The economics of Paradigm Global – alleged substance abuse and alleged ponzi schemes

Paradigm Global is a fund of funds owned and controlled by Hunter Biden and James Biden.  These two are Vice President Joe Biden’s son and brother respectively.

Oh yes, and it does involve substance abuse and ponzi schemes (both alleged).

Paradigm Global on its website still contains the assertion that they have never had a down year.  

COMPANY HISTORY

The PARADIGM Group of Companies was founded in 1991. PARADIGM Global Advisors, LLC is the asset allocation and investment advisory arm of the Group. PARADIGM Global Advisors, LLC is an SEC-registered investment adviser, is registered with the Commodity Futures Trading Commission as a commodity pool operator and commodity trading advisor and is a member of the National Futures Association. 

PARADIGM's portfolios of hedge funds have not suffered a down year since the firm's inception in 1991 and have consistently outperformed stock and bond markets. Volatility has steadily declined over the years. We proudly attribute our performance to our investment philosophy and its application to managing a portfolio of funds.

At various stages Paradigm Global has claimed to have 1.8 billion in funds under management or advice.  That would make it a good business.

Paradigm Global has however been in some reputation trouble twice lately.  Firstly they co-branded a fund with Alan Stanford which (at best) suggests sloppy due diligence.   This was reported here in the WSJ.

Secondly they housed Ponta Negra – an allegedly fraudulent hedge fund that has just been charged by the SEC.  Not only did they allow Ponta Negra to use their offices but they allowed Ponta Negra to use their marketing machine.  This was first reported on this blog here.

Sloppy two times over calls for a little more due diligence on Paradigm Global.  

Firstly the business was not started by the Bidens – it was purchased by them.  It was started by Dr James Park.  When the Bidens purchased the business they believed it to have 1.5 billion of funds under management.  This little section from an affidavit signed by James Biden (the VP’s brother) is revealing.  The affidavit is here.

(a).  The Paradigm Hedge Funds had only between two and three hundred million dollars under management, which were leveraged to over five hundred million, not the more than $1.5 billion under management represented to us by Lotito and Fasciana.  

(b) The returns on the Paradigm Hedge Funds were not as represented to us by Lotito and Fasciana; and (with editing)

(d). The primary manager of the funds, Dr. James Park, had an apparent substance abuse problem and had been an absentee manager for several years...

Now please put this in perspective.  The Bidens – mostly through failure to do proper due diligence – seem to have wound up in control of a fund of hedge funds which they claim (in sworn affidavit) that 

• Had less than a fifth the funds under management that they represented to their customers,

• Had misrepresented their returns and 

• Had a primary manager who had “an apparent substance abuse problem”.

Now if you were told a fund manager only had a fifth the funds that he represented to the world, had misrepresented his returns and had a primary manager with a substance abuse problem what you say it is?  

Whatever – it quacks.

Now this affidavit was signed 13 April 2007.  I presume it is the truth otherwise James Biden is guilty of perjury.

The affidavit is signed a few months after Hunter Biden resigned as the CEO of Paradigm Global – a position he took up in late 2006.

Now I am going to give you one more detail.  In 2006 Paradigm represented that they had 28 staff.  They represented that they had offices in multiple cities including a largish office in New York on Fifth Avenue.  I have uploaded a few of their marketing documents here and here and here.

Two hundred to three hundred million in funds under management would represent less than 5 million in revenue and probably less than 3 million after any third party costs.  Most funds of funds of that period took a percentage of the performance fees – and given the performance of the funds the revenue would have been less than 1% of net funds under management however Paradigm's fee structure was somewhat higher suggesting revenue about 5 million per annum.  

With 28 staff mostly in New York and (according to this marketing document) with representative offices in Los Angeles, Monte Carlo and Tokyo you can’t make this business work very well.

Of course you could make it work if all the staff members were paid well under $70 thousand dollars (which does not seem likely in finance in New York, Los Angeles, Tokyo and Monte Carlo).  You could also make it work if you subsidized it. 

None of this would allow the senior manager to fail to show at the office and indulge a drug habit (as sworn by James Biden).  

Now go back and look at this marketing document.  It contains a few staff members on the marketing side.  Alla Babikova is still given as an email contact on the Paradigm website.  She is also listed on this document as working for Onyx Capital.  Onyx was the marketer of the allegedly fraudulent Ponta Negra hedge fund.  Onyx – or at least staff that worked for Onyx – were also marketers of Stanford.  

Jeffrey Schneider is the contact on this document from the allegedly fraudulent Ponta Negra fund.  He was the founder of Onyx.

I see lots of possibilities: all of them reflect very poorly on the Bidens.

• They were and remain controllers of a fund of funds which they allege misrepresented its returns and yet which they kept operational.

• They were and remain controllers of a fund of funds which houses an alleged fraud in its offices (Ponta Negra).

• They were and remain controllers of a fund of funds which employed a marketing organisation (Onyx) which was associated with distributing alleged frauds (Ponta Negra and Stanford).  

• They were and remain controllers of a fund that claimed to have 28 staff many of whom are difficult to trace and where the revenue to fund those staff did not obviously exist.  This suggests that either the staff were not paid, did not exist or (more sinisterly) they were paid by stealing from the small amount of funds under management.  You could only steal the client money if the asset custody safeguards were not robust.  There is an audit statement on the SEC files qualified as to the robustness of these protections – however there is no evidence that the lack of robustness was exploited.
  

All of this was done from the 17th Floor of 650 Fifth Avenue New York.  There are a few other things housed on that floor and you need to walk past Paradigm’s desk to get to them.  

Whatever – it quacks and it is controlled by the Vice President’s family.

Paradigm Global, the Bidens and allegedly fraudulent hedge funds – a summary

This is a summary of the situation to put all the posts in one place.  You can read this as an alternative to the other posts – though I will leave the original posts up for posterity.  There are some versions on the web that are wildly inaccurate.  All I will assert is that the Biden's firm has been shockingly sloppy about basic due diligence issues.  Unsurprisingly the inaccurate versions are coming from right-wing politics driven blogs (who like the idea that Biden's family is in trouble) and who reinvent complex facts to fit their simple world view.  Some of the financial blogs have been much better.  

The short version is that an allegedly fraudulent hedge fund (Ponta Negra) shared an office and a phone number and a common marketer (Jeff Schneider) with Paradigm Global a fund of hedge funds owned by the Vice President’s family.  

Paradigm Global have said that they were subtenants – and that they were introduced via their common marketer.  

The story however is murkier than that simple explanation.  However it is consistent with repeated and extreme sloppiness by the Vice President's family and the fund of hedge funds they control.

First we run through the players in this drama.

1.  The small alleged fraudulent hedge fund: Ponta Negra 

Ponta Negra is a hedge fund run out of a unit in Connecticut that just had its assets frozen by a Federal Judge and had the SEC accuse it of fraud.  The Justice Department has yet to file criminal charges and unless criminal charges are filed you would have to wonder what the point of the current crackdown is.  

The alleged fraud is brazenly simple.  The company simply produced fake return numbers and doctored accounts from their counterparty brokers to over-represent funds under management. The last set of published return numbers I have access to is here.

(click for detail and you can find the original here)

Ponta Negra was run by Francesco Rusciano – who is also alleged to have faked trading data whilst working for UBS.  Francesco Rusciano sometimes goes as Krancesco.  

Ponta Negra was marketed by Jeff Schneider and Jared Toren.  More on those individuals later.

