British Madoff Terry Freeman Admits to Running a Ponzi Scheme
A man who has been dubbed the to be the “British Madoff” and Britain’s “mini-madoff” admitted to running a Ponzi scheme. The man, Terry Freeman is 62 years old and from Buckhurst Hill in Essex, United Kingdom. He admitted to fraudulent trading, engaging in business while bankrupt, acting as a director when bankrupt and acting in contravention of a disqualification order.
Freeman was convicted at Southwark Crown Court. Judge Geoffrey Rivlin QC (who incidentally found two people who cheated on the UK version of Who Wants to be a Millionaire? not guilty) told the court: “People were putting good money into this business and they were being conned.”
He
defrauded approximately 700 investors including golfer Colin Montgomerie’s ex-wife Eimear. The daily mail reports Eimear invested a small amount with Freeman’s company, GFX Capital. One couple invested £1.4m, were told that it had risen to £2.7m, only to later find just £14,000 in their trading account. The City of London police, who uncovered the fraud, said that the couple were now living in rented accommodation “in a state of despair”.
Freeman so-called investment strategy was centered around foreign exchange investments – but it was all a Ponzi scheme. He was paying off earlier investors with new
cash coming through the door. Like Madoff, Freeman lived an extravagant lifestyle owning vacation homes in Cyprus and France, an executive box at Tottenham Hotspur FC which he bought for £44,000 and used to impress prospective investors, a £120,000 diamond ring for his new bride and expensive City offices.
Freeman’s downfall came about due to the collapse of the global economy and Lehman Brothers. When investors began to demand their money Freeman became scared for his life and went to the Metropolitan police in February 2009, complaining that investors were threatening him and admitting he had lost £20m. He was arrested days later. Police said he was trying to draw in new investors even as the operation crumbled around him.
If investors had performed their operational due diligence, they may have learned that Freeman had a checkered past. He was disqualified from being a director as a result of an earlier conviction. In 1997 he was jailed for four and a half years after being found guilty of eight offences relating to bankruptcy and being a disqualified director. In an attempt to start fresh, he changed his name from Terrence Sparks on leaving jail in 2000. Using a Saxo Bank trading platform, he attracted investors to GFX with the offer of high returns on short-term trades.
The United Kingdom’s Financial Services Authority is effectively claiming that detecting the Ponzi scheme was not their responsibility since Freeman’s Ponzi scheme was unregulated. The unregulated nature of this entity prevents investors from seeking compensation from the FSA.
Here is a video in which one of Freeman’s victims Peter Besson who put £600,000 into Freeman’s fund speaks out:
It seems in this case a simple background investigation and a bit of operational due diligence may have detected many of the red flags which could have raised investor concerns before they unfortunately lost millions.
Corgentum highlights the importance of robust hedge fund operational policies and valuations procedures with Opalesque
A recent Opalesque article outlined the recet the comments of Jason Scharfman, Corgentum Consulting Managing Partner on the subject of trends in hedge fund operational risk.
In the article, which is entitled 20% of marketing presentation should be dedicated to investor education , Mr. Scharfman outlines in part that, “[managers] need to have a robust operational policy (from pricing sources, to valuations, to how the administrator receives that information, to cash management policies).”
The full article can be read on the Opalesque website (subscription required).
Corgentum’s Overview of Material Nonpublic Information Operational Due Diligence Considerations For Hedge Funds in the US
Corgentum Consulting has released a new paper entitled, Hedge Fund Operational Due Diligence Education Series – Understanding Material Nonpublic Information in the United States.
With the recent raids of the offices of three hedge fund managers by the Federal Bureau of Investigation and the on-going prosecution of Raj Rajaratnam’s Galleon Group, cracking down on allegedly illegal insider trading is clearly on the forefront of the U.S. government’s financial regulatory agenda. Here is a video from CNBC concerning the recent FBI raids:
Hedge Fund Operational Due Diligence Education Series – Understanding Material Nonpublic Information in the United States provides an introduction to the ways in which hedge fund’s may interact, either directly or indirectly, with material nonpublic information. Areas addressed in this paper include a hedge fund’s use of expert networks as well as other third-party firms which provide information to hedge funds. Also discussed in this paper are several questions investors should address during the operational due diligence process in order to diagnose both a fund’s potential exposures to the risks associated with material nonpublic information as well as what preventative measures, if any, a hedge fund may have taken to insulate themselves for the liability associated with receiving or trading on such information.
The paper can be found in the Research section of the corgentum.com website, or via direct link here.
