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Wall of Shame - Fund Fraudsters

Check Fund Manager has been warning its clients for years about potential Hedge Fund blow ups long before they occur. Check Fund Manager has also warned our clients about many others that are not published in the news, or have yet to be exposed. Here are some fund managers involved in frauds and blow ups previously investigated by Check Fund Manager that you may have read about in the news. In each case, we present the fraud, then show how our clients avoided the fraud by what our research revealed.

Please click on a photo or scroll down to read case details.

Absolute Capital:
Florian Homm
Bayou Hedge Fund:
Sam Israel
Circle T Partners:
Seth Tobias
Endeavor Funds:
Scott Tracy
Finvest:

Gad Grieve
Galleon Group:
Raj Rajaratnam
K1 Group:
Helmut Kiener
Madoff Securities:
Bernie Madoff
Norshield:
John Xanthoudakis
Petters Group:
Tom Petters
Philadelphia Alt.
Asset Managers:


Paul Eustace
Platinum Partners:

Mark Nordlicht & Murray Huberfeld
Ponta Negra:
Francesco Rusciano
Private Equity Management Group:
Danny Pang
Weavering Capital:
Magnus Peterson
Westgate:
James Nicholson
Wextrust:
Joseph Shereshevsky & Steven Byers
Wood River:

John Whittier

The list of busted hedge funds goes on, including Amerindo, Applegate, Bingham, Critical Infrastructure Fund, Daedalus, Dobbins, Durus, Evergreen, Fountainhead, Gabelli, KL, KojiGoto, Linuxor, Man Group, MDL, Pippin, Portus, Refco, Springer, Sterling Waters, Strategic Income Fund/ETJ Partners, Tenet, Tradewinds, and more.

Investors in these funds should have contracted Check Fund Manager research on those firms!


Absolute Capital:
Florian Homm

Florian Homm of Absolute Capital was arrested in Italy in March of 2013 after being on the run for five years. He faced extradition to the U.S. where he has been charged with conspiracy and fraud. Check Fund Manager previously researched Homm 8 times. Had you read the Check Fund Manager research, you would have steered clear of investing with Absolute Capital. Even our earliest effort in 2003 indicates abuses and charges brought against Mr. Homm and Absolute Capital along with fines issued by the German Supervisory Authority of Financial Services at that time. Shortly thereafter, in 2005 Florian Homm was fined by the District Court of Frankfurt for his nonfeasance to properly declare a self interest in research reports about WCM Beteiligungs-Und Grundbesitz-Aktiengesellschaft, a charge that he never disputed.

Check Fund Manager then went on to outline 9 federal or local civil cases involving Florian Homm or Absolute Capital including Racketeering (RICO) as well as bankruptcy cases. (Homm, who was also Absolute's chief investment officer, resigned suddenly in September 2007, causing consternation among investors in the listed hedge fund company. Soon afterwards, Absolute disclosed that the net asset values of some $500 million of stocks in fund portfolios did not reflect "the immediately realizable value of such investments." The Cascade Fund, operated by White Peaks Asset Management, in Evergreen Colorado, alleges that Homm, Absolute Capital and directors enriched themselves in a fraudulent scheme involving penny stocks. Homm "secretly steered" investor funds into buying the "wildly speculative" penny stocks through Hunter World Markets, a California-based brokerage firm he half-owned, the lawsuit stated. "Homm's transactions generated huge profits for Hunter in a variety of ways, which in turn generated secret profits for Homm," alleges Cascade.)

Florian Homm was released by Italian authorities in June 2014 and fled to Germany, which does not extradite its citizens. Througout 2013 he was appealing extradition to the United States, and in January 2014 Italy's highest court rejected his appeal. The United States subsequently exceeded the 45 days permitted to secure the extradition, therefore Homm was released. Please see this FIN Alternatives article for additional details.

Update: Since Florian Homm was released from prison and returned to Germany, he has openly declared his faith and conversion to Christianity. Messages from the Holy Mother he compiled he claims helped him survive prison and save his life.

