum Consulting’s website via direct link here.

Operational Due Diligence Insights also includes a section about Corgentum’s upcoming events like their new webinar: Operational Due Diligence Survival Kit for 2012. This webinar will be on March 15 from 2-3 pm EST and will give attendees vital information to asses and uncover operational risk in hedge funds, private equity and traditional funds.  Click here to signup for the upcoming webinar.

Readers can also visit Corgentum’s contact page to sign up to receive future issues as well as other Corgentum news and upcoming events.

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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:

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It is also being reported that Madoff claims that many of the large banks and fund of hedge funds who invested with him were “wilfully blind” and “chose to ignore con.” Here is a video about it:

It also seems a secondary market has developed for betting on how successful Irving Picard will be in recovering Madoff claims…

Finally, the Financial Times is reporting that motivated by continued paranoia (is it paranoia if the government really is out to get hedge funds?…) surrounding government oversight of insider trading hedge funds have begun to hire security firms to perform sweeps their offices and homes for electronic bugs (aka: listening devices). Here’s a video about some of the technology used in these sweeps including hidden camera detectors, fiber optic cameras, spectrum analyzers, and non-linear junction detectors:

So what happens when they find one? Maybe it would be like when a man named Yasir Afifi found an FBI tracking device on his car and asked the Internet community to tell him if he was being spied upon. Perhaps hedge funds familiar with reverse engineering strategies could similarly reverse engineer the technology and begin spying on the government – or would that be considered insider trading….?

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Photos recently surfaced of Stanford beaten in prison over a dispute related to using the telephone.

Since the allegations against Stanford broke a number of interesting facts have come out regarding his business and operations including many operational risk red flags.

Here is part one of the BBC Panorama special on Stanford:

Part two:

Part three:

And here’s a video about Stanford being sued for gambling losses. This video also talks about allegations by James M. Davis, Mr. Stanford’s former CFO who has since agreed to a plea deal with the government, that Stanford participated in a  bizarre blood brothers ritual with Leroy King, Antigua’s chief banking supervisor – where Stanford’s offshore bank was located:

And here is a video of Stanford victims and former employee:

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On the TV Show Larry Wilcox portrayed Officer Jonathan A. Baker a California law enforcement highway patrol officer. He starred in the show with Erik Estrada who played Officer Francis (“Frank”) “Ponch” Poncherello.

Here’s a copy of the SEC Complaint against Wilcox et al.

Here’s the introduction from the TV show CHiPS:

And here’s Officers Ponch and Jon in action:

According to the SEC’s complaints filed in U.S. District Court for the Southern District of Florida, the schemes generally involved the payment of kickbacks to purportedly corrupt pension fund managers or stockbrokers, who would use their clients’ accounts to purchase the publicly traded stock of microcap issuers controlled or promoted by the individuals and companies charged today. What the promoters and insiders did not know was that the people with whom they arranged these illegal transactions were actually undercover FBI agents or confidential sources participating in undercover operations.

These allegations relate to Wilcox’s role as President and Chief Executive Officer of The UC Hub Group, Inc, a public company on the Pink-OTCBB under the symbol

(UCHB.PK) which is a mining company on the Montana Mine project, a sapphire and gold production mine. The company was also drilling oil wells in Illinois.

Interestingly UC Hub’s website features the following ominous disclaimer,  “UC Hub and management value their reputation for integrity and honest dealing adn take seriously any statements which seek to impugn directly or indirectly UC Hub’s reputation. UC Hub therefore reserves the right to seek legal redress against parties which repeatedly, intentially make false statements which cast UC Hub, its officers and directors in a false light or otherwise  unfairly impugn UC Hub’s reputation in any way.“….

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The topics covered during the presentation are expected to include:

a) The impact of recent crises on how managers conduct operational due diligence

b) What aspects of a hedge fund’s operations are most important to investors today?

c) Best practices for meeting increased due diligence scrutiny

The event will take place on November 10, 2010 at the Hilton New York.

To register for the event here, please click here.

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