  

2.  The fund of funds owned by Joe Biden’s family: Paradigm Global 

Paradigm Global is a fund of hedge funds headquartered on the 17th Floor of 650 Fifth Avenue. It was founded by Dr James Park who for a while had a reputation as a guru on hedge funds. Paradigm in marketing documents claim particular expertise in “due diligence” allowing them to source the best hedge fund managers.  

Paradigm claimed as recently as 2006 in marketing documents that it had over $1.5 billion under management and 28 full time staff as well as offices in New York, Monte Carlo and Tokyo. Now (according to its IARD filing) it has about 300 million in 210 discretionary accounts and 6-10 employees.  There are no offshore offices.

As recently as a few days ago their website claimed that they had never had a down year and that their volatility had decreased over time.  This is not impossible – but if it is true that last year was a year of decreased volatility then the performance is truly remarkable.  Consistently positive returns with low volatility make an 80% reduction in funds under management somewhat difficult to explain.

Paradigm was purchased by Hunter Biden and James Biden who are the Vice President’s son and brother respectively.  Hunter Biden was CEO was for a brief time at the end of 2006 and in early 2007.  The original press reports implied that was a permanent position but it was later described as an interim position.  The leadership of the firm since then has been moveable.

In the latest IARD filings Hunter and James Biden are listed as owners.  Markus Karr is listed as the chief investment officer and CEO.   Dr Park is listed as an investment consultant.  

Hunter and James Biden purchased Paradigm when they wanted to get out of the lobbying business.  Having your son as a highly paid registered lobbyist was incompatible with Joe’s (Vice) Presidential ambitions.  The purchase was problematic and litigated.  During the litigation James Biden signed an amazing affidavit which you can find here.  

In it he alleged a few things including that:

• The Paradigm Hedge Funds had only between two and three hundred million dollars under management, which were leveraged to over five hundred million, not the more than $1.5 billion under management represented to us by Lotito and Fasciana.  

• The returns on the Paradigm Hedge Funds were not as represented to us by Lotito and Fasciana; and

• The primary manager of the funds, Dr. James Park, had an apparent substance abuse problem and had been an absentee manager for several years...
  

These are things which is would make continued ownership of the business untenable.  If James Biden is alleging that the returns have been misrepresented to clients and potential clients then he is alleging a crime.  It’s a crime not fundamentally different the crime which Ponta Negra is alleged to have committed.  The only responsible course of action for the Bidens would be – after being made aware of the problem – call the regulatory authorities, sack the offending staff and write a letter to clients indicating that they can have what is left of their money.  Even a small misstatement of returns to prospective clients constitutes a crime.

If the Bidens were to continue to own the management company – and to take the benefit of that ownership – without taking these steps then the Bidens are accessories after the fact to that crime.  

The alternative hypothesis (clearly possible) is that the returns were misrepresented to the Bidens but were not misrepresented to clients.  Then no crime has been committed on clients and it is possible to keep running the fund.

Anyway given one possible misrepresentation I figured I would go looking for other misrepresentations. 

If the number and depth of the staffing was misrepresented when potential customers did due diligence that would also constitute fraud.  Certainly there is a reasonable possibility of that.  For instance this due diligence document asserts 28 full time staff – and names them.  Here is an organisational chart:

(click for detail - you can find the original in this document)

 

This organisational chart differs dramatically from the current structure as described in IARD filings (6-10 employees).  It is unclear when the employee numbers were scaled back so dramatically.  Moreover it is very difficult to trace many of these employees in FINRA’s database which means if the people exist they are no longer licensed within the industry.  Again it is possible that the firm used to have 28 staff and now has 6-10.  Indeed the rapid decline in staff numbers might be the reason that there was space to sublet to Ponta Negra.    

Another inconsistency worries me.  As at August 2005 Paradigm warranted that all custody of client asset assets – including subscription and redemption funds and the computation of net assets is done by reputable third party custodians.  This is an important element of due diligence for prospective investors.  See this extract…

(click for detail - the original can be found here)

This looks kosher and highly comforting except that I can’t find out much information about Global Fund Services.  [I looked in the obvious places like the White Pages.]  Folio Administrators however does have a presence and I have written to them to confirm their role.  I will report any reply...  Reply reported below... see postscrips.  Folio has confirmed the relationship which is highly comforting...

My main concern though is that these custody details differ dramatically from the (much later) IARD filing.  Here is the extract from the IARD filing:

   

(Click for detail and you can find the original here by following obvious prompts.)  

 

In the IARD filing they handle client cash and a related person handles client securities.  Moreover that related person is not a broker dealer subject to SIPC protection.

Whilst holding client assets in house is not a certain indicator of fraud it is a huge red flag.  The lesson of Madoff (or Stanford for that matter) was that a fund that actually controls custody of client assets is dangerous – whereas a fund which has custody at a reputable independent custodian or prime broker is unlikely to outright steal your money (though they sure can lose it).  The really big frauds have been funds with inadequate external controls over custody.  Bayou for example was another hedge fund with controlled its own custodian.  

There are legitimate reasons why a financial institution might use in-house custody.  A bank for instance really does take custody of your cash.  However I can’t see any good reason for bringing custody in-house as your staff numbers shrank by two thirds and your business model remains unchanged.  However telling people you have third party custody when they do due diligence but not having it is fraud.  I presume no fraud and that they must have bought the custody in house possibly to save money.  

However I am still worried about custody.  This audit report lodged with the SEC specifically mentions material weakness with respect to safeguarding of securities.  Having material weakness in custody arrangements allows theft.  That makes it a very bad audit report.  

All of these red flags – the decline in staff numbers (28 to 6-10), the decline in funds under management (over $1.5 billion to 200-300 million), the returns that James Biden alleged were misrepresented and the unusual change in customer asset custody probably happened before the Bidens had purchased the management company.  They must have all happened despite the fund making positive returns better than indices and with reduced volatility (as claimed on the website). 

There is one more red flag – again pre-Biden ownership – which I have not previously discussed on this blog.  That is the Canadian fund called Paradigm Global.  Canadian Paradigm Global was associated with James Park’s Paradigm Global and often claimed that James Park (then the hedge fund guru) had a consulting relationship with them.  That relationship ended and the Canadian Paradigm changed its name to Portus Alternative Asset Management.  Portus was later discovered to be a ponzi which – in typical ponzi fashion – paid its distributors well over the odd to distribute its toxic product.  James Park was clearly involved in this fund in its beginning and lent his reputation to it – but he was safely (and probably reasonably) distant by the denouement.  You can find press reports here, here and here.

Player 3 – the distributor of dodgy hedge funds: Onxy Capital and Jeff Schneider

Onyx Capital was how I found this mess.  Onyx – was a firm based in Austin Texas but also subleasing space from Paradigm.  Onyx was a marketer of hedge funds to relatively unsophisticated clients.  I say “was” because Onyx appears to be running dead – and its website died a few days before Ponta Negra was closed by SEC action.  

The typical sort of client was someone who had sold a medium sized business for a lot of money (a few million) and was looking for investment advice including what the smart money (that with a New York address presumably) was doing.  Sharing a New York address with a firm owned by the Bidens probably helped.

The principal of Onyx was Jeff Schneider.  To complicate research he spells his name multiple ways.  Onyx – being a seller of hedge funds and financial advisor – was almost certainly required to be licensed but never was.

