When bloggers uncover Ponzis

By Felix Salmon
April 30, 2009

If you’re confused by the scandal surrounding the Ponta Negra hedge fund and its Biden landlords, don’t blame yourself: it’s really confusing stuff. If you have the patience for it, just read John Hempton’s archives: start here, and then run through this, this, this, this, and this. (Don’t worry, there’s more to come, but we’re up to something over 6,000 words already.) Alternatively, Alphaville is running its own series, of which the first two parts are now up: 1,700 words on 650 Fifth Avenue, and 1,250 words on the Biden connection. The Alphaville posts are quite hard to follow, partly because the FT lawyers have stripped them of links, and partly because this whole thing is just very opaque and complex.

The one thing which is abundantly clear is that Jeffry Schneider (always mistrust people who can’t spell their own name) is a very shady character indeed, who was fired from various financial-sector jobs before ending up selling fraudulent hedge funds and seemingly working out of the Bidens’ hedge-fund hotel. Schneider was a “marketer” for hedge funds, including Ponta Negra — which means he sold them to rich individuals, and took a commission for so doing. How did he find the rich individuals? Lots of ways, but one was that he paid upwards of $10,000 a month for access to lists of people who were rich enough to qualify as hedge-fund investors.

This is the bucket-shop end of the hedge-fund world: small and sleazy and shadowy. But here’s the thing: if you’re a rich individual who’s phoned up by Jeffry Schneider and told about some fabulous new hedge fund you should put lots of money into, he has a pretty good explanation for why it’s so difficult  to get any information on him and his company: under the laws banning the advertising of hedge funds, he’s not allowed to give out much in the way of information.

As part of the forthcoming regulation of hedge funds I think there should be a lot of efforts to make them more transparent, rather than allowing them to use SEC regulations to justify their opacity. At the moment, simply giving out information about certain investments is considered to be advertising: I used to run into this problem the whole time when I was in New York, covering 144a bond issues which could only be sold to big institutional investors, and being told that therefore I couldn’t get any information on them. We need to move instead to a world where information is allowed to be free, even if the public at large still isn’t allowed to invest in the funds or securities in question.

Once we get there, it should become much easier for bloggers to uncover Ponzis — which is certainly a good thing. Hempton has a big advantage in that he’s part of that world himself, and has access to information which isn’t freely available online. Why can’t we all have that access?

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Comments
4 comments so far

1. “(always mistrust people who can’t spell their own name)”

Uncharacteristically snooty – you don’t choose your name, you know.

2. “when I was in New York”

Have you left?

3. I think the anti-spam word is broken, it seems to be ikea every time now.

Posted by minderbender | Report as abusive

Perhaps you should define a ponzi scheme. A ponzi scheme is the promise to return more money than what was given. It accomplishes this by taking money from somebody else. Insurance is a ponzi scheme. Interest is a ponzi scheme. Taxes are a ponzi scheme. Even profit can be thought os as a ponzi scheme, since it is similarly based on ‘buy low-sell high.’
The result of all these ponzi schemes is inflation. Once people/organizations cannot keep up their overhead, they collapse. Their collapse then ripples to the next person/organization, and so the dominos fall. Buy low-sell high becomes Buy high-sell low. The former creates the later in an endless vicious circle.
These people who claim to be ‘managing’ money are delusional. :-)

The trouble with allowing advertising is that many of these investments are so damned complex you could make almost any claim and it’d be almost impossible to prove it false (advertising should be ‘provably true’). So when “Joe Punter” sees the advert reading “invest in Fool’s Gold Securities with 30% returns and no tax burden” they’ll demand that the SEC allows them to invest too, even if the advert doesn’t add “with a 31% chance we’ll lose your principle”.

Posted by Nic Fulton | Report as abusive

great news for ponzi artists. no one is interested if its under a certain dollar amount. feds get involved only 1,000,000 plus. smaller attorney’s are too weak to do anything with fake names and bank accounts. your best bet on getting your money back is torture,since these individuals are laughing at the judicial system as they count your money…

Posted by tim | Report as abusive
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