Echoing shades of the deceased Jeffry Picower and Rene-Thierry Magon de la Villehuchet in the Madoff scandal, Mr. Frerichs proved to be an interesting character in the K1 scandal whose full story will never be revealed. He

Mr. Frerichs, 72, died of a gunshot wound on Saturday after police officers went to his home in Palma, Majorca to serve a warrant for extradition to Germany, the Spanish police said Monday.

According to a police spokeswoman, three officers went to Mr. Frerichs’s home on the island at 11:30 a.m. on Saturday and found him sunbathing nearby on rocks overlooking the sea. When the officers identified themselves, they said, Mr. Frerichs took a gun from a bag that was lying beside him and leapt into the water.

Mr. Frerichs fired two shots, the spokeswoman said. The first, presumably to test the gun, the authorities said, was fired in the air; with the second, he shot himself in the head. Mr. Frerichs was picked up by a rescue boat and taken to the Son Dureta hospital in Palma. He died not long after arrival.

According to the New York Times, the case has sent shock waves through Spain, where Mr. Frerichs’s stepdaughter, Fiona Ferrer Leoni, initially told the media that the police had shot Mr. Frerichs. She also questioned the police account of him sunbathing with a gun.

Ms. Ferrer, a prominent television personality and model, is married to Jaime Polanco, a Spanish tycoon whose family controls Promotora de Informaciónes, or Prisa, the media group, whose assets include the newspaper El País.

She also told the Spanish news media that Mr. Frerichs had been sought only for his relationship to K1 Group executives and that he was innocent of any fraud.

The police spokeswoman, who cannot be identified because of department policy, denied that officers had fired at Mr. Frerichs. She said his weapon had been retrieved and would be used, along with an autopsy, to determine the exact circumstances of his death.

“It is not normal to be sunbathing with a bag that has a gun,” the spokeswoman said. “But that’s what he did.”

Dietrich Güder, the state prosecutor in Würzburg, declined to comment beyond confirming that the Spanish police had informed him of the events.

Lutz Libbertz, a lawyer in Munich for Mr. Kiener, argued in a November court filing that Mr. Kiener could “at the most be accused of making bad investment decisions, but not of actions constituting breach of trust.” Mr. Libbertz declined to comment on Monday, saying through an associate that “he had nothing to add to what’s already been said.”

Mr. Kiener promoted the power of his “K1 Fund Allocation System,” and is accused of taking advantage of lax lending oversight by banks during the credit boom. He claimed his investments had returned more than 700 percent from 1996 and the end of 2008.

Mr. Kiener, K1′s founder, is equally interesting. He was a former telephone book salesman and psychologist (who graduated from Johann Wolfgang Goethe-University in Frankfurt, Germany in 1987) who founded a seemingly successful and large asset management organization.

The case has been an embarrassment for Germany, as BaFin, the market regulator, had several times sought to stop Mr. Kiener’s activities because of significant legal questions but had its enforcement overturned on appeal.

Mr. Kiener has been in custody in Würzburg, Germany, since October on suspicion of operating a pyramid scheme, defrauding thousands of privat

e investors and banks including JPMorgan Chase, Barclays and BNP Paribas of more than 300 million euros, or $375 million. The F.B.I. is also investigating the group; so are authorities in the British Virgin Islands, Liechtenstein and Switzerland.

The two highly leveraged funds had a combined 421 million euros ($529 million) of liabilities when the accounting firm Grant Thornton was retained in November to liquidate them. The authorities say the prospects for recovering most of the money are poor.

Click here to discuss this post.

Permalink.

Here is the trailer:

Mr. Gecko is most famous for the line, “Greed, for lack of a better word, is good.“ Here the clip where Mr. Gecko says the famous line at a stockholder’s meeting:

This new movie revisits Mr. Gecko 23 years later, after he is released for stock manipulation and other securities crimes.

In this film, Mr. Gecko tries to warn the world of the 2008 financial crisis (before it happens). Along the way he crosses paths with a hedge fund’s prop trader, Jacob, (played by Shia LeBouf). In a plot twist Jacob suspects, who else but the hedge fund manager for the death of his mentor….

In the pre-Madoff environment, and particularly in the 1980′s when the first Wall St. film takes place, business and operational shenanigans, may have foolishly been subject to lesser degrees of due diligence – which is perhaps why they either went undetected or grew out of control (i.e. – Ivan Boesky)

All this made me think in the post-Madoff environment if the Gordon Gecko’s of the world would still stand up to modern due diligence techniques? ….

