February 02, 2007

No Freedom From Fraud For Hedge Funds

-- Pushpa Sathish, Staff Writer

Hedge fund executives fund plane trips and expensive cars using investors’ money – this is the sort of headline that gives the entire hedge fund industry a negative tinge; this is why the U.S Securities and Exchange Commission (SEC) is stepping up its efforts to infuse some transparency in the operations of these secretive agencies; and this is why hedge funds are not the average investor’s cup of tea.

Bret Grebow and Robert Massimi, former trader and manager of the now defunct fund HMC International, played around with investors’ money as if it was their own, literally. While one used funds from new investors to meet redemptions and pay out non-existent profits to other investors, the other went a step further – he impressed his friends by flying them out to Houston on a Learjet for a Super Bowl game and also treated himself to a brand new Lamborghini, all with money fished out from investors’ pockets.

Grebow learned too late that’s there no free ride, especially not in a Learjet or a Lamborghini; he has to cough up not only a $120,000 civil penalty, but also $3 million that he stole. Massimi also faces the same civil penalty, but he gets off lighter than his partner-in-crime; he owes investors only $1.3 million. Considering the amount raised to fund this fraud - $12.9 million from 80 investors – this punishment seems a bit tame.

The former traders, who have been banned from working for investment advisors, settled the charges without admitting that they stole the money or used it fraudulently.

Did you enjoy this post?


Post a comment

« Unlikely Hedge Fund Managers | Main | Teachers and Hedge Funds – The Pension Connection »