Jeff Schneider has a past which would raise eyebrows in most people doing a due diligence.  He was “allowed to resign” from Merrill Lynch after allegedly being party to fraud by foreigners.  In that case he denies guilt.  He was sacked from CIBC, fined and given a 90 day industry suspension for allegedly defrauding CIBC’s bonus system.  In that case he neither accepted nor denied guilt but accepted the fines.  You can find the details in his FINRA broker registration statement.

Anyway Jeff Schneider was a full time employee of Paradigm Global from 2004 to 2007 or 2008 (his FINRA regulatory records say Feb 2008 but Felix Salmon gives a different date).  After that he worked for other firms, notably Puritan Securities.  He also set up Onyx – but his FINRA record states that was working at Onyx only from March 2009 though other records suggest he established Onyx much earlier.  I have an email from Ponta Negra dated June 2008 giving Schneider an email at Onyx.  The FINRA CV (compiled by Schneider) is thus false.

The decision to allow Schneider to cease being a full time employee but to maintain an office within Paradigm Global’s office and to continue to state in some marketing documents that he is an employee was made when the Bidens controlled Paradigm.

Felix Salmon is characteristically blunt about Onyx and Schneider.  He describes it as the hedge fund equivalent of a chop shop.  

That said – it was probably Onyx that turned Ponta Negra into investigators.  Because Onyx is largely based in Austin Texas the Texas division of the SEC is taking the Ponta Negra case.

Onyx distributed other dodgy product – most notably the head of investor relations at Onyx (Justin Hare) was also a full time sales employee of Stanford.  Justin Hare’s myspace page (which has since been made private) is the source of the photos of the glamourous life of a Stanford salesman that I posted here.  

Anyway Onxy and Jeff Schneider introduced Paradigm to Alan Stanford’s organisation.  Paradigm obviously thought fairly highly of Stanford and vice versa because they launched a cobranded product – the Paradigm Stanford Core Alternatives Fund.  

According to the Wall Street Journal no Paradigm money got sent to Stanford though some Stanford moneys were sent to Paradigm and I gather have since been returned.  

This suggests carelessness on the part of Paradigm.  Financial institutions are fundamentally based on trust.  If people do not trust you then you do not have a business.  The Stanford relationship was the second time that Paradigm had lent its name to a large-scale ponzi (the first being Portus).  Remember that Paradigm – being a fund of funds – is meant to be an expert in due diligence.  And they failed.  Badly.

There was one other ex Paradigm employee who later worked at Onxy – that is Alla Babikova.  If you go back and look at the org chart above she essentially runs the sales function.  She was Schneider’s boss in those days.  At Onyx Schneider it seems became her boss.  I have saved Alla Babikova’s FINRA record here.  Unlike Schneider’s it is clean.  

Jared Toren was also an employee of Onyx – though I gather he might have left Onyx to market for Ponta Negra.  He also has a clean FINRA record but one that does not mention for instance that he once shilled for Onyx.  I have emails from him in that function.  The record is – at best – incomplete.  At a minimum Jared has made minor false representations to regulators.  

Paradigm in the pre-Biden days also used to employ John Page.  He had the same rank as Jeff Schneider in the above org chart.  His 30 page long FINRA record (which you can find here) is full of customer complaints settled for six figure sums.  His regulatory problems existed both before and after his employment by Paradigm.  John Page was eventually forced to bankruptcy by UBS who sued him for repayment of bonuses and commissions that they had previously paid him and I think for moneys that they had paid out to clients as a result of his infractions.  As noted above – Paradigm appears to be careless about who it employs and associates with.

The Ponta Negra/Paradigm/Schneider connection

This blog observed for the first time that Ponta Negra was (a) housed within the offices of Paradigm Global, (b) had a phone number that was the Paradigm Global switch and (c) used the same marketing agent as Paradigm – a marketing agent who is often listed as a full time employee of Paradigm.  That marketing agent was Onxy/Jeff Schneider.

This was news because the SEC says that Ponta Negra was run from a unit in Stamford Connecticut.  (The address is on an early marketing email I have and also linked above.) 

Moreover this is the third time that it has been publicly confirmed that Paradigm has associated itself with an alleged fraud.  The prior two were Portus and Stanford.

This suggests a degree of clumsiness – and it is a real problem for funds of funds.  Funds of funds have – as their single most important skill – the ability to do due diligence.

And the due diligence on Ponta Negra was really easy.  My original post on Ponta Negra is repeated at the end of this post.  Pretty well everyone with any real expertise I showed this to came to the same conclusion as me.  It was highly suspect.  The marketing literature failed basic requirements – not mentioning consistent custodians or auditors and having returns inconsistent with the strategy.

The Paradigm/Onyx/Ponta Negra/Biden story has hit the main stream press (at least if you consider FT Alphaville and Felix Salmon at Reuters to be mainstream press).  

I see little to object to in any of their stories (FT here and here and here, Felix here).

The line they take is essentially that Paradigm Global – owned and controlled by the Vice President’s family – is less than careful about who it associates with and who it lends its name to.  

However they accept that Paradigm Global itself did not know that Ponta Negra was a fraud marketed out of their offices.  They accept the “we were dumb” view of how Paradigm got caught up with Ponta Negra (and also with Stanford before them).

I have no evidence that Paradigm Global knew anything was wrong with Ponta Negra anyway. But plenty of evidence that they were sloppy.

That in itself is a problem.  Paradigm pitches itself as a highly sophisticated fund of hedge funds with superb due diligence processes.  That they did not suspect that Ponta Negra was a fraud almost immediately suggests that their marketing spiel (excellence in due diligence) is only marketing spiel.  

When I wrote my original post on Ponta Negra (preserved below for posterity) it was blindingly obvious (to me at least) that Ponta Negra made no sense whatsoever.  

It should have been blindingly obvious to Paradigm too – but it wasn’t.  About half the readers thought it was a scam – and the lawyers for Ponta Negra were sure I was implying it was a scam.  Even the most cursory check on Ponta Negra would have identified it as suspect.  Moreover in its literature Paradigm claims to have a database of just about every hedge fund and special skills at identifying scams.  They were – it seems – just too gullible and they failed at their core function.

I guess their advertising material – detailing extensive expertise at detecting scams- is just plain crap.  Like their $1.5 billion under management and their custody arrangements and even (as alleged by James Biden) their stated returns. 

The Paradigm defence

Paradigm rejects that the notion that they actively participated in the alleged Ponta Negra scam.  That is an accusation I do not make.  I only make the suggestion that – through clumsiness and the failure to perform even the simplest due diligence that they lend their name to alleged scammers.  I also note that James Biden himself has sworn that Paradigm misrepresent their own return and makes allegations consistent with them misrepresenting themselves in marketing material.  

Paradigm’s only statement to date is simply to observe that Ponta Negra was a subtenant introduced to them by their common marketer.

That defence would be entirely plausible to even the accusation of clumsiness except that Paradigm Global has a history of lending its name or reputation to (alleged) scam hedge funds.  By far the most important was Portus Alternative Asset Management – an association that pre-dates any Biden involvement in Ponta Negra.  But to pick Stanford and Ponta Negra suggests above average carelessness.  

And employing chop-shop operators like Schneider – who operates from an unlicensed investment advisory firm (Onyx) is also in great contrast to the due diligence that they claim they undertake when they invest their own money.

This place is littered with red flags.  There are more – but I think this should be enough to get the mainstream media and the SEC involved.

