Should investors in a fraudulent hedge fund, who withdrew money that really wasn’t there, be able to keep that money? That’s the question for former investors in the Bayou group of hedge funds.
Prior to the fraud being discovered, several investors, including New York Mets owner Fred Wilpon, according to the New York Post, withdrew money from the fund.
The problem is that the fund was losing large amounts of money while reporting profits, so the money withdrawn may not have been the original investment plus profits, but other investors’ money, as is the case with your basic ponzi scheme.
The trustees for the bankrupt Bayou Management are suing Sterling Stamos Investment Fund arguing “constructive fraud.”
Attorney Ross Intelisano is representing a group of Bayou investors who together had $20 million invested in Bayou. He says if the investors who pulled money out of the Bayou funds prior to the bankruptcy knew it was a fraud, it is going to be difficult for them to keep that money. Intelisano’s customers are not party to the trustees suit but would benefit if the funds are returned to Bayou to be distributed by the bankruptcy court.
Glenn Ferencz, partner in the hedge fund practice group at Gardner Carton & Douglas, says if the redemptions came within 90 days of the Bayou bankruptcy, there is a good chance the money will be returned.
Intelisano suggested the most fair solution may be to make everyone throw their money back in the pool and give everyone a pro rata share.
“It is not fair that someone happened to get out in February with say $5 million and at the same time my client put in $5 million, he basically just took my client’s money.”
He says there is no guarantee. “This case is going to be tough. It is certainly not a slam dunk. [The trustees] are filing the right claims and I hope that the pool gets bigger,” Intelisano says.
Goldstein measuring SEC
Phillip Goldstein, the hedge fund manager who took on the Securities and Exchange Commission (SEC) and won, is at it again. This time Goldstein is fighting SEC Rule 13F, which requires any institutional investment manager exercising discretion over accounts of at least $100 million of certain equity securities to make public their positions
Goldstein, who manages two funds that have recently surpassed the benchmark, doesn’t want to open up his portfolio for all to see. “It is our intellectual property.... Why do I want people to see what I am accumulating?” Goldstein asks.
Goldstein will file for an exemption from the rule and says he is prepared to take the SEC to court if the exemption is not granted.