Fund Losses May Be Returned
By Mary Fricker, The Press Democrat
Santa Rosa investors in the San Diego hedge fund that collapsed in March amid allegations of fraud may recover some of their money, according to a new report filed with the U.S. District Court in San Diego.
More than 200 investors nationwide, including clients of a Santa Rosa investment company, had feared their money was entirely gone. But after four months of work by accountants and court officials, it now appears some money will be available to return, although the amount is not yet known.
``I cannot now calculate a specific percentage, but it appears that investors will recover some percentage of their losses,'' receiver Charles La Bella said last week in a report to the court that appointed him to operate the troubled fund.
The news was welcomed cautiously in Santa Rosa, home of Zenith Capital LLC, which placed money from about 60 clients with the Global Money Management hedge fund.
``We've been saying all along that investors will get money back. We're not sure in this first initial phase how much that will be,'' said Rick Tasker, president of Zenith Capital.
The San Diego hedge fund was seized in March by the Securities and Exchange Commission, which filed a complaint in U.S. District Court in San Diego accusing the fund and its manager, Marvin Friedman, of securities fraud.
The fund had been telling investors that they had more than $100 million in their accounts, but the SEC found only $20,000.
Friedman denied any wrongdoing and accused others of causing the losses.
The news stunned investors, including the Zenith Capital clients who had put about $32 million in the fund since 1999. Of that amount, $9.8 million came from investors in Sonoma County, Tasker said.
La Bella put Global into bankruptcy and urged investors to be patient as he and forensic accountants attempted to trace the missing funds, in spite of records he said were in disarray.
He filed his second interim report last week to tell how his investigation is progressing. It is also posted at his Web site, www.gmmreceiver.com.
``These observations and findings are preliminary and may change as more information is developed ... but the focus has improved dramatically,'' La Bella said in the report.
He said he had located investment assets with a potential value of $8 to $10 million. In addition, almost $3 million may be recoverable from three fund officials who are cooperating with the investigation.
La Bella said he plans to go after any money Global paid out as part of the alleged fraud or in an effort to hide money from the bankruptcy court. He said Global made ``significant transfers'' to insiders and investors that he plans to examine.
Painting the first public picture of how Global operated, La Bella said Friedman -- who controlled every aspect of the fund's trading operations -- apparently did minimal traditional research on companies. He kept no notes, and relied on his instincts. He sat at the head of a trading desk in San Diego ``barking'' out instructions to several traders in Global's trading room.
On heavy days, Global processed 100 to 150 trades. These trades were handled mainly by Spear, Leeds & Kellogg brokerage firm in New York.
Friedman often told people he'd never had a bad day in the market, but there's little evidence that his trading was ever truly profitable, La Bella said.
Other findings in the report:
* Approximately 267 investors put $118.1 million into the hedge fund between 1994 and 2004, and about $60.3 million was returned to investors, based on preliminary estimates. That leaves $57.8 million of investors' initial investments unaccounted for.
* Global's claim that it held more than $100 million and enjoyed 1,700 percent returns over 10 years were ``grossly inflated.''
* Global invested about $10 million in several companies, and two -- Santarus Inc. and Highcrest Partners LP -- were successful. They may return $8 million to $10 million to Global, depending on market conditions.
* The value of the other investments, including a $350,000 investment in Zenith Capital, is uncertain.
Another report likely will be made in about 60 days or sooner.