Category Archives: Due Diligence

SEC Charges Man for Posing as Portfolio Manager

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Stephen C. Bond of Walnut Creek , California was charged by the Securities and Exchange Commission (“SEC”) for  fraudulently holding himself out to be a portfolio manager of  the “Asenqua” and “Fireside” hedge funds.  This elaborate hedge fund scheme was carried out alongside  Silicon Valley hedge fund manager Albert K. Hu from 2001 through 2008 .

The SEC compliant filed in federal district court for the Northern District of California alleges,

Bond attended investor meetings along with Hu to solicit investments  in the “Asenqua” and “Fireside” hedge funds. According to the SEC, Bond was portrayed at these meetings and in written materials as the funds’  portfolio manager.

While it does not appear Mr. Bond actually carried out any trades or implemented any of the trading strategies he and Mr. Hu discussed with investors, they believed him to be a legitimate professional with apparent insight into the securities market.

Mr. Bond made almost a million dollars for his part in defrauding investors.   The SEC has charged him with violations of the anti-fraud provisions of the federal securities laws and seek to have him pay financial penalties and repay any gains illegally obtained.

With regards to Mr. Albert K Hu, he too was sued by the SEC in March 2009 for his involvement in the scheme.  This case currently remains pending.   In the meantime, he  remains in custody following the filing of a related criminal action.

Ex-HedgeFund Manager Pleaded Guilty to Fraud

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This past Friday the sole managing member of Westgate Capital Management LLC (the “Fund”), James Nicholson, pleaded guilty to securities fraud, investment adviser fraud and mail fraud  which are subject to the following maximum penalties:

The fraud allegedly began back in 2004 with Nicholson falsely representing to investors that Westgate’s funds had assets under management ranging from $600 million to $900 million, when in fact only about $50 million to $60 million were actually invested.   These misrepresentations came to light last December when checks totaling around $5 million for nearly two dozen investors bounced during their attempt to redeem.  Prosecutors and Nicholson himself  admitted that:
  • financial records were falsified,
  • no legitimate and independent accounting firm auditing the Fund existed,
  • there was no actual office verifiable for the supposed auditor

Had a thorough due diligence check on the Fund and Mr. Nicholson been conducted earlier on, perhaps investors may have been spared the $133 million loss that occured as a result of Mr. Nicholson’s fraudulent activities.

1 Year Later…

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One year ago today, Bernard Madoff was arrested and charged with securities fraud in a $50 billion Ponzi scheme that affected thousands of investors.   It was an investment scandal that rocked Wall Street and raised concerns and awareness on all levels.  As a result, stricter regulations and much needed reforms and due diligence on how the Securities and Exchange Commission intends to respond to and review allegations of fraud have been implemented.

Briefly stated those reforms include:

Continue reading →

Preliminary Background Check Due Diligence

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Now more than ever, there is an increased awareness of the importance of due diligence in the hedge fund community. While there are many different levels of due diligence (investment and risk management, investigative, operational etc.), at minimum a preliminary background check should be performed prior to making any allocations to a hedge fund.

What does a preliminary background check consist of?  Generally speaking, before making an investment the following basic steps should be taken: Continue reading →

Are Hedge Fund Managers Misrepresenting the Facts?

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A recent Financial Times article made note of a revealing report  based on research conducted  at the New York University Stern School of Business.   Based on a review of over 400 confidential reports, that were compiled by a major due diligence investigative firm,  findings  indicate that statements and materials provided by hedge fund managers contain factual misrepresentations in a number of key areas. Continue reading →