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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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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Here is a link to our previous post on Mr. Nadel. He later surrendered to authorities in January 2009. Nadel has finally admitted to perpetrating the $168 million fraud. His attorneys say the former Sarasota hedge-fund operator is in poor health and might not survive a longer stretch in a federal prison.

These sentences are on top of other lawsuits including one filed by six victims in the Arthur Nadel (Scoop Management, Inc.) scandal have filed  a $2.3 million lawsuit against newsletter editor and publisher (Don Rowe) . Nadel’s Scoop managed six private investment funds.

His attorney’s also argue that the criminal conduct of Nadel, 77, was not an effort to live a lavish lifestyle, unlike his partners, Neil and Christopher Moody.Neil and Christopher have denied any wrongdoing as outlined in my previous post.

“Mr. Nadel’s conduct, although reprehensible, was not motivated by greed but by his pathological desire for admiration and his inability to face and admit to others that he was a failure,” his attorneys said.

If Nadel were to be sentenced to five years — and get credit for his 20 months of detention in the Metropolitan Correctional Center (where Bernard Madoff spent some time) — he could be back in Sarasota in less than 31/2 years.

But there are significant hurdles to that future. Prosecutors are seeking a much stiffer sentence. They believe Nadel is eligible for nearly 22 years, and may submit their own sentencing recommendations this week.

Investors who earlier filed victim-impact statements have urged U.S. District Judge John G. Koeltl to lock up Nadel for the rest of his life. He is scheduled to be sentenced Oct. 8 in New York for orchestrating a Ponzi scheme that cost investors $168 million in out-of-pocket losses. He pleaded guilty in February to 15 federal fraud counts. It will be interesting to see if the court complies with Nadel’s pleas or delivers a stiff sentence….

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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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“We wanted to keep the story alive because Congress hasn’t made the changes necessary to protect the average American investors,” said Tim Murray (a Madoff victim). Murray joined a number of other victims who gathered outside Madoff’s former offices in the Lipstick Building on New York City’s Third Avenue to promote the book on the one year anniversary of Madoff’s sentecing. Here is a video about the one year anniversary:

The book is published by The Doukathsan Press Of The Massachusetts School of Law. If you recall, as discussed in this post, Erin Arvedlund (who is the editor of The Club No One Wanted to Join) was featured in a video series discussing her book Too Good to be True- The Rise and Fall of Bernie Madoff with Lawrence R. Velvel, the Dean of Massachusetts School of Law at Andover and himself a Madoff victim.

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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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