Friday, April 11, 2014

When Being In Trouble Isn’t Enough: A Hedge Fund Digs a Deeper Hole

When Being In Trouble Isn’t Enough: A Hedge Fund Digs a Deeper Hole

I stumbled across this story by Richard Halstead of the Marin Independent Journal.[1]  This tale isn’t about huge amounts of money, but it grabbed my attention.  Kudos to Mr. Halstead for his reporting.

In 2012, the SEC charged a hedge fund manager from Larkspur, California with creating a phony audit report.[2]  At roughly the same time, he was indicted for fraud, money laundering and identity theft with respect to a credit card processing company.  The hedge fund only had $4.5 million, and the identity theft involved $700,000.  James Michael Murray was in a bit of trouble.
St Thomas Trader (2000)
Here’s the astounding bit to this story.  Although Mr. Murray was banned from any association with his clients or managing money, he wasn’t deterred.  According to Mr. Halstead’s report, Mr. Murray hid a lap top computer in the ceiling of his lawyer’s conference room. He used to continue to execute trades.  Mind you, Mr. Murray had no assets and was living in a halfway under court supervision.  Nonetheless, he managed to open an account in the name of one of his former clients, a resident of Monaco, with $25,000.  However, he executed trades under the name of his former hedge fund. 

Somehow he succeeded in putting on a $3.5 million short position in Netflix.  Apparently, the broker thought he was executing on behalf of the old hedge fund.  The trade paid-off handsomely and Mr. Murray made a $410,000 profit.  In addition to paying-off his Monaco investor, Mr. Murray wired $150,000 to his lawyer, and $100,000 to his father.  Obviously, Mr. Murray had to get a new set of lawyers, because his old lawyer now has his own set of problems.   Mr. Murray, of course, added to his legal woes.

Most often, we focus on the misdeeds that cost investors billions of dollars.  However, there’s a never-ending stream of small-time fraud that occupies securities regulators and district attorneys.  I’m not sure if James Michael Murray is an example of criminal creativity or sheer stupidity.

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