When $12 million was stolen and nobody did anything about it

swissmapbest

“We’ve determined he’s stolen at least $12 million cash from his investors and put it in a Swiss bank account under his own name. We tracked down the account.” Lewis, the head of a multi-billion dollar fund of funds was telling me this on the phone. Lewis had about $30mm invested with David. I had about $700,000 invested.

$12 million doesn’t seem like a lot when compared with the billions stolen in other Ponzi schemes but David’s fund had only reached a peak of about $80 million. So somehow he managed to siphon off quite a bit of money for himself. And with $12 million in the bank, it’s not as if the young 35 year old David would have another financial worry for the rest of his life.

Lewis wanted me to join the liquidation committee that was trying to track David down. “I figure if we apply enough pressure,” Lewis said, “we can maybe get some of the money back.”

I declined. There was zero chance he was getting any of the money back. In fact, David had already settled with the SEC. The SEC knew exactly what he had done (all of the filings are public) and fined him $50,000 and wiped their hands clean of the entire thing. And Lewis, meanwhile, was separately battling the authorities on an entirely different matter where he was being accused of mutual fund timing almost five years after the fact and he was the only guy who hadn’t just given up and settled.

“Why don’t you settle with them already?” I asked him.

“England is different than the US,” Lewis said. “In England when you settle, that’s it. You’ve admitted guilt. People will never trust you again. I have to fight this til the bitter end. We’re innocent and I refuse to be bullied.”

Meanwhile, David had basically disappeared. He had settled with the SEC, shut down his fund, and was now presumably living somewhere on the planet with an extra $12 million to his name and nobody but Lewis  was chasing him for it. I called my lawyer, Jay, to ask him what he thought. “What are you going to do,” Jay said, “spend $300,000 chasing this money and risk getting none of it back? Its over!”

I picture David now lying on a beach somewhere. Of course, when you picture something like that you also have to picture the most beautiful woman possible lying down right next to David. Probably several different women. At night they do violent things to each other. In the morning, they are blissful and ready to repeat the adventures of the day before. And so on. Life was good, $12 million was one Swiss phone call away, and capitalism was flourishing.

I should never have invested in David in the first place. He was too good looking for one thing. Good looking guys are usually not that smart.  But I wish I could say there was something else that bothered me about him. Some other character flaw I could’ve narrowed in on. Something that could be a future signal, at least, when I run into the next ‘David’ I encounter.

And he wasn’t even my worst investment.  I know a lot of of guys who got unfairly rich during what I would consider the hedge fund “bubble” of 2002-2008. One guy who should definitely be in jail just donated $50 million of his ill-gotten gains to charity. This guy has the largest neck I’ve ever seen on a human being. We used to joke he needed a crane to turn his head. But that didn’t seem like a reason to not invest in him.

I’m really curious if David has a pretty girl next to him this very second. And where the hell is he? So I just took a break while writing this article and I wrote him. “Hey David, how are things going? What are you up to these days? Let’s catch up when you have a chance.”

You’d be surprised how often people respond to emails like this. At some point, “crimes” dissolve into just “money lost” dissolve into just “water under the bridge” dissolve into just “what?” or, even worse, “who?”.

But I don’t think David is going to respond. And I don’t think I’m ever going to talk to Lewis again for the rest of my life. I hear he moved to France and is starting up a new fund. And Jay (my old lawyer) and I don’t really seem to be on speaking terms anymore.  The last time we spoke was maybe when he told me about the time he beat up Frank Sinatra.

And the financial crisis of 2008 allowed many hedge fund managers to sweep their shit under the rug while the rest of the world looked the other way. Now they are all starting up new funds. And the cycle will repeat.

And I think most people would agree I’m probably a better blogger than a fund of hedge funds manager.  Although even then, who even knows how to judge these things?

 

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  • Xpop2027

    hi james, great blog! i know you dont talk about investing much on this blog but can you talk about how to start a fund of funds? thanks!

    • http://www.facebook.com/james.altucher James Altucher

      I think a fund of hedge funds is not a good idea to start in this environment. Nobody benefits. Hedge funds don’t benefit. Investors don’t benefit, and even the FoF managers can put their skills to better use if involved in different endeavors. Focus your efforts elsewhere. Feel free to comment in response if you disagree with me. Or send me an email or whatever you want.

      • http://www.facebook.com/james.altucher James Altucher

        In general, NOBODY should ever invest in a hedge fund again, let alone a fund of hedge funds.

        • Guest

          I know a business I can get to enjoy doing: Collections agency specializing in high finance crimes. Fee is 10% of gross collected amount. Old Testament justice guaranteed.

      • Xpop2027

        I see, I agree with those points and thank you for the insight!

  • Scipio_3

    @twitter-248290796:disqus As I found out too late this is very common. My parent’s life savings were basically wiped out after a hedge fund manager just took the money and spent it. I think the total take was in the neighborhood of 20 Million. The SEC took 4 years to go after him and in the end fined him 100K and barred him from being an investment advisor for …wait for it…5 years. There is no justice when it comes to white collar crime.

