Bayou, Wood River, Refco - three investment firms that have been in the news recently mainly because of what looks like fraud in each case. And in each case it looks like the people who ran these firms were able to defraud very sophisicated investors. Was it greed that caused these sophisticates to be taken? Was it laziness?
Consider Wood River.
Through August they claimed a return of 25% while the Dow was down almost 3%. In prior years they didn't do as well, only 22%. Apparently few read the footnote which said that none of their returns had been audited.
They failed to file forms with the government listing their holdings or their ownership of more than a 5% stake in companies.
The owner of the firm had accumulated tax liens of $265,000 between 2002 and 2004.
The company had been sued by First Boston for non-payment of shares bought.
They claimed Morgan Stanley as primary broker; Morgan Stanley does not support the claim.
They said NAV consulting did their accounting; NAV consulting denies it.
The landlord sued for unpaid rent in 2002.
Refco and Bayou were a little more circumspect, but still fraudulent enough to suck in a lot of sophisticated investors such as Stern Investors and Thomas H. Lee Partners.
2 comments:
The list of corporate scandals just grows ever longer.
I've been following the Refco scandal for the whole week, mainly because I'm in a related field with some overlap.
It has fascinated me - in the past several years, Refco has purchased several large FCM's (RB&H, LFG, and First Options, all in Chicago, and Friedberg Mercantile in Canada, and most recently, Cargill's global operations).
If Refco goes down (and at the moment, it appears they will - they suspended operations in one division yesterday) they'll wind up taking down a total of six FCM's in one fell swoop.
Unbelievable.
And even more unbelievable, they did an IPO just two months ago.
What a fascinating week this has been, especially if you're on the sidelines watching.....
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