The news this week and last of a “new” insider trading scandal has, according to the popular press, sent shockwaves through the hedge fund industry. And while the jury is still out on whether any of the allegations are true, my question is not about guilt but about when enough is enough. And was Gordon Gekko right when he said that it isn’t about money, it’s about keeping score?
To many the answer, unfortunately, seems to be that too much is not yet enough. And while I am about as die hard a capitalist as you can find, if this is the face of capitalism, I question its future. It is enough already. I am sick and tired of reading and hearing about one scandal after another on Wall Street.
Making money is hard enough when you are dealing against those thought to be the best and the brightest, but when you find out the best and the brightest aren’t legit – well that makes losing even worse.
I recently read Bryan Burrough’s piece in Vanity Fair about Marc Dreier and the fraud he perpetrated by selling fake real estate notes. I was interested not because of the story itself, but because Drier seemed to have little or no fear of his victims’ ability to perform due diligence. Dreier didn’t rip off Ma and Pa Kettle like other fraudsters of late; he ripped off some of the so-called brightest minds in money management. Where was their due diligence, how did they enter into these transactions without what seems to be even the most basic level of research into who was selling the notes or who was backing the paper? I sat there dumbfounded that these people could have been burned by Dreier so easily. It seems as though the need for yield was more important then the need for due diligence.
During HedgeAnswers, one of things that comes up all the time is what sort of due diligence questionnaire should a new fund use to attract assets and answer questions about its operations. I always respond that I have a problem with the question. Due diligence is not something to be taken lightly. It isn’t something you can complete just by checking a box or answering a series of questions in a document. Due diligence is something that needs to be constant, complete and thorough. Anything less is criminal.
Registration for HedgeAnswers is open and buzzing. In light of the recent news and expected news, there’s going to be a lot to talk about. Register today!
THINGS THAT DRIVE ME CRAZY
I am happy to report that I have nothing to say other than baseball for me is over and I am counting down to February, when pitchers and catchers report.