Oh, and if I were Rusciano from Ponta Negra I would be busy finding a lawyer with experience plea bargaining.  This story has a long way to run.  

I for one though will be signing off.  I have real stocks to look at.  The whole point of being a digger – and I am a digger – is to make money from that which other people have not worked out.  And unfortunately I see no way to make money here.

John

My original note on Ponta Negra – which was posted under the title “Hedge Fund Marketing Material”

I regularly read the letters from fund managers more successful than me.  I like to know what they are doing.

Sometimes I cannot work it out at all.  Maybe that is because I am stupid - or maybe that is just because they are making it up.  I have identified a couple of frauds that way...

Here is the letter from a fund (name withheld for now) which I do not understand.  Can anyone explain this strategy to me?

Dear Fellow Investors:

The global economic stress as measured by FX short term volatility, sovereign and corporate CDS spreads and VIXX indices persisted in the month of February, as the barrage of negative economic indicators remained unabated.  

Continued stress on the financial sector that peaked with the record quarterly loss of AIG and the collapse of Citigroup equity valuations has left policy makers and market participants perplexed as to how the current turmoil will be resolved.

The month of February marked one of the most complex environments in foreign exchange that we have experienced since the inception of the Fund, as the ambiguity in governmental commentary on interest rate decisions and the measures being considered to aid the distressed economic climate caused abnormal gyrations in the G10 arena.  

We remain committed to our long DXY bias but as was mentioned in last month’s commentary, we have preferred to express this through a short EUR/USD bias and selectively partially imperfectly hedge it with a lower weighted long GBP/USD trade. 

We believe that the euro zone will continue to be weighed down by the massive 1.3 tn. EUR of outstanding debt of Eastern Europe that will be a challenge to refinance at reasonable yields in the current climate. 

The reversal of our short USD/JPY hedge was well-timed, as the announcement of the reissuance of U.S. Treasury samurai bonds to the Japanese marketplace has accelerated the upside momentum in USD/JPY. We have decreased the size of our short EM bias as commodity prices appear to have temporarily stabilized and we prefer to selectively express views through cross regional plays such as short EMEA/LatAm with underweights in HUF, PLN and overweights in CLP, BRL. 

We will continue to utilize low quantities of leverage and fewer numbers of intraday positions, as we anticipate the persistence of a high volatility marketplace into the end of Q1 2009.

Now of course it would be nice to understand how these guys do it - because they are good.  Very good.  Here are there monthly performance numbers.

 

Of course - as I do not understand the letter I can't vouch in any way for the validity of these results.  So I am not publishing their name on this blog.  But if anyone can explain this to me I would be very grateful...

POSTSCRIPTS:

1.  The FBI has arrested Rusciano - see this article.

2.  Folio Administrators has confirmed the relationship with Paradigm's international funds.  Here is the email:

Dear Mr. Hempton,

 

I can confirm that Folio Administrators Limited are the appointed fund administrator for Paradigm Global Fund.  Folio has been providing fund administration services to Paradigm's offshore funds since July 2004.

 

Please let me know if you require any further information.

 

Kind regards

 

William Harris

Director

 

Folio Administrators Limited

Folio House

James Walter Francis Drive

Road Town, Tortola

British Virgin Islands, VG1110

 

Tel: (284) 494-****

Fax: (284) 494-****

www.folioadmin.com

 

I have some concerns though and have further followed up.  In an Auguest 2005 document linked here they clearly say that Folio has been an administrator of their offshore fund for THREE YEARS.  That would bring the date to 2002 - whereas Folio Administrators confirm the date since 2004 only.   Here is the extract:

Again I will follow up.

Just how sloppy is Paradigm Global?

Paradigm Global is a fund of hedge funds owned and controlled by Hunter Biden and James Biden.  Hunter and James are the Vice President’s son and brother respectively.

The SEC recently alleged a fraud by Ponta Negra – a small hedge fund run out of an office in Stamford Connecticut.  This blog first observed that Ponta Negra also maintained an office with Paradigm Global.

Moreover in SEC filings they gave their phone number as the Paradigm Global switch and they used the same marketer as Paradigm Global.

This was first exposed on this blog here.  Read this post first.

Now Paradigm have – through their lawyer – sought to defuse this issue.  Their lawyer summed up the story as follows (as reported in the Politico):

"They were subtenants," he said, adding that marketer Jeff Schneider "who did some marketing for paradigm over the last couple of years introduced us to Ponte Negra, and we had some available office space."

"That's 100% the extent of the relationship," he said.

"There's no smoke or fire as relates to this unfortunate Ponte Negra situation. There's nothing there at all," he said.

Jeff Schneider was a full time employee of Paradigm (according to their own marketing material) until relatively recently (January 2004 to February 2008 according to FINRA records).  To say that he did some marketing for Paradigm over the last few years is understating the extent of the relationship.

Anyway the excuse is that Ponta Negra is a subtenant – and in no way associated with Paradigm.

The excuse comes down to Paradigm being careless about their reputation rather than in any way involved in the alleged Ponta Negra fraud.

And I admit it – the only hard evidence I have is for Paradigm being unduly careless about their reputation.  

And in this light I thought I might have a look at just how careless by looking at Jeff Schneider’s FINRA record.  Jeff Schneider it seems has a history that might make him difficult to employ by anyone who does thorough due diligence and cares about their reputation.  

Remember this guy was a full time employee in a senior position at Paradigm. 

• Whilst working for CIBC markets immediately before taking the position at Paradigm he allegedly temporarily transferred securities from a customer account to another member of the firm allowing the other member of the firm a bonus.  He is acused of but denies sharing in this bonus.  He settled this for a fine, a non-admission of guilt and a 90 day industry suspension.  

• There were several allegations that at CIBC he recommended inappropriate investments and excessively traded client accounts.  Damages in most these cases was under half a million dollars and some cases were settled by CIBC for amounts up to one hundred thousand dollars.

• There were also allegations of unauthorised trading of client accounts which were settled by CIBC for amounts in excess of $50 thousand.
  

Needless to say he was dismissed by CIBC.

• At Paine Weber he was accused of failing to respond to client requests causing damages to clients of $18000.  Paine Weber settled for $10 thousand but Mr Schneider denies any liability.

• He was permitted to resign from Merrill Lynch after allowing foreign clients to exercise (losing) trades and to not pay for their losses.  He argues that he was following Merrill Lynch procedures and that the clients just disappeared.
  

You can find the details here in his FINRA report.

Given this history are you surprised that Jeff Schneider is the marketing agent for Ponta Negra – an alleged scam?  

Or are you more surprised that a firm owned by the Vice President’s son and brother continued to employ Jeff Schneider as a marketing agent?

At best the Biden’s firm is sloppy.  Sloppy enough that it is highly surprising that the main stream media is not asking questions.

John

PS.  I am a life-long adherent of slightly left-of-centre politics.  I campaigned against John Howard in his own electorate and was (proudly) at Maxine McKew's election party when she pulled off the improbable win.

I would have donated to the Obama campaign except that - for a non-US citizen - that would be illegal.  My problem with Obama is that he is too centrist.

If the election were held again tomorrow and I could vote it would be for Obama/Biden.

There are some people aruging I am writing these posts because of some right wing political agenda.  They are just wrong.  

This issue just deserves exposure.  I did not set out to expose the Bidens.  I found Ponta Negra and followed where it led me.  I almost collapsed in surprise when I found the strong Biden link.  

