Alternative Investments Can Be Traps for the Unwary

Some of the typical risks and problems associated with alternative investments are risk of loss of principal, excessive fees, lack of transparency, illiquidity, and high correlation with asset classes (like stocks) that they purportedly hedge.

The panic of 2008, continued stock market volatility and the problem of how to reduce debt and close deficits have flattened investor confidence in the stock market, and, consequently, traditional asset allocation models.  What was traditionally viewed as a balanced portfolio – 60% stocks and 40% bonds – is now viewed by some as high risk. (more…)


SEC Charges Hedge Fund Managers with Overvaluing Assets

Investigate before you invest and get professional help in assessing the evidence. Facts that might seem innocuous to you will be large red flags to someone experienced in investigating cleverly-disguised scams.

Hedge fund managers earn their income two ways.  They get a management fee calculated on the total assets of the fund, and they get a percentage of profits above a certain level.  They therefore have a personal financial interest in maximizing the assets and the profits.  In most cases, that interest works for the benefit of investors in the fund.  They want what the managers want: profits.  Problems arise when the fund does not prosper, but the manager is willing to take the fees anyway.  The U.S. Securities and Exchange Commission (SEC) believes it has found such a case in suburban Atlanta.  Specifically, the SEC has charged “portfolio managers Paul T. Mannion, Jr., of Norcross, Georgia, and Andrews S. Reckles, of Milton, Georgia, and investment adviser entities they control with defrauding Palisades Master Fund, L.P. investors by overvaluing illiquid fund assets they placed in a so-called “side pocket” and by misappropriating other fund assets.”  The SEC’s press release reads, in part: (more…)

Detroit-area Pension Funds Lose Out to Alleged Private Equity Fraud

If they are going to protect the money entrusted to them and avoid liability for losing that money, those responsible for pension funds and endowments must get in-depth due diligence investigations on unregistered investments as well as on any adviser(s) who will be making decisions about how to invest that money. Failing to do so will likely cost them their jobs and do irreparable damage to the institutions they serve.

The U.S. Securities and Exchange Commission (“SEC”) has charged Onyx Capital Advisors, LLC and its founder Roy Dixon, Jr., with participating in a fraudulent scheme through which they stole more than $3 million invested by three Detroit-area public pension funds.  According to the SEC: (more…)

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