Bayou
Hedge Fund Group:
Sam Israel

One of the most publicized Hedge Fund frauds was the Bayou fund which was operated by Sam Israel III. The Check Fund Manager investigations into Mr. Israel revealed many red flags which pushed the risk threshold for all of our clients.

On September 1, 2005 Federal prosecutors sued the Bayou funds, saying the hedge fund company and securities firm run by Samuel Israel III directed a years-long fraud that attracted more than $300 million from investors. Bayou began defrauding investors in 1998, just a year after it opened its doors. The fraud included the overstatement of investment gains, the understatement of losses and reporting gains to investors when, in fact, losses should have been recorded. Bayou also created a bogus accounting firm, Richmond-Fairfield Associates, to certify Bayou's false financial statements.

Sam Israel was sentenced to 20 years in prison. He failed to report, and faked his own suicide to mislead authorities. He was eventually tracked down and two more years were added to his sentence.

Between 2001 and 2005 ten different Institutional Investor clients of CheckFundManager.com had contracted us to investigate Bayou and Samuel Israel. Because of their proper due diligence, of which our investigation was an integral part, we are proud to report that none of these ten clients invested or suffered lost redemptions with Sam Israel and Bayou.

The collapse of Bayou represents an important lesson in the need for conducting proper institutional due diligence of which a comprehensive CheckFundManager.com investigation is an integral part.

Circle T Partners:
Seth Tobias

Seth Tobias was a general partner of Circle T Partners. Had you read the Check Fund Manager research, you would have learned that domestic abuse issues were present in the turbulent Tobias household.

In September 2007, he was found dead in the pool of his Jupiter, Florida mansion at age 44. His wife found him at approximately 1 am and called police to their home. His drowning death was only the start of a lurid story that splashed across the pages of the New York Daily News, including allegations of drug-fueled binges and sex with gay porn stars. A former personal assistant to the family has claimed Seth's wife Filomena admitted killing the fund manager -- which she has denied. There was a bitter fued between his widow and his brothers for control of his estate.

In October 2009, the SEC filed a complaint against Ethan Kass, an order processing clerk at Tobias Brothers, alleging that he filed at least 24 unauthorized trades, causing losses of $8.4MM, and that he "aided and abetted Tobias' violoations of certain antifraud and books and records provisions of federal securities laws..." He settled with the SEC by paying a fine of $50K, while admitting no wrongdoing, and was barred from the securities industry for life.

Endeavor Funds:
Scott Tracy

Scott Tracy was a former director of the deregistered hedge fund Endeavour Funds in Australia. After pleading guilty to making false and misleading statements to Macquarie International about the trading history of Endeavour, Tracy was placed on a two-year good behaviour bond and his company deregistered in August of 2006. He also had been disqualified from managing a company for five years.

Had you contracted Check Fund Manager in 2004, two years before this action was revealed, you would have learned that our confidential contacts in Australia had indicated that Scott Tracy was already under investigation by the Australian commissioner.

Finvest:
Gad Grieve

Gad Grieve and Finvest Asset Management were sued by U.S. regulators in February 2009 over claims he listed a fictitious auditor while fabricating financial statements. Grieve, who managed Finvest Asset Management LLC created two "sham" firms that purportedly vouched for accounting and profits. He also gave some potential investors a bogus audit report printed on letterhead for an accounting firm called Kass Roland in Jersey City, New Jersey.

A Check Fund Manager investigation of Grieve performed in 2007 found several red flags. From early in his career, Gad (whose real name is Grant Ivan Grieve), was accustomed to fabricating some facts, and excluding others. For example, in 1987 Mr. Grieve operated a firm in Durban, South Africa named Playmates Executive Entertainment CC, a fact that was conveniently left off of his biography. Grieve's biography also mentioned several firms that he supposedly worked for, none of which could be verified. Grieve claims to have worked for a family office in South Africa from 1983 to 1989, his own property development company from 1989 through 1993, and a US and UK based family office from 1993 until 2000. No records could be found of the existence of the family offices in South Africa, the US, or the UK, and no follow up contact information was provided by Mr. Grieve for verification. Grieve's own property development company, called GG Property Development (PTY) LTD never existed in South Africa. Some other company names were found registered under his name in South Africa, however the discrepancy was never clarified.