J

Alleged fraudulent hedge fund associated with the Vice President’s family harasses blogger

I wrote a post about Ponta Negra – a hedge fund that I thought was more likely than not to be fraudulent.  I did not name Ponta Negra in the post but I put two of their marketing documents on the web and some people found them.  

I withdrew that post after threats from lawyers.  I also removed the documents from the web.

I have reposted the two marketing documents I have from Ponta Negra here and here and the first threat from the lawyer here.  

I have done this because Francesco Rusciano of Ponta Negra has formally had his assets frozen by a Federal Judge at the request of the SEC.  Also see here for the formal charges.  

Anyway I asked the lawyers for the things that I would need to do due diligence on Ponta Negra – that is the identity of the auditor, permission to talk to the auditor, identity of the prime broker and permission to talk to the prime broker.  

I was denied.  The lawyers argued that I was “just a blogger”.  Their denial letter is here.

The first marketing document however identified a supposed prime broker as Citigroup.  I wrote to citigroup several times – and spoke to senior people in their government relations area and told Citigroup the entire story.  I believe that Citigroup did not react appropriately to a fraud committed in their name.

Anyway I will save you the suspense.  All of this would not be the biggest story on my blog except that Ponta Negra is marketed out of the office of Paradigm Global – a fund of hedge funds owned and controlled by Hunter Biden and James Biden.  Hunter and James are the son and brother of Vice President Joe Biden respectively.

You can find this several ways.  

1. Ponta Negra gives its address in the second marketing document as 650 Fifth Avenue, 17th Floor.  This is the same address as Paradigm Global.  

2. The contact on the first marketing document for Ponta Negra is Jeffry Schneider.  This is the same Jeffry Schneider who is quoted in this Wall Street Journal article as being the marketer for Paradigm Global and effectively spins for the Bidens.

3. This SEC filing gives an address and phone number for Ponta Negra.  The address and phone number is a number through the switchboard of Paradigm Global and until recently it was a way of getting into contact with Ponta Negra.

At a minimum Paradigm Global – a fund of fund managers owned the Vice President’s family, housed an alleged fraudster.  The alleged fraudster used the same phone number as the Vice President’s family business, the same marketing machine and traded off the good name of the Vice President’s family business.

There are numerous posts about Ponta Negra, Paradigm and other assorted entities (Onyx Capital for one) that I have withheld posting on.  I will put them up as a series.  The ties between the Vice President’s family and some very questionable dealings are very strong.

The next step for the SEC has the surname Biden.  Are they up to it?

To be continued.

John

In an odd coincidence

Francesco Rusciano is out on bail – released to the custody of his parents who have put up their house to stop him fleeing.

This is a guy – who according to SEC filings – has been able to raise $30 million from 15 high net worth customers.  [Maybe raising hedge fund money is easier than it appears to this start-up… however if any rich folk from jurisdictions we can accept money from want to stump up we are keen to talk…  good terms for early customers...]

Anyway – the picture of Mr Rusciano with an unidentified female.

 

 
The report comes from a Connecticut paper.  Rob Varnon (the journalist) also notes (without credit) the detail first observed on this blog: 

In an odd coincidence, Rusciano was a sub-tenant of New York City investment adviser Paradigm Global, a subsidiary of a holding company owned by members of Vice President Joe Biden's family. Marc LoPresti, Paradigm's general counsel, said Monday Paradigm was subleasing space and Ponta Negra was referred to it by one of Paradigm's third-party marketers. LoPresti said "Paradigm is not under investigation."

 The Journalist thinks that the link between Paradigm and Rusciano is an odd coincidence. 

 In full treatment of the link we should also remind the journalist about a few more odd coincidences

(a)    That Paradigm and Rusciano shared more than an office - they shared marketing arrangements and a phone number,

(b)   the third party marketer in question (or at least its corporate office) was not licensed

(c)    the third party marketer in question (or the individual in charge) had previously been a full time employee of Paradigm

(d)   that this individual had caused their previous employer to settle claims for abuse of client funds in six figure amounts (whilst the marketer in question denied guilt)

(e)    that the individual had also been suspended from the securities industry and sacked for allegedly fraudulently abusing the bonus system of a previous employer (and in this case accepted a fine but neither accepted nor denied guilt)

(f)     that the third party marketer in question (company or individual uncertain) also introduced Paradigm to Alan Stanford’s organisation and that

(g)    Paradigm thought sufficiently highly of the Stanford organisation that they had a cobranded product

 

To this we can add the following odd coincidences:

 

(h)    that Paradigm had lent its name and reputation to another alleged fraudulent hedge fund – this one being Paradigm Global (Canada) renamed as Portus Asset Management and that fraud had been more than CDN700 million

(i)      that Paradigm claimed that it had 28 full time staff when very soon after it probably had less than ten

(j)     that Paradigm similarly had offices in Monte Carlo and Tokyo whereas the only places I can find sales staff from the period are in Orlando Florida and similar and the Tokyo and Monte Carlo offices were rapidly closed

(k)   that Paradigm until only a few days ago claimed on their website that they had never had a down year and they had decreasing volatility (a claim that disappeared only when pointed out on this blog)

(l)      that Paradigm claimed in public documents to have over $1.5 billion under management when it (at least very soon after) had less than one fifth that amount, and that the decline happened despite the positive returns better than indices and with decreasing volatility

(m)  that Hunter Biden and James Biden in sworn affidavits alleged that James Park (then the manager of Paradigm) was mostly absent and had a substance abuse problem but that all is well with James Park now as he is back at Paradigm

(n)    that Hunter and James Biden in the same affidavits alleged that Paradigm had misrepresented their returns

(o)   that Paradigm claimed its domestic outsource arrangements were with Global Fund Services LLC – a company supposedly in Atlanta but which is no longer in Georgia at Whitepages.com, (they do have some relationships with BISYS – now Citigroup)

(p)   that Paradigm’s offshore fund administration is supposed to be at Folio Administrators and they claim in marketing documents that they have had that arrangement since 2002 whereas Folio Administrators in an email to me claim it only since 2004

(q)   that on the SEC database exists an audit statement qualified as to the security of asset custody, and

(r)     that Paradigm hired at least one other marketing staff member with long histories of alleged violations of broker conduct rules.

 

These odd coincidences were made clear on this blog.  Full documentary backing for these coincidences is provided in this post – a post which almost nobody linked to or commented on – but which took a considerable time to write and which I largely researched before Ponta Negra was prosecuted by the SEC.

In an odd coincidence I am frustrated.  Partly because it is all odd coincidences.

Mr LoPresti says that “Paradigm is not under investigation”.

In an odd coincidence I believe him.  He is a lawyer and there is no reason why I should not believe him.

The first post I did not make on Ponta Negra and its link to the Bidens

Note - an error in this post has been corrected - see the end note...

Being a blogger you sometimes need to hold your horses.  Lawyers do threaten.  I wrote this post.  I circulated it to a few friends but on the promise that they would not further circulate it.  

I did not post it.

I suggest you read the FIRST POST ON THE BIDEN/Ponta Negra connection before you read this.  However you should enjoy this...

It was originally titled "The Scorpion Post".  You will see why.  Some of the links in the post do not work because - under legal threat - I deleted some posts and some documents.

You will also note that since I wrote this (hitherto unpublished) post the amount of information I have linking the Bidens to various ponzis/frauds has increased.