Perhaps maybe this theatrical shareholder’s speech sums it up best:

Click here to discuss this post.

Permalink.

The study, ‘The Madoff Effect – An Analysis of Operational Due Diligence Trends’, is available for download at www.Corgentum.com or directly here.

For this study Corgentum collected data from over 200 global hedge fund allocation organizations including fund of hedge funds, endowments, foundations, corporate pensions, family offices, large independent financial advisory practices, ultra high net worth investors and private banking organizations. “The data shows that frauds such as Madoff are an important, but potentially misleading guiding light around which investors tend to focus their due diligence on hedge funds” said Jason Scharfman, Managing Partner.

Investors, influenced by recent hedge fund failures, have refocused their due diligence efforts on operational risk areas where leading operational red flags were present. In particular, since the Madoff scandal broke, this study shows that the number of fund of hedge funds reviewing hedge funds cash management policies and controls increased by almost 60%.  Other operational risk areas covered in the Corgentum study that have realized double-digit increases in attention from investors include transparency in reporting and the role of service providers such as auditors and administrators.

Corgentum’s analysis also demonstrates that certain operational risk areas continue to be dangerously neglected during the investor due diligence process. Less than 2% of the fund of hedge funds included in this study considered the independence of a hedge fund’s board of directors during the due diligence process. Other frequently overlooked operational risk areas included information technology infrastructure, personnel turnover and the quality of overall operations management.

“Investor’s must not only understand historical red flags, but be prepared to anticipate new ones. By incorporating proprietary benchmark studies of hedge fund fraud and models of operational inefficiency into our evolving operational due diligence process, Corgentum’s approach ensures investors keep up with the changing nature of hedge fund operational risk” said Scharfman. “Corgentum will continue to partner with fund of hedge funds, pensions, family offices and other investors to create tailored comprehensive hedge fund operational due diligence and ensure that their operational due diligence reviews are not misguided by fraud.”

Opalesque, published an article regarding the study . The article is entitled, “Madoff Effect continues to see investors focus more on fraud risk than operational risk” and is available at www.Opalesque.com or via direct link here (subscription required). Additionally, the press release regarding this study is available  here. HedgeCo.Net and HedgeWeek also covered the study in this post.

Click here to discuss this post.

Permalink.

Corgentum – Working with Investors to Evaluate and Monitor Operational Drag® in Hedge Funds

The paper is available for download in the research section of  www.Corgentum.com or here.

Hedge Fund Operational Due Diligence: Operational Drag

Click here to discuss this post.

Permalink.

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.

Click here to discuss this post.

Permalink.

From some recent media coverage… “Former Société Générale chief Daniel Bouton, who resigned amid intense criticism just over a year ago, branded Kerviel “a terrorist” at the time. But Kerviel quickly became a romantic underdog – a clever anti-hero seen to be caught in the massive cogs of finance, who was only trying to do his job. T-shirts around Paris read, “I am Jerome’s girlfriend,” and he wrote a tell-all book, published last month.”

His book is called L’engrenage, Mémoires d’un trader . Kerviel even had a graphic novel comic book made about his escapades (Le Journal De Jérôme Kerviel).

Here is a video about Kerviel back in court:

Here is an interview from French television (in French) with Kerviel:

But I think these British puppets might describe the whole rogue trader situation the best:

Or perhaps this sums it up more succinctly:

Click here to discuss this post.

Permalink.

This paper provides a discussion of the importance of audited financial statement reviews as part of the broader hedge fund operational due diligence process. Additionally, this paper provides a list of key questions investors may want to consider when reviewing audited financial statements.

The paper can be found in the Research section of the www.corgentum.com website, or via direct link here .

Click here to discuss this post.

Permalink.

