Hedge fund Chief Operating Officer Sentenced
I previously commented on the case of Mark A. Focht, in this post entitled, “The Importance of Cash Controls: Chief Operating Officer Charged With Fraud.” To refresh our memories, Mr. Focht was the Chief Operating Officer of 3V Capital Management LLC. He was originally accused of stealing $250,000 using forged authorization forms to illegally transfer money out of the Pierce Diversified Strategy Master Fund for his own personal investments. He previously pleaded guilty to two counts of grand larceny. Here is an interesting article from Forbes.com discussing Mr. Focht’s relationship with Stagg Capital.
Often times news of these frauds breaks and as interests wanes, little is reported of what happens. Due to the unique aspects of this case, a Chief Operating Officer stealing from his own hedge fund, I thought it appropriate to follow up. Bloomberg and the New York Times are reporting that Mr. Focht was sentenced yesterday in Manhattan by New York State Supreme Court Justice Rena Uviller. He received a sentence of 2 and one-third to 7 years in prison (and faced as many as 25 years in jail).
In his sentencing it appears that the amounts involved in Mr. Focht’s case have been revised upward . Apparently in addition to the originally reported $250,00, he also stole almost $700,000 from his firm and misappropriated almost $8 million which was broken out as:
- More than $3 million from the 3V Capital Master Fund Ltd. to fund an obligation with Argonaut Capital Partners LLC (a company affiliated with Libertas Partners LLC)
- $5 million between May 2006 and December 2007 to fund an obligation to Libertas Partners from 3V Capital Fund and its successor SV Special Situations Master Fund Ltd.
The sentencing of Mark Focht and the amounts involved serve as a stark reminder of the importance of cash controls.
With a few minor revisions in policy and some additional oversight such a theft and misappropriation of cash could have likely been prevented. When performing operational due diligence investors should be cautious of the risks associated with the lack of such controls and the nature of independence in the cash management process.
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They gave him too light a sentence!
Cash management controls are essential. You make a good point about this – it seems this point of cash management in due diligence is overlooked by accountants. Particularly true of wrote approaches we see this in Bbay too often
This guy is a crook – where we’re the checks and balances. In China he would be in jail for life. US goes too easy
As an attorney I can say from a litigation perspective an investor overlookin such controls as part of their operational due diligence such as a fund of funds would likely have increased liability in such a situation despite the absence of fraud – would be interested in the civil outcome of this