A Scorpion Post - Chasing down a Ponzi

If you are a Republican political obsessive please read this to the end. There is a really big sting in the tail… you might like it…

This blog would – on average – have readers considerably more financially sophisticated than the average person. Indeed looking at where my emails come from its not quite a roll call of Wall Street’s finest– but the crowd is well heeled and well connected.

The fund I put up yesterday is almost certainly a Ponzi. Indeed just reading the numbers as posted I was pretty sure it was a Ponzi – and in this post Madoff/Stanford world I would have thought that most of my readers would be trained to look at results which do not in any way resemble plausible and scream Ponzi.

I did not reveal the name of the Ponzi fund in yesterday’s post but I will today. It is called Ponta Negra Fund LLC and its manager is the Ponta Negra Group.

Surprisingly about a third the emails I got and a fair few of the comments did not even raise the possibility it was a fraud.

Fraud was the first thing that I thought of – and it was the first thing I thought of when I first heard of this fund in June last year. I thought Ponzi in a pre-Madoff world. I am really startled that all my readers did not think Ponzi in a post-Madoff world.

I have two fund marketing documents, one containing results to May last year – the other containing results to February this year. I have uploaded them to Scribd – and you can find them here and here. Download them if you really want to follow the scam.

I was fairly sure it was a Ponzi before I observed the other tell-tale signs – but - for the sake of completing the experiment I will reveal them to you.

Firstly both documents are formatted in a very strange way. If you cut and paste text you get words without spaces. So a cut and past will look like this:

Aswehadanticipated,interdayvolatilitybegantospike...

Rather than just saying:

“As we had anticipated inter-day volatility…”

This format takes some doing. The spaces are formatted as pictures rather than text. The reason for doing this is that it makes the documents non-searchable and hence unable to be found using Google. I guess that indicates that they have something to hide.

Now take a look at the February document. The contact is "Jared Toren" whose phone number is 512 306 0300. The fund has an address of Level 17, 650 Fifth Avenue New York. The first problem is that the phone number for the sales contact – for a fund headquartered in New York City – is in Austin Texas. Very strange.

If you Google the phone number you get a link to Eagle Rock Capital LLC. Here is their website (click here). Because I expect the site to disappear I have taken a picture of it for posterity.

There is not much there. No contact address, nothing really except a place holder and phone number.

But Eagle Rock Capital has a history – as a personal lending company. This is an extract from the San Marcos Record – which describes the company as providing personal loans (click here). I have reproduced below:

In the earlier Ponta Negra document you find a different contact – a

Jeffry Schneider from Onyx Capital, LLC. Onyx Capital is a funny entity. It too has a website or two (click here for one).  [Editors note - this site has changed...]

The Onyx website is constructed almost entirely of pictures not text. Nothing is searchable by Google. On their home page they offend with stray apostrophes – but that would not be noticed because it is not text and so never went through a spelling checker. Here is the cover page:

And here is their contact page:

Note no physical address is given. That is very strange indeed.

Jared Toren and Jeffrey Schneider do appear together in – you guessed it – civil litigation. I have filed the complaint on Sribd (click here).

The allegation in that suit is that Jared Toren and Jeffrey Schneider worked at Hedgeco – an internet based marketer of hedge funds – and that they stole the client list. They either joined or established Onyx. [EDITORS NOTE - SEE END]

In other words Jared Toren and Jeffrey Schneider are alleged to have stolen a client list and are seemingly using that list to market a Ponzi scheme (Ponta Negra). They possibly also used it to market New World.

Ok – all of this would not have interested me. I have numerous times reported frauds like this to the SEC and even to the FBI – and I have yet to see any action. Mr Markowitz and Madoff is an experience that anyone who has dealt with the SEC has seen before.

I have simply given up

This is however a Scorpion Post. Here is the sting.

The address given in the second Ponta Negra marketing document is 17th Floor, 650 Fifth Avenue New York. I can’t find any reference to Ponta Negra there – but there is a fund-of-hedge-funds based there. It is Paradigm Global Advisors and they manage roughly 270 million dollars according to the Wall Street Journal and 500 million on some other estimates I have seen.

Now Paradigm is a name that will ring a few bells. The firm is owned by Hunter and James Biden. Hunter is Vice President Joe Biden’s son and James is the Vice President’s brother. (I told the Republican activists to read to the end…) You can see a picture of Hunter Biden with his dad at the Obama inauguration below.

Paradigm Global does not have an entirely pristine reputation. Here is a Wall Street Journal article about a fund that they co-branded with Stanford Financial (click here). I copied the picture from that WSJ article.

According to the WSJ article Paradigm claims that the Bidens never met or communicated with Mr Stanford. I believe them. They lent the name Paradigm to the Paradigm Stanford Capital Management Core Alternative Fund without ever having met the principals of Stanford. Such is the standard of due diligence on Wall Street.

I was worried at first that Ponta Negra might be a legitimate fund headquartered in another cubicle on the 17th Floor of 650 Fifth Avenue. It turns out that there are several funds also HQ'd there. Paradigm it seems does all the signage on the floor – but once you get past the couple of Paradigm people on the front desk you find several doors behind which reside several hedge funds – a hedge fund hotel if you want. Most of the offices were empty mid-morning – which was very surprising. These funds are largely marketed by Paradigm.

Still there could be a fund (Ponta Negra) independent of Paradigm on the 17th floor. There could be – they too would need to employ a Jeffrey Schneider as a marketing agent. To quote the Wall Street Journal story:

A Paradigm marketer, Jeffrey Schneider, confirmed accounts provided by others that he brought in the Stanford business. Stanford would bring clients to the fund and Paradigm would manage it, according to Mr. LoPresti. The fund is mentioned on the Web site of a Stanford entity called Stanford Trust Co. as one of its "investment management strategies."

Ok – by this point you should at least be open to the possibility that the Vice President’s son and brother employ someone who uses the good Biden name and a stolen client list to market Ponzi schemes.

There is no allegation here that the Bidens are involved. Just that their standard of due diligence is low. Very low.

Now the Biden’s hedge fund hotel contains an assortment of other colourful funds. One of them is a SIPC registered broker dealer who also manages client money. This broker dealer does not list their auditor anywhere on their website. However they report startlingly good funds management results for 2006 and 2007 though they have surprisingly failed to update their website to include 2008 results. Their website boasts that their trades will be completed with zero commissions and transaction charges allowing them to focus exclusively on the investments that best meet the needs of the clients without the concern of transaction charges and hidden revenue sharing…

Any resemblance to Bernie Madoff is purely coincidental.

EDITORS NOTE.  I originally referred to Capital Group Holdings as marketing a previous Ponzi.  It was HOLDING CAPITAL GROUP.  I sincerely apologise for the error and have deleted a section of this post.

A dark privatised social security story: Astarra, the missing money and how examining a fund manager owned by Joe Biden’s family led to substantial regulatory action in Australia

In Mid September I wrote a letter to Australian regulators which detailed my concerns about a fund manager in Australia known as the Astarra Strategic Fund – formerly known as Absolute Alpha.  This letter resulted in regulatory action against a cluster of related funds (almost twenty), however my letter was almost entirely about only one fund in the group.  I did not make any major suggestions in the letter about other funds in the Astarra complex.  My involvement was detailed today in the Sydney Morning Herald (see stories here, here and here, with the first story on the front page below the fold).  There was no genius in my letter – everything could be found (fairly easily) on the internet – and the original tip-off came from a reader of my blog – who noticed links with a story I wrote up in March 2009.

