Ezra Levy’s Boston Provident Fraud: Conflicts of Interest of Lack of Oversight?
Ezra Levy, the former Chief Financial Officer and Chief Trader, of New York based hedge fund Boston Provident LP ha
s pleaded guilty to fraud after allegations that he embezzled and defrauded the fund out of $3 million. Specifically, Levy pleaded guilty to securities and wire fraud at a hearing before U.S. District Judge P. Kevin Castel.
“I did all of this to get money from the hedge fund, knowing it was unauthorized by my employer and against the law,” Levy said.
First operational due diligence question – why a hedge fund’s CFO also the Chief Trader? Seems like a conflict to me…
Levy faces 63 months to 78 months in prison under a stipulated sentencing guidelines range as part of a plea agreement with prosecutors from the U.S. Attorney’s office in Manhattan.
Assistant U.S. Attorney David Miller said Levy diverted about $2.45 million owed to Boston Provident into an account he controlled and utilized the money through ATM withdrawals, payments to credit-card companies and transfers to a personal bank account.
Second operational due diligence question – Why can the CFO/Chief Trader withdraw fund cash via an ATM? Where were the cash controls?
Levy said he caused the hedge fund in June 2009 to purchase shares in Atlas Energy Resources LLC and Atlas Energy Inc. (ATLS) after the market at an inflated price from his personal account. That resulted in a gain of $537,000 to Levy, said Miller, the prosecutor.
The U.S. Securities & Exchange Commission also has brought separate civil charges against Levy in the matter. The SEC case is pending.
Orin Kramer, Boston Provident’s general partner, declined comment Thursday….
The fund previously said Kramer would absorb the professional fees arising from Levy’s conduct and wou
ld provide restitution to the fund of the money stolen by Levy. Here is an interview with Mr. Kramer talking about stress tests. Apparently operational risk stress testing is not in the toolkit:
Kramer also is chairman of the New Jersey State Investment Council, which oversees the state’s public pension fund. Quick question – why is a hedge fund manager chairman of a public investment council? I wonder if there is a similar level of oversight going on there?…
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