New Edition of Corgentum’s Email Newsletter Due Diligence News Released

Did you know that Corgentum Consulting produces an email newsletter, Due Diligence News, focused on providing news, updates and commentary on recent developments in the areas of operational risk, background investigations and fraud.

Highlights focus on all funds including hedge funds and private equity. The most recent edition was released earlier today! Highlights from this issue include:

Did you receive it the latest issue? To signup for this complementary newsletter please visit our contact us page and signup today!

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Join Us For Our Upcoming Webinar – Offshore Directors and Operational Due Diligence

Next week Corgentum will be hosting the first session in our 2014 webinar series – Performing Operational Due Diligence on Hedge Fund Offshore Directors. There is still time to register for the webinar. To signup click here!

The role of hedge fund offshore directors continues to be a contentious one for investors and hedge funds alike. One of the most common investor questions relating to directors is to determine how many different boards fund’s sit on. This question has become heatedly discussed in many popular hedge fund jurisdictions including the Cayman Islands. The answer unfortunately is not always easy to determine. There are a variety of approaches investors take in this areas include:

  • Asking the hedge fund (who may or may not know the answer)
  • Asking the directors themselves (who may or may not want to reveal this information)
  • Having investors attempt to cobble together a list of directorships

Also several data vendors have cropped up selling databases which claim to have compiled databases that seek to answer this question. While the intentions of such vendors is well placed, it is typically based primarily on public filings. The nature of these disclosures with regards to hedge fund directors is incomplete at best. Furthermore, such databases do not necessarily take into account director turnover and the shifting of responsibilities within multiple director firms. One of the biggest investor complaints against such databases however, is that they are simply compiling somewhat stale and incomplete data remotely rather than building it from an actual operational due diligence process which would involve direct interaction with the fund manager and the director.

This brings us to the second common question involved in analyzing hedge fund offshore directors. Once an investor makes an attempt to determine how many directorships a particular director holds, then of course it makes sense to analyze the so-called quality of the director themselves. Said another way, does it matter if a director sits on one or 100 boards if they are not qualified to be a director in the first place? This can include an analysis of their educational background and relevant work experience. Of course having a director who has a background that may actually add value to the board of the hedge fund strategy they are analyzing couldn’t hurt either.

As part of this analysis many investor’s struggle with the question of whether to perform background investigations on directors. Have you ever performed such an investigation on a director? If yes, was it sufficiently incorporated into the operational due diligence process? Also, how detailed was the investigation? If not, are you confident that you are not missing anything?

The list of analysis techniques which investors can utilize beyond the initial steps outlined above can include a variety of items – many of which will be covered in Corgentum’s upcoming webinar. The webinar will be features speakers  Jason Scharfman, Managing Partner, Corgentum Consulting and John Ackerley, Director, Carne Global Financial Services (Cayman) Limited.

Click here to signup today!

February 2014 webinar logo Join Us For Our Upcoming Webinar   Offshore Directors and Operational Due Diligence

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The Recent Madoff Trials – More Lies and Deception

At the end of 2013, issues related to the Bernard Madoff fraud were still being litigated. Since Madoff turned himself in to authorities he was never prosecuted in criminal court. This left many unanswered questions with regards to the mechanics of how the fraud was conducted and the role other employees at Madoff’s firm may have played in orchestrating the scheme.

One criminal trial did proceed however, against five Madoff employees, all of who pleaded not guilty:

  • Annette Bongiorno – Madoff’s personal secretary
  • Daniel Bonventure – company director of operations and an accountant who had worked for Madoff since the 1960s
  • Joann Crupi – a former Madoff investment advisor
  • Geroge Perez – former computer programmer
  • Jerome O’Hara – another former computer programmer

In this trial certain former employees of Bernard Madoff were accused of assisting Mr. APMadowDefendants 1024x661 The Recent Madoff Trials   More Lies and DeceptionMadoff in perpetrating his scheme. The most notable of these individuals was Frank DiPascali who referred to himself as Madoff’s director of options trading and Chief Financial Officer who had worked for Madoff since the 1970s.

Perhaps an employee with multiple shifting titles, particular a CFO who sometimes claims to have key investment responsibilities should be a glaring red flag to investors however, this is said with the benefit of hindsight. Regardless, Mr. DiPascali faced 125 years in prison after pleading guilty to assisting Madoff with the fraud and gave testimony against others in an attempt to lighten his sentence.

While news of the Madoff fraud is nothing new at this point some interesting revelations about the mechanics of the fraud were revealed. Interestingly, employees have turned on their former colleagues and provided testimony which implicates those long suspected of aiding Mr. Madoff in perpetrating his Ponzi scheme.

In particular, some of the more interesting revelations have included:

  • Mr. DiPascali lied to securities regulators and fellow employees
  • There were a series of interoffice romances among all but one of the defendants in the trial and Madoff was involved in a love triangle with other employees
  • Former assistant to Ms. Bongiorno Winnie Jackson, yes Madoff’s assistants had assistants, testified that Ms. Bongiorno would requests that stale dates and prices be used to backdate investor account statements in order to meet pre-determined investor profitability trades. Internally within the Madoff organization these were referred to as, “cut and paste trades.”

During the testimony it came out that in some cases prices that were over a year old were utilized. Making matters worse, no trades were actually ever taking place. Oh by the way, why was Ms. Bongiorno allegedly involved in preparing client statements?…

  • Madoff employees would conduct research on option trades. However, the alleged purpose of such research was to look at historical stock splits, trading prices and volumes and then use this data to allegedly backfill fake trades to make client statements look profitable
  • Multiple people at the firm allegedly lied to clients, not just senior officials as was originally thought
  • Employees were told to keep quiet about large checks being cashed in order to process large payouts to other employees who were invested in the Madoff fundsmadoff26n 1 web The Recent Madoff Trials   More Lies and Deception

Oh and topping everything off we learned that perhaps as some sort of depraved acknowledgement that he took pleasure in stealing millions, Madoff kept a four foot sculpture of a giant screw in his office.

No doubt further details will continue to leak out in the years preceding this trial both in and out of the courtroom – unfortunately such information is likely little solace for Madoff’s victims.

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