Independent & Unbiased Hedge Fund Operational Due Diligence – Corgentum
Corgentum Consulting has released a new paper entitled, “Corgentum – Independent & Unbiased Hedge Fund Operational Due Diligence.”
This paper provides an overview of the importance of independence and objectivity in the Corgentum hedge fund operational due diligence process. This paper also outlines the benefits of Corgentum’s sole focus on operational due diligence as well as the benefits of Corgentum’s multidisciplinary approach.
The paper is available in the Research section of www.Corgentum.com or via direct link here.
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A Royal Hedge Fund Fruad? – Guy Albert de Chimay
It is being alleged that a New York based hedge fund manager named, Guy Albert de Chimay is a liar.
In particular it is being reported that Chimay, the CEO of Chimay Capital Management, utilized lies about his claims to the Belgian royal family to scammed clients out of more than $6 million, federal prosecutors said.
Specifically, Chimay promised “bridge loans” to pool investors’ money, court papers filed yesterday claim. The problem was that in doing this he, allegedly, falsified bank statements as he swept the money into his personal bank account or spent it, said an SEC complaint (link here) filed in Manhattan Federal Court.
“Rather than using investor money to make bridge loans, Chimay simply stole it,” a civil fraud complaint alleges. “Chimay falsified bank statements to hide the fraud, while diverting at least $6 million into his personal bank account or otherwise misspending it on unrelated firm expenses.”
Investigators said he used the cash for a multimillion-dollar mansion in the Hamptons and an overseas bank account among other items. He also used some of the ill-gotten gains to pay more than $500,000 to a law firm representing him in a divorce.
The SEC said the money-manager told investors his company Chimay Capital had about $200 million in assets and a history of turning big profits for clients. He promised annual returns of 12%.
Chimay, who was featured on three episodes of a 2006 TV documentary titled “Wall Street Warriors“ also claimed to belong to Belgian royalty and to be connected to the famed beer brewed by Trappist monks. “Wall Street takes the brightest people and smashes them into the pavement on a regular basis,” Chimay said on the show. Here is a video showing a tour of the real Chimay brewery:
Perhaps some of the handwriting was on the wall. Chimay had previously shut down certain funds, including an onshore long/short fund named Spartan Mullen Chimay II, due to lack of assets and poor performance in 2006. Apparently related fund entities, were also involved in previous historical litigation as well.
Interestingly, Chimay wasn’t the only TV celebrity at his firm. In 2008, Jason Colodne joined Chimay Capital 
Management. Colodne lost his job at his former employer, Patriarch Partners, for appearing on appeared alongside girlfriend Bethenny Frankel, the unmarried “housewife” on the reality TV show, who was also on the apprentice. Seems like quite a high profile operation on which little operational due diligence may have been performed…..
Bonnie Hoxie’s Hot Tips – Disney Insider’s Hedge Fund Secrets
A few weeks ago no one really knew who Bonnie Hoxie was. An avid tennis player, Ms. Hoxie was a California based
anonymous secretary to Zenia Mucha, Disney’s head of corporate communications. Ms. Hoxie apparently had secret dreams of making it big. But, it seems she wanted to take the quick route to success by selling insider secrets. Specifically, Ms. Hoxie (aka: The Insider Trading Cinderella) and her boyfriend (failed restaurateur Yonnie Sebbag aka: Jonathan Cyrus) cooked up a scheme to sell advance copies of Disney financial reports to investment firm’s including hedge fund’s. It is being reporting that the emails to the hedge fund’s went something like this:
After the news of this broke, a series of emails between Ms. Hoxie and Mr. Sebbag surfaced. It is widely believe that the pair really had know idea what they were doing. As an example, here is an email exchange between Hoxie and Sebbag where Sebbag became frustrated when Hoxie was not able to obtain Disney financial information fast enough.
“Get things moving with all the powers you have,” he (Sebbag) told her (Hoxie).
“What would you suggest I do,” she replied. “If I could wave my magic wand and give you what you want – I would. However, since that is not going to happen I suggest you call on you inner Buddhist – and CHILL the f’ out.”
The email also shows that Ms. Hoxie has expensive tastes – she wanted Sebbag to purchase $700 Stella McCartney
handbags and shoes. The NY Daily News, however reports that Hoxie dressed quite modestly for her court appearance. In her defense, Patrick Hoxie (Bonnie’s father) says his daughter was duped by Mr. Sebbag. Ms. Hoxie was released on bail but Sebbag was denied bail.
Here is a video from Bloomberg describing the case:
And from CNBC:
Despite the sensationalism of this case, the facts involved contain a few important lessons regarding operational due diligence and hedge fund’s.
Information Security:
As noted above, Ms. Hoxie was a secretary to Zenia Mucha, Disney’s head of corporate communications. Zenia has a background in public relations and marketing for politicians including former New York Governor George Pataki and former United States Senator Alfonse D’Amato. In politics, as with hedge fund’s, certain information should be kept confidential. Regardless of who was responsible for information security at Disney, in the modern workplace information is the currency of the future. It is vital to maintain and protect proprietary information.
During the hedge fund operational due diligence process evaluating the systems in place for information security are vital. Can any employee simply plug in an external hard drive and walk away with the portfolio holdings, or proprietary models? What checks are in place to prevent this? How does the firm make sure people are looking into parts of the firm (i.e. – accounting, payroll etc.) that they have no legitimate reason to? Regardless of all the checks in the world, a dishonest employee can still steal certain types of information however, a number of physical (i.e. – non-computer) barrier to information leakage can also be established.
Insider Trading and Compliance:
In the wake of the Galleon scandal, the hedge fund community has undergone increased scrutiny in regards to insider trading. Fortunately in this case it seems that the hedge fund’s which received Ms. Hoxie’s email offering insider information reported the communication to the authorities.
These communications, and the hedge fund’s responses relate to the area of compliance. This is another aspect of a hedge fund’s operational infrastructure which should be reviewed during the operational due diligence process.
An investor must be able to diagnose not only what policies and procedures a hedge fund manager has in place to deal with the potential for insider trading within the firm (i.e. – employee self-dealing) but also, as in this case, from external information sources as well. Hedge fund’s generally receive a great deal of unsolicited information on a daily basis. It is the job of both the compliance department, administrative assistants and all employees to have enough comm
on sense to raise a flag when this type of communication is received. If not, a hedge fund receiving (and potentially acting) on such unsolicited insider information could easily become an unintended accomplice simply because of lack of administrative assistance oversight.
Perhaps hedge fund’s should show bizzare videos like this (in which the people look like they are all from South Park) which I’m sure would prevent anyone even thinking about insider trading…
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