The Hedge Fund Fraud Casebook E-Book

Bruce Johnson

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 392

Veröffentlichungsjahr: 2010

Beschreibung

An in-depth, well-researched look at 100 hedge fund frauds Compared to mutual funds, hedge funds are the James Bonds of the marketplace. They have been relatively unfettered by government regulation, and they play bigger games, take bigger risks, use unorthodox methods, and have the power to capture the public imagination in a way that their lesser counterparts have difficulty approaching. At once fascinating and startling, The Hedge Fund Fraud Casebook provides readers with a broad knowledge of hedge fund regulation through a look at the first 100 cases of proven fraud at hedge funds. Compiling concrete data on cases of hedge fund fraud, The Hedge Fund Fraud Casebook provides you with a factual foundation for assessing this difficult area of risk. * First comprehensive survey of hedge fund fraud including 100 chronological fraud cases * Includes descriptions of each case, diagram of the player interaction, and tables detailing monies recovered, fines paid, prison terms, and professional sanctions * Useful for both individual and professional investors, particularly given the last eighteen months of fraud and mismanagement among leading financial professionals and companies The Hedge Fund Fraud Casebook provides a hedge fund professional's look at fraud and can help you prevent or avoid similar frauds in the future. It's a vital resource for any hedge fund manager or investor.

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Preface

ALL ROADS START SOMEWHERE ELSE

WHAT’S DOING IN DUE DILIGENCE?

THE SUCCESS OF FAILURE

CREDIT IS THE PROBABILITY OF FAILURE

BAITING FRAUD

Acknowledgments

Introduction

FINANCE IS SCIENCE

FRAUD IS LAW

PART ONE - Life, Death, and Degeneration

CHAPTER 1 - Historic Roots of Prohibitions against Fraud

FRAUD IN THE EARLIEST LEGAL SYSTEMS

MODERN DEVELOPMENT OF SECURITIES FRAUD REGULATION AND ENFORCEMENT

THE MONEY TRUST AND THE PANIC OF 1907

BLUE SKY LAWS

THE PUJO COMMISSION

THE GREAT CRASH AND THE PECORA COMMITTEE

ROOSEVELT’S MEN

THE SECURITIES ACT OF 1933

THE SECURITIES AND EXCHANGE ACT 1934

THE INVESTMENT ADVISER’S AND INVESTMENT COMPANIES ACTS OF 1940

COMMODITIES REGULATION

THE COMMODITIES EXCHANGE ACT OF 1936

BRIEF HISTORY OF FRAUD IN THE DIFFERENT TYPES OF INVESTMENT COMPANY

INVESTMENT TRUSTS

MUTUAL FUNDS

INDEX FUNDS

FUND OF FUNDS

HEDGE FUNDS

CHAPTER 2 - Assumptions Regarding Events and Uncertainties in the Mortality of ...

INCENTIVIZATION OF HEDGE FUNDS

MORTALITY CALCULATIONS

CHAPTER 3 - Uncertainties and Events within the Law Enforcement System

ENTERING THE BELLY OF THE BEAST

THE GAME OF SNAKES AND LADDERS

PART TWO - Cases and Conclusions

CHAPTER 4 - Cases

HEDGE FUNDS

FRAUD

CASE NUMBER AND CASE NAME

CAPSULE: GENERIC SUMMARY

BULLET POINTS

FRAUD FACTS

CASE SUMMARY

CASE DIAGRAM

CHAPTER 5 - Summary: Case Group Characteristics

COUNT

FREQUENCY

DISTRIBUTION OF CASES BY ENFORCEMENT AGENCY AND CASE LOCALE

LOSSES

VIOLATIONS

CASE GROUPING

SCHEMATIC ORGANIZATION OF CASE GROUPS

SUMMARY

Index

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding.

The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisers. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more.

For a list of available titles, please visit our Web site at www.WileyFinance.com.

Copyright © 2010 by Bruce Johnson. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at [phone], outside the United States at [phone] or fax [phone].

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:Johnson, Bruce, 1947 Feb. 4-

The hedge fund fraud casebook/Bruce Johnson.

p. cm.

Includes index.

ISBN 978-0-470-56046-4 (cloth)

1. Securities fraud-United States. 2. Securities fraud-United States-Cases. 3. Hedge funds- Corrupt practices. 4. Hedge funds-Corrupt practices-Cases. I. Title.

HV6769.J64 2010 364.16’3-dc22

2009041463

To my mother, who passed away before this could be published

Preface

Hedge Fund Life and Death

ALL ROADS START SOMEWHERE ELSE

At the outset of this book, I had accumulated nearly 20 years of research experience in the financial industry, including work as a securities analyst, the head of a research department, chairman of all securities research for an investment bank, and as an independent research consultant. My work has spanned both sides of the philosophic divide that separates “fundamental” analysts from “quantitative” analysts as well as within both methodologies characterized as “top down” and “bottom up.”

Chronologically, the first half of my career was devoted to Japan and the emerging markets and the second was dedicated to hedge funds. The first contact with the “hedgies” began in the mid- to late 1980s as a broker with hedge fund clients. It did not take long to observe that these folks were a strange tribe particularly for their near total lack of interest in the seemingly important facts that we analysts took so much trouble to produce and for the opacity of whatever it was that did interest them. In 1997, I set up my own institutional advisory company, with a focus on subjects related to index investment, an area in which I had gained expertise as a broker. Through this work, I became directly involved in the research strategies and management of hedge funds. Not long after that I “drank the Kool-Aid” and became a full-time hedge fund advisor in Hong Kong and, later, a hedge fund consultant in San Francisco.

In 2003, I returned to the United States to manage the U.S. office of an international hedge fund consultancy. The mostly young, bright, and hard-working professional staff there were engaged in activities that were familiar to me from my days as a fundamental company analyst, such as visiting hedge funds, asking a lot of questions, putting the results into analytic text and numbers and advising the client-investors on what to buy and sell. A smaller number of more quantitative people were responsible for aggregating the analyst data, along with broader top-down data on the economy and the markets to produce high-level strategic advice that went into performance assessment, asset allocation, and portfolio construction.

WHAT’S DOING IN DUE DILIGENCE?

Given an in-built aversion to repeating challenges and wishing to avoid competing with people half my age, I became a connoisseur of unpopular research topics. The more undesirable the topic, the more time I could spend in peaceful contemplation. After asking around for the ugliest and most tedious subject available, the universal response was due diligence.

So began six years of research that culminated in a book on hedge fund fraud. Work on my new research topic started inauspiciously enough, trying to understand why it was so unpopular and yet so important. Early observations established the fact that due diligence was an extremely labor-intensive and, therefore, costly activity, characterized by a lot of real and metaphorical shoe leather expended in visiting hedge funds around the country. Each visit entailed running through long lists of carefully constructed questions designed to catch lies and inconsistencies while harvesting as much useful information as possible. The gum-shoe tactics also included physical auditing of the workplace, or “kicking the tires” by inspecting the workplace, its people and practices in order to identify any “canaries that had stopped singing in the coal mine,” the “red flags,” the “gut-feelings”—indeed, anything that seemed odd or out of place.