On April 26, 2013, the SEC entered final judgments against Gad Grieve and Finvest, ordering them to jointly and severally pay disgorgement of $14MM and civil penalties exceeding $12MM.

In addition to professional misrepresentations, Mr. Grieve's personal life was fraught with drama as well. Mr. Grieve, who in 1995 was a rabbinical candidate at Marbeh Torah Yeshiva in Bnei Braq, Israel, married Elisheva Tamerin in Israel on July 7, 1995 to Ms. Elisheva Tamerin, and their son Simcha was born in 1996. They divorced in September 1997. The divorce turned ugly after Mr. Grieve took his son to the UK and then to the US, always staying one step ahead of his wife's pursuit. We documented an international custody battle that ensued over their child starting in Israel, then the UK, and the US. In a happy ending for Elizabeth Tamerin and her child, the Court of Appeals in New York finally granted custody of Simcha to Elizabeth Tamerin in 2002.

Galleon Group:
Raj Rajaratnam

Galleon Group's Raj Rajaratnam was arrested in October 2009 and convicted May 11, 2011 with fourteen counts including five counts of conspiracy and nine counts of securities fraud.

In 2000, Raj Rajaratnam and then partner Krishen Sud made the highest earners list on Wall Street. Once described as one of American's "superstar" fund managers Rajaratnam was featured among the elite US money managers in Lois Peltz authored book entitled "The New Investment Superstars: 13 Great Investors and Their Strategies for Superior Returns."

The 2001 Check Fund Manager research on Galleon detailed a dispute between Raj Rajaratnam and former partner Krishen Sud. Rajaratnam filed a $1 billion dollar lawsuit against Mr. Sud, claiming that when Sud left the company he took investor lists and broker contacts with him. He also claims that Sud hired away several employees from Galleon in order to start a new company, Argus Partners.

Check Fund Manager researched Galleon Group & Raj Rajaratnam on thirteen different occasions going back to 2001. Our civil litigation research is laden with lawsuits and past regulatory fines involving Rajaratnam and Galleon. We warned our clients about the SEC investigation into the Galleon Group in July 2008, more than a year before it was made public by his arrest. Our information regarding the SEC investigation into Raj Rajaratnam a year before it became public was obtained as a result of our unique investigative process.

In October 2009, Rajaratnam and others were arrested and charged with counts of fraud and insider trading. He pleaded not guilty, and remained free on $100 million bail, which at the time was the largest in US history. He was found guilty in May 2011 on 14 charges and sentenced to 11 years in prison.

Update: In June 2013, an appeals court upheld Mr. Rajaratnam's conviction on insider trading charges.

K1 Group:
Helmut Kiener

Helmut Kiener was the founder of K1 Group of Germany who was arrested on criminal charges of fraud and breach of trust.

Check Fund Manager researched Mr. Kiener in 2006 in Germany. We translated articles from several investment journals that discussed the well known problems K1 faced with the German Federal Financial Supervisory Authority (BaFin). The Check Fund Manager investigator on site also documented irregularities having to do with the 2004 income tax filings and corporate filings for K1.

In July 2010, another suspect in the fraud, Dieter Frerichs, died of a gunshot wound in Majorca, Spain. Police officers went to his home and found him sunbathing. When they identified themselves, he allegedly pulled out a gun and jumped into the water, firing two shots, the second of which was fatal.

In 2011 Helmut Kiener was convicted in Germany and sentenced to 10 years and 8 months in prison.

In February 2013, he was indicted by the U.S. for his role in a $311MM fraud. He was charged with four counts of wire fraud, two counts of bank fraud, and three counts of money laundering. His co-defendent John Tausche was charged with one count each of bank fraud and money laundering.

Madoff Securities:
Bernie Madoff

One of the most spectacular and costly cases was that of Bernie Madoff, with fraud charges in 2008 and the unraveling of Madoff Securities. In March 2009, he pleaded guilty to 11 federal felonies, and in June of that year he was sentenced to 150 years in prison. Approximately $57 billion was missing from client accounts. In 2011 we found out that $17.3 billion of of that had actually been invested by clients.