For reasons I will explain below this fund collapse is qualitatively different and more serious than any previous fund collapse in Australia and that the Australian press have not yet detailed why this one is important.

The letter argued that it was possible that the Alpha Strategic fund was a fraud.  I did not have the ultimate proof of that so I did not make my letter public and will not do so yet.  However there is a way of proving that a fund is not a Ponzi – and that is to “show us the money”.  If the assets are really there then it should be possible to convince regulators of that fact by showing them the assets.  If Bernie Madoff had been asked to prove the existence of all the money he supposedly managed then he would have been caught because he could not comply.  An honest fund should be able to comply fairly quickly – sometimes within 20 minutes – but almost certainly within a week.

The Australian regulator asked Astarra to show them the money – and to date that has not happened.  That does not mean that the money is not there.  It is however suggestive, especially as approximately three months have elapsed whilst regulators and fund administrators have tried to “value” the fund assets.  Indeed the difficulty of valuing assets was sufficient for the regulator to cancel licenses and to place the funds in the hands of administrators. 

At a meeting last week the (regulator appointed) administrator Neil Singleton said that with respect to one fund the only proof of assets they have is a letter from a Virgin Islands company stating that the fund (presumably the Strategic Fund) held 118 million in interests in other hedge funds.  This letter did not detail any interests held and gave no mechanism for confirming that statement.  However the administrator has not stated that the assets are not there – so – like the regulator and the administrator I too will leave that question open.  The press simply says the details as to the  $118 million are “sketchy”.

Background to the Australian privatised social security system and where various Astarra entities fit in to that system

Australia has a privatised social security system.  Much of the money is with large honest players run in a nearly index manner and which have cut fees to relatively low amounts.  Those funds are run by Australia’s otherwise dying trade unions.  Privatised social security (which Australians call “superannuation”) has been the saviour of the union movement in Australia – and – through their control of funds the unions now are within a breath of control (though generally do not vote their control) of a large proportion of Australia’s industry.  

The money that is not with the union funds is in a rag-tag of funds run by large banks (for example Colonial’s wraps owned by Commonwealth Bank) or with independents and/or self-managed funds.  The money in those funds (wraps) is let to a large number of sub-funds – sometimes large, sometimes boutique funds managers who live off the large and mandated fund flows from our “superannuation system”. 

The boutique funds range from very good to awful and shonky.  Indeed I think the best no load mutual available anywhere in the world is in Australia (I used to work for the manager).  But there have been some flea-bitten dogs sold to Australians.  One thing is for sure – you cannot do privatised social security without very good fraud protection because that amount of money from unsophisticated investors is a truly massive honey-pot for scammers and flim-flam artists.  As an aside, possibly the worst thing about George W’s privatised social security proposals was that they would be supervised by Cox’s toothless and supine Securities and Exchange Commission.

Trio Capital (the “mother-ship” of the Astarra entities) is a “wrap provider” – meaning a  financial planner might use Trio to invest all their client’s retirement money.  The Astarra Strategic Fund is an individual fund under that wrap.  My letter was about the Strategic Fund – and the collapse of the Strategic Fund would not be qualitatively different from the collapse of any of about six funds that collapsed during the financial crisis.  The financial planner might have put her clients in six (or more) funds – and the loss of one of them is a blow – but in no way imperils the system. 

But (somewhat surprisingly) the entire Trio edifice has been placed with administrators – which means that the end-beneficiary has had their entire retirement savings blocked.  In some funds there is not even enough cash to pay pensions to retired people for the month of January.  Some pensioners are not having their current payments blocked but there are doubts about future payments.  [Details as to who will receive pensions for the month of January can be found on Trio’s website.]  This is qualitatively different from earlier fund failures because it is a failure of every fund that a person might have invested – a failure of the core asset protection mechanism in the Australian system.  [I cannot work out why the otherwise sensationalist Murdoch press has not written a single story on this yet.  All they need to do is find a cluster of pensioners who will not receive their pension this month and who will have no idea as to why.]

How I came to write my letter to regulators

Six months ago a reader pointed me to a fund of hedge funds (called Absolute Alpha) based in Australia. 

I looked – and within forty minutes I became very concerned – but could not prove harm to the fund’s investors.  I tipped off the Sydney Morning Herald.

The journalists at the Herald worked hard at the story but alas they too could not prove harm.  Indeed a major bank misled them as to whether the assets were in (their) safe custody.  The bank confirmed the assets were in custody – a statement they have now withdrawn.  Obviously with a reputable third party vouching for the assets any hypothesis of harm was going to be hard to sustain.  The Herald published nothing. 

I however remained suspicious – but could not easily do anything.  For there to be something desperately wrong either the bank had to be a party or grossly negligent as to their custody of the assets. 

Absolute Alpha was a boutique fund manager loosely associated with – and partly owned – by a superannuation wrap provider called Astarra.  Astarra is now called Trio.  The wrap provider did all the superannuation compliance and in turn (claimed to) invest funds with other fund managers – mostly reputable managers.   The relationship between Trio and some of the funds in which they were supposed to invest is complex. 

The amount of money in Absolute Alpha was probably under 100 million.  There were plenty of things that did not look right – but I did not think there was much I could do about it.

So I let it go – though I did not forget about it.

Later I tried to log into Absolute Alpha’s website and it was dead.*  This (falsely) indicated my worst fear. 

Again I alerted the Herald. 

Alas it was not so simple.  Absolute Alpha it seems had taken over the funds management of all the money in the Astarra wrap.  They had renamed themselves Astarra.  Astarra later renamed itself Trio.  Astarra’s website boasted of a billion dollars in funds under management. 

This was potentially very bad news.  Australia is about a twentieth the size economically of the United States – so $1 billion in funds under management was the equivalent economically of $20 billion in the US.  If my bad-case was true we had a Madoff (at least proportionately) in the making.  [Now the funds have been taken into administration the official numbers are about 40 percent of the numbers boasted on the website.  The danger was not quite as big as I thought it was.]

Anyway I wrote a letter to the Australian Securities regulator (ASIC)  laying out all my concerns and (implicitly) the method for testing my concerns were false.  [I sincerely hoped I was wrong – and hoped the regulator would prove me incorrect by identifying and valuing the assets.  I still sincerely hope all the money turns up in the British Virgin Islands.]

I have heard lots of criticism of the Australian Securities regulator.  However on this important matter their actions were exemplary.  They did what the SEC could not do and act on a “Markopolos letter” within weeks.  They did what the SEC should have done when they investigated Madoff – and attempted to confirm the existence and value of the assets. 

Three weeks later ASIC put a stop on all Astarra funds – prohibiting new money going in or any moneys going out.  They acted to protect investors.  This showed responsiveness that Mary Schapiro and American regulators can only aspire too.  The Sydney Morning Herald finally published a cryptic story on the front page.  The Sydney Morning Herald article did not suggest – and I did not reasonably think – that the problems extended further in the Trio edifice.

A few months have passed and eventually all major Trio entities were placed in administration by the superannuation regulator.  They will probably be liquidated.  The funds have been passed to (reputable) private sector “forensic accountants” – the choice of accountants being made by the securities and superannuation regulators.  They are the sort of liquidators you use when (as stated by the regulator in their press release) you are not “able to satisfy concerns regarding the valuation of superannuation assets”.

