New World Capital Managment - a follow up...

I know my post on New World Capital Managment has nothing compared to recent frauds. But the failure to prosecute reaffirms my doubt in the integrity of financial markets. I am writing this down because restoring trust to financial markets is the key to stopping the second great depression.

The fund was run by Greg Duran under the rubric of “New World Capital Management”. There were other staff such as Tau Ngo, Jill Ballantyne, Kyung Britt and several others – but as far as I can tell these additional people were fictional. (Well one or two of them might be real...)  

Greg Duran is a real person and his career had largely been in the honourable profession of mortgage broking...  I can still find the odd phone number which he answers.

The fund had a fantastic record – with barely a down month and some months up to 66 percent returns.

At one point it was even Barclay’s top rated hedge fund globally – which, given that it was a fraud, says as much about Barclays as it does about New World.

Anyway as explained in the original post I rang their purported auditor. Spicer Jeffries confirmed that New World was a client (perhaps only a prospective client) and indicated that the claimed returns were not audited. To this day I do not understand why Spicer Jeffries did not call the police. The statement “audited by us” is the entire product of an audit firm – and failure to protect that phrase is – at best – sloppy work.

I also emailed the CEO of the purported prime broker and he reported my concerns to Gregory Duran. At best this shows shocking judgement, but my timeline indicates that it is possible that Ikon tipped off Mr Duran that he was being chased – and that Mr Duran took that opportunity to steal the rest of the funds under management. Certainly if I were filing a civil action to recover the money Ikon is a logical defendant. If a class action lawyer wishes to help out – then I will provide the emails and their date stamps.

In my original post I indicated that Gregory Duran had sucked in one New York based fund of funds. The whole rationale for a fund of funds is that they can do thorough due diligence. A fund of funds taken in by a single fraud this blatant should probably not exist. Several funds of funds will of course cease to exist post Madoff...  a fund of funds business in Madoff also should cease to exist.

I did not name the fund of funds that was sucked in as I had no desire to destroy their business. However Holding Capital Group named themselves – suing Gregory Duran to recover their own seed investment (but surprisingly not suing Gregory Duran on behalf of their clients who they also put in the fund).  [Funds of funds businesses in Madoff haven't all come out - but ashen faced silence is probably the best course of action...]

About six weeks after my first post on New World I was contacted by Neville S Hedley – and enforcement attorney at the CFTC. I thought great – the wheels of justice are slow – but at least they are turning. I spent about an hour on the phone with Mr Hedley – and Mr Hedley was familiar with many aspects of the “alleged fraud”. He left his guard down at some point – and just started referring to it as “the fraud”. When questioned on that he just said “well that is pretty indisputable” – possibly the finest judgement I have seen by anyone with any authority on this matter.

I was happy – but not for long. The problem turned out to be that whilst Gregory Duran claimed to trade futures (especially currency futures) to get these returns – there is no evidence that he ever traded anything. Because he did not actually trade Mr Hedley decided that the CFTC had no jurisdiction. Having no jurisdiction he couldn’t actually do anything and dropped the case. 

Mr Hedley said he was going to try and interest the state prosecutors (New Mexico) in the case – and he did so – but state prosecutors it seems couldn’t be bothered. I understand why prosecutors are reluctant to investigate live fraud cases – but this one is dead and the prosecution is an easy scalp.

This is just another appeal to restore integrity to US financial markets. The markets don’t work for lack of trust – and the reasons for that lack of trust are obvious to anyone who looks – this being another example.

John Hempton