1) the demand for operational due diligence seems to be global in nature (i.e. – USA, Asia and Europe);

2) direct hedge fund operational due diligence experience is (foolishly) not always required, but rather an industry qualification is sufficient in some cases;

3) based on some job descriptions it is clear that certain operational due diligence functions will be understaffed to performed a thorough operational due diligence review;

4) In certain other cases, the operational due diligence position may be part of a larger role which will require the operational due diligence analyst to both perform due diligence and oversee other internal operational processes

In short, based on the continued apparent misperception among certain hedge fund allocation groups as to the time and effort required to perform operational due diligence, I would highly encourage all those seeking an operational due diligence role to perform some sort of due diligence on your potential employer to ensure they actually understand the appropriate effort required to thoroughly perform operational due diligence on a hedge fund.  If not,  an under resourced and overworked operational due diligence analyst may find themselves serving as a scapegoat in the event a hedge fund failure occurs (a fund which they may not have had the opportunity to thoroughly vet). Here’s a video about scapegoating:

Some recent links to some operational due diligence jobs are posted below. As I stated in the previous post, I do not know if these positions have been filled and I do not vouch for or endorse any of these positions. Now with all of this hokum out of the way I thought this list might be of interest to some of this website’s readers:

Operational Due Diligence Researcher (Seattle, Washington, USA)

Hedge Fund Due Diligence Analyst (New York, New York, USA)

Operational Due Diligence Associate (New York, New York, USA)

Director, Operational Due Diligence (New York, New York, USA)

Operational Due Diligence Analyst (London, United Kingdom)

Head of Operational Due Diligence (United Arab Emirates)

Click here to discuss this post.

Permalink.

It’s worth noting that in a separate case, Kovachev in 2006 was ordered to pay $350,000 in a civil suit brought by the U.S. Securities and Exchange Commission accusing him and 11 others of defrauding more than 600 investors of more than $28 million in a Ponzi scheme. The SEC said that Kovachev and others sold unregistered securities structured as hotel timeshare rental interests.

Mr. Dreier was a graduate of  Yale as well as Harvard Law School. He previously ran Dreier LLP which had offices in five cities, employed over 250 lawyers and annual revenues of over $90 million. the firm’s client’s included Bill Cosby, Andy Pettitte and Justin Timberlake. The firm is now defunct.

Notable quotes from the video, which investors might want to keep in the back of their mind during the operational due diligence process include:

“The more money you look for the fewer questions people ask sometimes.”

“It was clear to me the more you showed people you didn’t need money, the easier it was to attract money”

“A $20 million dollar mistake had grown into a $100 million mistake”

“Do I have chutzpah? Yes!”

He further goes onto describe part of the reason he finally was caught was that a potential investor, who was attempting to defraud, had acted diligently and made some phone calls (i.e. – performed due diligence) which had raised his suspicions.  If that isn’t an endorsement for operational due diligence I don’t know what is.

The video describes how Dreier lived a lavish lifestyle to create the illusion that he already was a billionaire before his empire crumbled. Some of his assets included an $11 million ocean front compound in the Hamptons, his $10.5 million apartment, an art collection that included a Picasso, three Matisse’s and 12 Warhol’s. Also just like Madoff, Dreier had a yacht. His was a 120 foot yacht called “Seascape” staffed by a full-time crew of 10, which Dreier paid $18 million for.

The video also describes how Dreier tried to further add an air of credibility to his persona by hosting charity events with former New York Giants (American football) player turned actor Michael Strahan, which were attended by such celebrities as Diana Ross, Jon Bon Jovi, Alicia Keys and William Shatner.

Dreier is serving 20 years at a Federal Correctional Institution in Sandstone, Minnesota. He is scheduled for release on October 26, 2026.

Click here to discuss this post.

Permalink.

To refresh memories, initial arrests were made last year in regards to an on-going fraud investigation into the K-1. Most notably the firms founder (and former telephone book salesman), Helmut Kiener, was arrested. He still remains behind bars. Perhaps Helmut is lucky, at least he is safe in prison from disgruntled German investors.

K1 Group is at the center of an international criminal probe after saddling banks including Barclays Plc, JPMorgan Chase & Co. and BNP Paribas SA with losses. European and U.S. authorities are examining whether Kiener deceived the banks when he borrowed money.

Now there have been two new arrests. Dieter Frerichs, the managing director of K1′s two British Virgin Island-based funds, and David Zuendorf, who worked with the funds’ administrator Treukapital Treuhandverwaltung AG, were arrested on April 13.

Prosecutors in the southern German city of Wuerzburg said in a statement that these arrests were reportedly the result of renewed searches of foreign premises linked to the original K1 fraud investigation.

“There is a suspicion that investors may have been hit by around 90 million euros in fraud damages,” the statement said, adding that the investigation indicated the investment companies were a “snowball system with no objective of earning a profit”.

Click here to discuss this post.

Permalink.