The whole mess will be explored by the accountants -  and if the assets are not there then the matter will played in court – at which point I will publish my “Markopolos letter” analysing what I got right and wrong. 

But for the moment I will leave you with what attracted me to Absolute Alpha in the first case.  It was the CV’s of the principal players.  Here they are:

Shawn Richard - Chief Executive Officer

Shawn is the founder of Absolute Alpha and a key member of the investment team.   Prior to founding Absolute Alpha, Shawn has held and continues to hold, various senior positions, including directorships of companies both in Australia and overseas.

Shawn has been involved in financial markets since 1996 and had been specialising in alternative investments for more than 8 years, both offshore and in Australia. Over this time, Shawn has established relationships with some of the most exclusive hedge fund managers around the globe.

Shawn’s offshore experience in alternative investments includes among others, structuring and analysis of derivative instruments with some of the largest private hedge funds in the United States. Shawn was also part of a small team of professionals providing risk management services to Asian institutions and regional banks in relations to their exposure in equities.

Shawn holds a bachelors degree in Finance from the University of Moncton.

Eugene Liu -Chief Investment Strategist

Eugene is the Chief Investment Strategist of Absolute Alpha. As Chief Investment Strategist, Eugene is involved in the development and evaluation of asset strategic plans, development and modelling of analytic tools, reviewing and analysing investment data to formulate investment strategies, and the investment risk management process. Prior to joining Absolute Alpha, Eugene worked with the Asset Management team of Pacific Continental Securities and World Financial Capital Markets in the US and Asia. In these roles, Eugene performed extensive financial modelling and valuation analyses of various hedge fund strategies. Eugene also led a team of arbitrage specialists who provided structured product deal flow to many of the largest hedge funds in the industry.

Eugene holds a degree in economics from Trenton State College in New Jersey.

Charles Provini (US) - Asset Consultant

Charles has been involved in hedge funds for more than 20 years and is a senior asset consultant and member of Absolute Alpha’s investment committee. Currently, he is the President of Paradigm Global Advisors, a well established hedge fund manager based in NY and he is also the Chairman of C.R. Provini & Co., Inc., a financial services firm, founded in 1991. Prior to this, Charles held various senior positions, including, President of Ladenburg Thalmann Asset Management, Director at Ladenburg Thalmann, Inc., one of the oldest members of the New York Stock Exchange, President of Laidlaw Asset Management, Chairman and Chief Investment Officer of Howe & Rusling, Laidlaw’s Management Advisory Group, President of Rodman and Renshaw’s Advisory Services, and President of LaSalle Street Corporation, a wholly-owned subsidiary of Donaldson, Lufkin & Jenrette.

Charles has been a leadership instructor at the U.S. Naval Academy, Chairman of the U.S. Naval Academy’s Honour Board and is a former Marine Corp. officer. He is frequent speaker at financial seminars and has appeared on “The Today Show” and “Good Morning America” discussing financial markets.

Charles is a graduate of the U.S. Naval Academy and has an MBA from the University of Oklahoma.

Now the first CV – Shawn Richard – is notable only for what it does not say.  It does not mention a single firm that Shawn ever worked for – and hence reduces the possibility of doing due-diligence. 

Eugene Liu’s CV is not so careful mentioning two firms, Pacific Continental Securities and World Financial Capital Markets.  Pacific Continental is easy to find – it was a bucket shop of enormous proportions in the UK.  Essentially the firm found hapless victims and steadily moved their life savings into soon-to-be worthless scam stocks for huge commissions.  This was explored widely in the UK press including beautiful articles about a salesman’s time as scam artists.  World Financial Capital Markets is a little harder to trace as a firm.  Several firms have had that name – but one firm by that name met an unfortunate end involving fraud and the principals reappeared at Pacific Continental. 

It turns out that Shawn Richard was a manager with Pacific Continental in Taiwan.

The third CV is of Charles Provini who used to be the CEO of Paradigm Global and who was (falsely) claimed to remain in that position.  When I copied these CVs off the Absolute Alpha website Provini had not worked for Paradigm for about two years.  Some of the rest of Mr Provini’s CV is raised my eyebrows too – for instance he worked as the President of Laidlaw Asset Management.  A firm of that name was cited by the UK securities regulator (the FSA) for cold-calling and selling scam funds to UK investors. 

The link to Paradigm Global was what raised my eyebrows.  Paradigm is an asset manager (for funds of hedge funds) owned by Hunter Biden and James Biden.  These are the Vice President’s son and brother respectively.  I have written about Paradigm extensively before as it has an unfortunate habit of being associated with scams.  Absolute Alpha was not difficult to do due diligence on.  It took me only 40 minutes to work out that they were needing very close scrutiny.  It does not speak well to the due-diligence of a fund of hedge funds (which is what Paradigm claims to be) that they keep being associated with cases like this.

The Biden connection was what prompted me to look at Absolute Alpha and hence what led me to write my “Markopolos letter” to ASIC and hence what rapidly led to the closure of Astarra and Trio.  It is worth asking how deep that connection is.

Are Absolute Alpha/Astarra really associated with the Biden’s firm?

At first glance the links between Astarra and the Bidens’ firm are weak.  Provini could have been marketing “vapourware” with no real association.

All that is certain is that Provini was cited on the Absolute Alpha website as an asset consultant and President of Paradigm for at least two years after he was sacked from Paradigm.  Provini is now running inconsequential penny stock companies. 

But the links run deeper than that.  Absolute Alpha also used to cite other staff members who worked at Paradigm – indeed the original “managing partner” was also a staff member at Paradigm.

Absolute Alpha used to publish a process diagram as to how they identified funds to invest in.  I have reproduced that diagram below:

 

It mentions two things which link Absolute Alpha (now called Astarra) to Paradigm global.  These are the use of the Park Score (named after James Park – the founder of Paradigm) and the PASS database – the core database of hedge funds from which Paradigm claims to make its investment decisions. 

Still, this could all have been ripped off Paradigm without Paradigm knowing. 

Alas Paradigm does not get off so lightly.  The boys from Absolute Alpha went to New York and co-marketed with people from Paradigm.  Indeed I know someone who thought that Absolute Alpha were OK because staff at Paradigm had vouched for them.  Whether Paradigm knew that Shawn and Eugene in Australia were using “Paradigm inspired” marketing material however is unknown. 

Paradigm – the Biden’s firm – had unwittingly got involved in another funds management firm which has been closed by regulators or been exposed as Ponzis.  That is four I know of now – and I have yet another one that I suspect of being unsound. 

A plea to Michelle Malkin

So much of what is published by the conservative blogosphere is non-fact based muckraking.  And yet – sitting here has been my observation that the fund of hedge funds associated with the Vice President’s family has an unnerving habit of association with scams and other funds closed by regulators.  Surely a competent muckraking conservative blogger can actually do some digging rather than pontificating from the sidelines. 

It makes me think of conspiracy theories.  Maybe conservatives in the US do not want to do this sort of financial digging because most the fraudsters and scamsters are part of the Republican movement and do not like regulators because – well – they might catch them.

But there must be honest Republicans out there.  It is time for Michelle Malkin to do some honest work.  So I will plead with her – can you please do some digging into Paradigm or find some other muck-raking conservative to do it for me. 

I for one want to get back to making money honestly.

 

 

 

John

 

*Incidentally – I was attempting to log into the Absolute Alpha website because I was discussing the whole matter with a reader from Talking Points Memo.  You know you you are.  Thank you.