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:

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This paper outlines, the benefits to investors of developing and maintaining competency of global operational risk trends. While an absolute best practice standard facilitates uniformity in comparing operational risk information, this methodology can suffer from rigidity.

A floating standard can better accommodate the particularities of hedge funds operating in different regions but runs the risk of being overly flexible.

Hedge Fund Operatinal Due Diligence: An Absolute or Floating Standard? can be found in the Research section of the www.corgentum.com website, or via direct link here .

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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)

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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.

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For more information or to enroll in this course please visit the course details homepage.

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This paper discusses several key questions investors can utilize to evaluate their hedge fund’s administrator. Other topics addressed in this paper include the importance of understanding the nature of the administration services being provided, the need to monitor the on-going relationship between the hedge fund and the administrator and the diagnostic process concerning the role played by the administrator in the overall valuation process.

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

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At least they made Claude smile again.

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Essentially if any of the above items are indeed true we can stop this story right here. There are certain basic red flags that should come up during the operational due diligence process. Confirming employment, reputation and education history should be a core part of any basic due diligence process. I would be more interested to learn which “investors” forked over the approximately $4.7 million that Houston in investors gave to Spyglass between 2004 and 2006.

The SEC complaint, filed in Texas, alleges that between in 2004 and 2006, Kim and Spyglass raised approximately $4.7 million from investors located primarily in Houston, Texas using offering materials that contained misleading information relating to Kim’s education, business experience, and compensation. I would hazard a guess to say that if any of those investors knew about any (or even knew about allegation of) any of these red flags (i.e. – educational, employment and reputation discrepancies) they wouldn’t have invested – or at least I hope they wouldn’t. If Mr. Kim’s Spyglass Management, L.P. presented such a compelling investment story that it seemed investors wanted to bear any supposed additional risks or questions that remained unresolved relating to Mr. Kim or Spyglass, at a very minimum investors who would have performed these basic operational due diligence screens, they would at least be mak

ing an informed decision.

The problem was, as is the case in most alleged hedge fund frauds, when everyone was making money operational due diligence took a seat on the back burner. As Hedgefund.net reports, problems arose when Kim’s Collateralized Mortgage Obligations (aka: CMO)  hedge fund counted on an interest rate climb which never came. That misstep

wiped out Spyglass Management, as Kim named his company. He continued his fund, providing misleading performance data, the SEC said. Here is a link to the SEC press release and the complaint. Notable quotes from the complaint include:

• “In reality, Kim was simply a day-trader who lost money.“

• “The offering materials represented that Kim had degrees in finance and economics from the University of Texas, and that he had 12 years of experience in the securities industry with several well-known brokerage firms. Although Kim had a degree in economics from the University of Texas, he did not have a finance degree.“

• “Kim failed to disclose that one of the brokerage firms listed in his biography had terminated Kim for engaging in unauthorized trading.“

• “In November 2006, after the investors became aware of Kim’s other business ventures and the dearth of information concerning the fund, Kim had Spyglass Management produce a false statement valuing the fund at $1.9 million, when in reality the fund only had approximately $1,000.“

And my favorite:

• “In addition, Kim told investors and potential investors that he would not take any compensation until investors in Spyglass Partners received a one-hundred percent return of their original investment.“

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This paper discusses the importance of understanding and diagnosing the hedge fund due diligence document distribution process as part of the overall operational risk evaluation of a hedge fund manager. Questions posed by this paper for investors to consider include:

• Are response requests pro-active or reactive?

• How is investor information protected?

These questions are particularly relevant in light of increased concerns over the way in which hedge funds come across and utilize material non-public information.

Also highlighted in this paper are the potential for increased operational risks in hedge funds which do not effectively manage due diligence related document distribution. This paper can be found in the Research section of the www.corgentum.com website, or via direct link here .

Here is a link to the paper on HedgeCo.net.

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