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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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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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.

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A jury recently handed down a sentence which found that the Galleon Group’s founder Raj Rajaratnam was convicted of insider trading. Bloomberg is reporting that jury never argued during 12 days of secret deliberations that he was innocent.  Instead the focus was on what sentence to give Rajaratnam. Here is a post about the Galleon verdict entitled, Galleon’s Fait Accompli : Investor’s Move the Dial Towards a Conservative Approach to Hedge Fund Research, on the Corgentum Consulting blog and some videos from the trail and verdict:

http://youtu.be/YKbqdE_BA5w

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The trial of Raj Rajaratnam has wrapped up and the jury is expected to begin deliberations shortly. Rajaratnam is the co-founder of the Galleon Group hedge fund. He is accused of insider trading. Rajaratnam’s lawyers argue the information was not so-called insider information but rather publicly available.

Many interesting development occurred during the trial. Here are some videos outlining the developments:

Video – Closing the Galleon Case

Another video from CNBC debating the term insider trading versus material non-public information and smoking guns:

Video – CNBC Galleon and Insider Trading

And a summary of day two of the trial:

Video – Summary of day two of the Galleon Trial

A video about former Galleon portfolio manager Adam Smith’s testimony:

Video – Adam Smith’s Galleon Testimony

And a video about the testimony of Lloyd Blankfein, the Chief Executive Officer of Goldman Sachs Group, about Rajat Gupta (former CEO of

McKinsey & Company and a former Goldman Sachs Board Member):

Video – Lloyd Blakfein testimony

Finally the closing arguments:

Video – Galleon Closing Arguments

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The Galleon Case:

Or perhaps so-called insider trading should be legalized?

And then of course there is the Wilpons and Madoff:

From CNBC:

ESPN’s take on the Wilpon / Madoff scandal (which the Wilpon’s claimed would not affect the NY Mets baseball team they own) including Larry King’s take on the subject:

Interesting Irving Picard’s lawsuit to clawback capital centers around the issue of operational due diligence red flags. Another interesting argument made Picard is that the Wilpon’s should have been even more aware of Madoff’s red flags because of their previous experience with Ponzi schemes. The Wilpon’s have a history of of investing with Ponzi’s schemes before – they invested in Sam Israel’s Bayou – perhaps Mario Cuomo may be able to mediate a settlement…

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Details are still emerging regarding JPMorgan Chase’s alleged knowledge of the Madoff fraud. Here is a video about the investigation:

It is  being reported that the latest avenue being pursued by Madoff trustee Irving Picard is that one of the many operational due diligence red flags which should have alerted JP Morgan Chase & Co. to the Madoff Ponzi scheme was the number and volume of suspicious transactions by one of Madoff’s so-called “surrogate father” a man named Norman F. Levy. Mr. Levy, who is now deceased, was a real estate broker who made transfers from1998 to 2001 to the tune of more than $83 billion in and out of his account with Madoff. Levy’s  supermodel girlfriend, supermodel Carmen Dell’Orefice, would lose her life savings with Madoff. Here is a video showing Ms. Dell’Orefice modeling:

Levy’s estate is being pursued by the IRS as a result of revelations from the Madoff fraud.

The other so-called “surrogate father” to Madoff was, according to Vanity Fair, philanthropist Carl J. Shapiro. Shaprio (who’s wife is also named Ruth) lives in both Boston and Palm Beach and was the founder of Kay Windsor, Inc. a maker of women’s apparel.

Despite heavy Madoff losses for Shapiro personally, and his charities, Shapiro agreed to return $625 million to Irving Picard which included $38 million which was paid by Shapiro’s son in-law (Robert M. Jaffe).

In other Madoff news, it is being reported that Ruth Madoff was turned away from a memorial service for her son Mark by Mark’s widow. Apparently there are still hard feelings from when Ruth chose to visit Bernie in jail after he was reportedly beaten in prison.

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Continuing in the great spirit of Chicago crime and fraud, a former Chicago hedge fund manager was arrested on fraud charges today. Hedge fund manager James Brandolino turned himself in for allegedly running a Ponzi scheme via which he stole more than $3.5 million from approximately 48 victims.

Brandolino was charged with mail fraud in a criminal complaint filed in U.S. District Court. The announcement was made by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Thomas P. Brady, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago.

Brandolino is 42 years old and a currently resident of Joliet, Illinois – the same place famous Blues Brother “Joliet” Jake Blues is from. He had been running the Ponzi scheme since 2003. Brandolino claimed to be running a managed futures strategy as commodity pool adviser (“CPO”).

