It’s not exactly the sort of publicity hedge funds need right now. Having had a very hard summer and an even harder time maintaining confidence among their investors, funds are bound to look with dismay on the coverage being given to the case of Alexander James Trabulse, a San Francisco hedge fund manager.
The SEC said Wednesday it had charged Trabulse with dramatically overstating his fund’s profitability and using investor money to purchase cars and finance shopping sprees for his family members, including his ex-wife’s overseas shopping allowance, reports Reuters.
Trabulse allegedly sent statements to investors in the Fahey Fund that inflated its returns by as much as 200 per cent. He also used the fund as his personal bank account, using the money to pay for cars and a home theatre system, and giving one relative free reign over the fund’s bank account for personal use, the SEC said.
Trabulse founded the Fahey Fund in 1997 and raised about $10m from about 100 investors, encouraging existing investors to serve as reference for new investors, the SEC said.
“As a result, his false account statements not only lulled existing investors into believing their investments were hugely profitably, but lured new investors into the fraud,” said Helane Morrison, director of the SEC’s San Francisco Regional Office, in a statement.
The SEC’s complaint alleges Trabulse violated the antifraud and registration provisions of the federal securities laws, and seeks disgorgement, penalties, and other relief. The Commission also named as relief defendants several entities associated with Trabulse that received assets through Trabulse’s fraud.
Like FT Alphaville, footnoted.org wonders why none of those 100 people — or the people advising them — bothered to check out the Fahey Fund’s website.
Seriously, says footnoted, “there are web pages designed by grade schoolers that look more professional than that”.
And the fact that the site contains some promo for a European musical tour that took place two years ago? Couldn’t they have found someone on Craigslist to update their site and make it look a bit more professional?
Sure, a fancy website can easily mask a fraud and a simple website — like Berkshire Hathaway’s — isn’t always a negative indicator, says footnoted. But the Fahey Fund site really makes one think again about just how gullible some investors really are.
Then again, footnoted reminds us, “there’s always that famous PT Barnum quote…“