Madoff's associates have since been sentenced. His son Mark committed suicide two years after his father's arrest, and his other son Andrew died of lymphoma in 2014.

Check Fund Manager has formally researched Mr. Madoff and Madoff securities on twelve different occasions going back to 2001. We documented 4 prior regulatory actions including an investigation by the SEC, and over a dozen lawsuits in both civil and bankruptcy court.

An independent AP reporter named Peter Yost determined that Check Fund Manager was the only firm that made written inquiries to the SEC in 2007 regarding Madoff. These inquiries produced documentation of the possible SEC investigation into Madoff. We also determined and it is common knowledge now that later in 2007 the SEC stopped its investigation into Madoff Securities. It was reported later that this failed probe was in part prompted by the Markopolus whistleblowing effort. Unfortunately, the cessation of the SEC probe in 2007 in effect produced a green light to investors trying to decide whether an investment with Madoff was a prudent choice to make.

Many of our institutional clients lured by their consistent yields have been tempted to invest with Madoff, overlooking the potential red flags they may have uncovered, for example, the operational lack of transparency. Imagine the struggle within investment teams who on the one hand pursue alpha, while on the other, have self-imposed standards of due diligence under which they operate.

In the Madoff case, for years the voices called for alpha at any cost were rewarded. Today the voices that called for a strict adherence to due diligence standards without exception have again proven to be the best course of action.

Norshield:
John Xanthoudakis

Norshield's assets were frozen by the Ontario Securities commission in May 2005 and put in receivership in June 2005. Our research documented an ongoing case which began in March of 2000, brought by a company called Cinar Corporation against Norshield Financial over an unauthorized transfer of $125 million in investor funds from the Norshield Canadian entity to a questionable Bahamian entity which went bankrupt in 2002.

The lawsuit says the Norshield CEO, John Xanthoudakis severely misled Cinar's auditors as to nature of the investment by indicating that they were "invested in high-grade bonds", listing several by name, and made no mention of the questionable Bahamian entity.

Check Fund Manager research also revealed that John Xanthoudakis tried to get a court to block the Montreal Gazette from the publication of an insolvency hearing in January 2005, which would make these matters public. We informed our client in March 2005, three months before the assets were frozen and "red-flagged" Norshield just in time to stop their allocation, saving his company millions of dollars in lost redemptions.

Update: Xanthoudakis was taken into custody at Montreal's Pierre-Elliott-Trudeau International Airport on March 16, 2011 upon his return from Bermuda. Xanthoudakis was charged with 36 counts of fraud and forgery. Xanthoudakis is the fourth and final suspect to be arrested and accused of masterminding the fraud we warned our client about six years earlier in 2005.

There continues to be fallout from this case, as multiple representatives have been found guilty of the illegal distribution of products related to Norshield. Aggregate fines are currently in excess of $600K, and Quebec Superior Court has filed a class action suit.

Petters Group:
Tom Petters

Petters Group's 2008 fraud was a significant news story. We researched Petters Group for six clients as early as 2003. Had you read the Check Fund Manager research you would have learned about Mr. Petters' personal problems starting with a divorce and culminating with the manslaughter of his son in Italy, along with a plethora of civil litigations that were pressing Mr. Petters years before his fraud unraveled.

Tom Petters was arrested on October 3, 2008 is in jail without bond after a judge declared him a flight risk. Petters, who is charged with mail fraud, wire fraud, money laundering and obstruction of justice, has been accused of masterminding a $3 billion fraud scheme over the past 12 years at his Petters Group Worldwide. Most of the companies under the Petters Group Worldwide umbrella have been placed into receivership, wiht assets frozen. Sun Country Airlines has since filed for Chapter 11 bankruptcy protection.

In 2010, Petters was sentenced to 50 years in federal prison.

Philadelphia Alternative Asset Managers:
Paul Eustace

Paul Eustace was the founder of the collapsed Philadelphia Alternative Asset Management (PAAM) Company. About a dozen federal cases have been brought against Mr. Eustace by the CFTC regarding his fraudulent scheme, including a two count indictment alleging that he defrauded clients of $202 million. In addition, criminal action has been brought against Mr. Eustace for commodities fraud.

