NJ Hedge Fund Under FBI Investigation After Partner and Investors’ Money Becomes MIA
According to FINalternatives, Osiris Fund, a New Jersey based hedge fund, is under investigation after one of its’ partners, Peter Zuck fled with investor’s money. Osiris was unlike typical hedge funds in that it allowed investors to invest only a $150,000 minimum into the fund, as opposed to the standard $1 million. 
Michael Spak, one of the three partners in the fund, reported Zuck to the FBI. He said that the situation was currently under investigation. Osiris was started in 2009 and Spak told FINalternatives, “The fund is a ‘hedged’ fund in the truest sense of the word. Our team’s objective is to immunize the volatility of the portfolio which in turn allows us to produce better than average returns consistently.”
Interestingly enough, according to Bloomberg data, the fund ranked third out of 3,527 top performing global hedge funds in April 2010. Since the start of the investigation, no money has been recovered and Zuck is nowhere to be found.
It was announced that Zuck was arrested in 1995 and spent over a year in jail for “misconduct by a corporate official.” Hedge fund operational due diligence would have revealed these public records as well as identified any other questionable aspects of the fund to investors. Investors should be wary of investing in a fund without performing any bit of ops dd because fraud is much more common than we think… 
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Allen Stanford’s Back – Slow to Justice R. Allen Stanford’s Trial Slogs On
Our good friend R. Allen Stanford is back in the news. His trial for the $7 billion dollar fraud he allegedly perpetrated.
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:
The Dr. Will See You Now – Skowron’s Bad Diagnosis for FrontPoint and Galleon
A hedge fund manager for FrontPoint Partners was sentenced to five years in prison on Friday, November 18th. Joseph Skowron pled guilty in the summer of 2011 to insider trading which resulted in Morgan Stanley avoiding $30 million in trading losses. According to the New York Times, Skowron enticed French doctor, Yves Benhamou, to give him “confidential results about clinical drug trials.” In addition to selling HGSI Human Genome Sciences stock before the news of its downfall was made public, Skowron and Benhamou agreed to deceive the Securities and Exchange Commission (SEC) by withholding information from them regarding their endeavors. Dr. Benhamou also pled guilty to charges he was brought up on, and will be sentenced next month.
Here is a video about the arrest:
Because Skowron obtained access to material non-public information and took advantage of it to benefit himself, he caused many people to lose their jobs and money. Although it is possible to receive non-public information legally, it is what you choose to do with that information that can become a potential problem. In the case of 
Skowron, not only did he go searching for insider information, but he also acted upon the information he received. It was the action he chose to take, that led him down the path he is now traveling. Ironically, Chip, as he is referred to in the industry, made Galleon Group one of his victims. Galleon Group was the hedge fund managed by Raj Rajaratnam, who was sentenced to 11 years in prison for insider trading not long ago. The charges that surrounded Skowron destroyed FrontPoint, which was one of the most prestigious firms on Wall Street. Skowron is forced to pay $8 million in forfeiture and fines to the government.
This is a perfect example of the need for operational due diligence firms. A simple list of investigative procedures, if properly executed, could have prevented Skowron, and several others, from committing this white-collar crime. By conducting a comprehensive review of a hedge funds’ exposure to, operational strengths and weaknesses regarding the hedge fund manager, and a hedge fund’s exposure to material nonpublic information, it will decrease the chance of insider trading as well as other operational risks. It is with due diligence that we can identify any below-the-surface issues within a fund, and find out about people like Skowron, so that investors can make more informed decisions before investing.