Throughout the life of the Ponzi scheme he kept it going by providing about $1.1 million in investor redemptions. He then lost half of the money through poor trading decisions – no crime there. The problem, in part, was that Brandolino allegedly told investors that their funds, minus a commission, was being used to trade futures contracts, and always told that his trades were profitable, even though often it was not. This claim of constant (or almost constant) steady profitability is a familiar red flag reminiscent of many recently uncovered frauds and Ponzi schemes, including Madoff. Brandolino also allegedly lied about  his assets under management in investors statements. In October 2010 he claimed to have $7.5 million under management.

It is also alleged that Brandolino misused most of the remaining funds for his own benefit. It is unclear exactly what he spent the money on as his only remaining assets consisting of a luxury automobile, a watch and an interest in an unfinished condominium in Greece on which he put down 80,000 Euros, or more than $107,000.

Interestingly, Brandolino has previously held various National Futures Association registrations in the commodities brokerage business, (including exchange floor trading privileges at the Chicago Board of Trade (now CME Group). Here’s the link to his NFA broker report. Brandolino was previously a principal of several commodities trading businesses, including Brandolino Investment Group, Falcon Capital Partners LLC, Lloyd Lewis Capital, Inc., Falcon Trading Group, Inc. Here’s the link to his Twitter account.

Apparently all you need to do is watch this video to become a commodities broker…

Another operational due diligence red flag was the generation of false investor statements. Between 2003 and 2007, Brandolino allegedly accepted approximately $1.5 million from roughly 20 investors and  generated false statements showing steady returns even though by mid-2007 he had lost most of the money through bad trading decisions.

In mid-2007, he started a commodity pool known as Falcon Stock Index LP, without disclosing that he had previously defrauded investors. When this fund closed in July 2008, Brandolino allegedly traded equity index futures and earned actual net returns of about 15.5%, but didn’t tell any of his investors that he had stopped trading in mid-2008 and failed to return their money, according to the charges. The government is being represented by Assistant U.S. Attorney Samuel B. Cole.

Brandolino appeared this afternoon before U.S. Magistrate Judge Michael Mason and asked to remain in federal custody. He’s probably safer in custody then on the streets where defrauded investors may want to have a word with him….

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It seems as if wronged Madoff investors had a brief moment to recover thanks to the efforts of Madoff trustee Irving Picard in his continued pursuit of reclaiming (i.e. – clawing back) capital from those who reaped profits from the Madoff scandal. One of the biggest benefactors from Madoff appears to have been the late Jeffry Picower (see previous posts about Picower here).

Mr. Picard recently announced a deal struck with the Picower estate to repay $7.2 billion. Only approximately $5 billion will go to Madoff victims with the remainder being paid to the government. Not every investor was happy with this deal and several of them have banded together and filed a lawsuit objecting to the settlement. This settlement will not leave Picower’s widow destitute. Most of this money had been intended for a philanthropic foundation, not for Picower’s heirs. According to the Washington Post, Picower’s widow will retain $200 million and his daughter will retain $25 million, the funds for all of which reportedly derived from sources other than Madoff-related profits.

Here is a video from MSNBC regarding the settlement:

And from the Wall St. Journal:

Here is a nice summary of the Picower withdrawals from Madoff:

In other Madoff news, Madoff’s former secretary Annette Bongiorno was recently freed on bail.

Here is a video regarding the original charges brought against Bongiorno’s and another Madoff secretary Joanne Crupi (who was responsible for supervising the primary bank account used in BMIS’s investment advisory operations):

Bongiorno is accussed of assisting Madoff implement his Ponzi scheme. Clients recruited by Bongiorno and her electrician husband Rudy had their money put in accounts that were code-named RuAnn in company files, according to a former Madoff employee . It is reported that Bongiorno mined her old Queens neighborhood for investors. Not helping her case are Bongiorno’s considerable assets including a $2.6 million mansion in a gated community in Manhasset, New York, and three fancy cars, including a Mercedes that sells for nearly $100,000.

Bongiorno, 62, is facing charges of helping Madoff defraud investors of billions of dollars. Bongiorno, pleaded not guilty to conspiracy and fraud charges. U.S. District Judge Laura Taylor Swain in Manhattan cut Bongiorno’s bail from $5 million to $3 million after prosecutors seized most of her bank accounts and defense lawyers agreed to disclose others. The judge required eight people to guarantee the bail. This bail reduction allowed Bongiorno with enough flexibility to make bail, but she will remain under house arrest in her Manhasset mansion…

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