While the fraud was only revealed in 2005, had you read the Check Fund Manager research from 2004, you would have been made aware of two red flags regarding Mr. Eustace. Years earlier in the 1990's, investors in a company Trout Trading took action after learning that Trout Trading lost millions due to unauthorized trading. Also, in 2001, a federal civil case was found against Paul Eustace as the defendant in a civil case involving hundreds of thousands of dollars of failed loan payments.

In 2008, Paul Eustace was ordered to pay $279MM for his role in defrauding clients. The federal district court also banned him from trading indefinitely.

Platinum Partners:
Mark Nordlicht &
Murray Huberfeld

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In December 2016, the US DOJ accused Mark Nordlicht, Founding Partner and CIO, of operating Platinum Partners like a Ponzi scheme. The fund dramatically overvalued assets, and a result, its returns were inflated year over year, even posting significant gains during periods of economic down-turn. This enabled them to attract more investors and rack up millions in fees.

When the scheme started to unravel, Platinum Partners misappropriated assets from other investments and obtained loans to cover major losses and redemptions, revealing the billion-dollar fraud.

The firm had other major legal issues in 2016. In June, firm co-founder Murray Huberfeld was implicated in a bribery scheme involving the New York City correction officers' union, which ultimately invested $20 million with Platinum Partners.

Nordlicht and Huberfeld were planning to flee from the USA, but they were both arrested, along with five others, and the fund filed for bankruptcy.

Check Fund Manager researched Mark Nordlicht many times from 2006 to 2009, revealing a prior history of red flags such as regulatory actions, federal cases and negative media. Our 2007 research on Murray Huberfeld uncovered significant previous judgments and regulatory actions including a multi-million dollar disgorgement and an industry-related cease and desist among the penalties.

Ponta Negra:
Francesco Rusciano

In April 2009, the SEC froze the assets of Francesco Rusciano of the Ponta Negra Group. The SEC alleges that Rusciano promised false returns and misrepresented his assets. Not only did he forge documents so as to inflate his assets by more than $40 million, but Rusciano also claimed that his funds were generating positive returns when in fact, they were suffering losses.

In 2008, CFM's bellwether research on Rusciano established his history of unprofessional and unethical conduct. CFM revealed that in June 2006, Rusciano was forced to resign from his position at UBS Securities after UBS discovered that he had misreported numerous transactions into the UBS tracking system. In effect, the false transactions showed false profits.

A further demonstration of Rusciano's underhanded character was exposed by CFM in 2008: in allowing his FINRA registration to lapse, Rusciano exploited a FINRA system loophole. Conveniently, in failing to renew his FINRA registration, the unsavory details of Rusciano's UBS employment were effectively concealed from the public eye. Today, were you to search the FINRA system for Rusciano's record, you would find no trace of his scandal-ridden record. Check Fund Manager, however, has long overcome this FINRA loophole in that we preserve previous registrations and possess a wealth of lapsed and now unavailable records that reveal behind-the-scenes insight into the professional pasts of thousands of managers.

Rusciano pleaded guilty to one count of wire fraud. In May 2010, Rusciano was sentenced to 12 months and one day of imprisonment, followed by two years of supervised release.

Private Equity Management Group:
Danny Pang

Financier Danny Pang was arrested and had his assets frozen by the SEC in April 2009. Pang, a Taiwanese immigrant, founded a $4 billion international investment firm and moved in A-list social circles in Los Angeles. The SEC accused Pang of running a Ponzi scheme and defrauding investors of hundreds of millions of dollars.

A Check Fund Manager investigation of Danny Pang performed in 2006 revealed two very rudimentary red flags. First, we found that Mr. Pang's credentials were misrepresented. Mr. Pang's resume indicated that he earned both of his undergraduate degrees in biology and physics as well as an MBA in finance from the University of California, Irvine. According to the University of CA Irvine Danny Pang only attended summer classes there for one semester in 1986. The second major red flag found was that Mr. Pang was in default on his Villa Park, CA property, as we uncovered a property foreclosure record from 2004.

Many other red flags were found. CFM uncovered six liens and judgments against Mr. Pang. In 2000 Diners Club won a judgment against Danny Pang for charges and fees in excess of $121,000. Another company won a judgment for $95,334 against Mr. Pang in 2004. More lawsuits and complaints were found. We even uncovered a civil harrassment suit involving Danny and his first wife from 1993. In 1997 she was found murdered.

Mr. Pang committed suicide in September of 2009. His criminal trial was scheduled to have taken place beginning in August 2010. The firm was placed into court-appointed receivership, along with 15 additional companies that were determined to be PEMGroup affiliates.

Weavering Capital:
Magnus Peterson

Weavering Capital went bust after it could not honor redemption requests. The Macro Fixed Income Fund, which is based in the Cayman Islands and specializes in fixed-income investments, suspended redemptions in March 2009. Redemption requests exceeded $223M (£154M) but Weavering could only afford to meet $90M of these.

A Check Fund Manager investigation of Weavering performed two years prior found two red flags. The first and most critical is that Weavering went totally bust before in 2002! The Swedish Financial Authority came after Weavering because their capital base was too low after they acquired Stockholm Fondkommission in 2006.

On January 19, 2015, a London court found Weavering guilty of eight counts of fraud, forgery, false accounting and fraudulent trading in regard to the scheme that cost investors $536 million. He was acquitted on seven other counts.

Westgate:
James Nicholson

James Nicholson ran the ponzi scheme called Westgate Capital Management. Nicholson plead guilty in December 2009 to securities fraud, investment advisor fraud and mail fraud.

Check Fund Manager researched Mr. Nicholson in 2007 and quickly warned our client that back in 2001 Mr.Nicholson had furnished false and misleading documents with the NASD to such an extent that he was permanently barred from association with any NASD member in any capacity whatsoever. In spite of this extremely severe sanction, Nicholson created 11 hedge funds and lured in 400 unsuspecting investors before the FBI finally stepped in.

James Nicholson is currently serving a 40-year sentence.

Wextrust:
Joseph Shereshevsky & Steven Byers

WexTrust Capital LLC, was a private equity fund co-founded by Steven Byers and Joseph Shereshevsky, which perpetrated a $255 million fraud by operating a Ponzi scheme targeted at members of the Orthodox Jewish community. In 2011, Byers was sentenced to over 13 years in prison while Shereshevsky received a 21 year sentence.

Check Fund Manager researched both men as early as 2004, when we noted Mr. Byers had several criminal misdemeanor charges, including a DUI and driving with a suspended license. However, that pales in comparison to what we uncovered on COO Joseph Shereshevsky, as we uncovered that he plead guilty to felony bank fraud in 1994. We also found related federal suits as early as 1993 in which he was charged with conspiracy to defraud a financial institution.

Shereshevsky also had a myriad of criminal charges (including improper and reckless driving), a number of civil suits (most notably a $69,000 lien against him), an uncontested matrimonial abandonment case, and additional civil cases stemming from his failure to make child support payments.

These men were not arrested and charged with securities fraud until 2008, but we were able to warn our clients as early as 2004!

In 2011, Byers was sentenced to over 13 years in prison while Shereshevsky received a 21 year sentence.

Wood River:
John Whittier

John Whittier was the founder of hedge fund Wood River Capital Management, which is based in San Francisco and Ketchum, Idaho. In October 2005, the SEC filed civil fraud charges against Whittier. Lehman Brothers also filed suit after loosing $20 million to Wood River. John Whittier ultimately pleaded guilty to securities fraud and was sentenced to three years in prison and fined $5.5 million. Had you read the Check Fund Manager research before this fraud was revealed, you would have learned that Wood River had no audited financials for the past 4 years and that they were on their 3rd prime broker in 7 months time. You would have also learned that three years earlier, Wood River had failed to make lease payments on its San Francisco property causing the property owner to sue Wood River in an effort to collect.

In 2007, he was sentenced to three years in jail. According to his LinkedIn page, he currently works in Business Development for Under the Lights and Nine Times Ventures in Ketchum Idaho.



©2015 Check Fund Manager LLC, Newington, CT 06111 rev. 11-15-2018