  • http://pulse.yahoo.com/_VTS5C6IL5X67JXQSB2FANTOEPM Ez Dd

    Fabricated story? David who?

    • http://jamesaltucher.com James Altucher

      So funny. EVERY single story there’s at least one person who thinks its made up. A couple of points:
      A) what possible incentive could I have to making this story up. It doesn’t portray me in a flattering light, for instance.
      B) I’m trying, perhaps unsuccessfully, to make the point that there is a lot more hedge fund robbery out there than people think.
      C) Why would I feel obligated to tell you his last name. Maybe there’s some legal issue if I give up his name. Search enough SEC filings, look for a 50k fine on a $12mm robberty and you’ll find it. The point of the story is not his name.

      Nobody should ever invest in hedge funds. Whats your name?

  • http://pulse.yahoo.com/_267FC5VMSXPJMHKMGAFHEQUAAU Bob

    I wish i had hair and elgance like you. I mean that very sincerely and respectfully, Bob

  • LKB

    If the whole system is corrupt (I agree with you there), do you think it is worth keeping your measly 401k when credit card companies are charging you 20% in interest (even though you have great credit) and you could wipe out all your debt by draining your 401k (which is getting about 8% returns in a good year)?

    I know that all the financial advisors in the world say that this is a terrible idea, but something keeps telling me that it’s not that crazy. I realize that half the money is lost once I take it out, and I understand compound interest, but I also understand compound interest as it applies to debt and not just assets. And isn’t the whole concept of retirement something that is sold to us anyway? My 401k could lose half its value on its own, right before I need it. Isn’t it better to invest in myself right now as opposed to 70 year old me who doesn’t exist yet?

    Just now realizing how hilariously small my problem is in the context of $12 million out the window.

    • Alconnolly

      I do taxes and I would like to remind you that after taxes your 401k is close to 30% less than what you think it is 40% if you are under 59.5 years old.

    • Guest

      You might consider borrowing from your 401(k) instead.  Then pay off your credit cards and pay yourself back instead.  All the interest goes back to you and no tax penalties.

  • LKB

    If the whole system is corrupt (I agree with you there), do you think it is worth keeping your measly 401k when credit card companies are charging you 20% in interest (even though you have great credit) and you could wipe out all your debt by draining your 401k (which is getting about 8% returns in a good year)?

    I know that all the financial advisors in the world say that this is a terrible idea, but something keeps telling me that it’s not that crazy. I realize that half the money is lost once I take it out, and I understand compound interest, but I also understand compound interest as it applies to debt and not just assets. And isn’t the whole concept of retirement something that is sold to us anyway? My 401k could lose half its value on its own, right before I need it. Isn’t it better to invest in myself right now as opposed to 70 year old me who doesn’t exist yet?

    Just now realizing how hilariously small my problem is in the context of $12 million out the window.

  • LKB

    If the whole system is corrupt (I agree with you there), do you think it is worth keeping your measly 401k when credit card companies are charging you 20% in interest (even though you have great credit) and you could wipe out all your debt by draining your 401k (which is getting about 8% returns in a good year)?

    I know that all the financial advisors in the world say that this is a terrible idea, but something keeps telling me that it’s not that crazy. I realize that half the money is lost once I take it out, and I understand compound interest, but I also understand compound interest as it applies to debt and not just assets. And isn’t the whole concept of retirement something that is sold to us anyway? My 401k could lose half its value on its own, right before I need it. Isn’t it better to invest in myself right now as opposed to 70 year old me who doesn’t exist yet?

    Just now realizing how hilariously small my problem is in the context of $12 million out the window.

  • Jpintox

     Man, this is hilarious!

    • Anonymous

      Yeah, I could write all kinds of stuff about my dads side of the family…when it comes to investing there have been all kinds of interesting “deals” …

  • Rheinhead

    Thank you for the inspiring posts. They always spark a joycean stream of thoughts in me and well beyond the ‘financial stuff’. Your point of view is refreshing.

    Greetings from Basel.

  • http://trabajox5.com Trabajos Medio Tiempo

    Man this post is gold! Between informative and funny… and damn if there are a couple of us working our asses off just to get some pennies and not exactly having the perks this hedge funds managers have.

  • http://trabajox5.com Trabajos Medio Tiempo

    Man this post is gold! Between informative and funny… and damn if there are a couple of us working our asses off just to get some pennies and not exactly having the perks this hedge funds managers have.

  • http://jamesaltucher.com James Altucher

    Ha, that’s a great idea for a TV show.

  • http://danmar.posterous.com/ jmdanmar

    How many bloody people head multi-billion dollar funds for chrissake? More than that I’m completely baffled by the number of people who manage to screw others out of so much money. Where does one learn that shit? Is it innate? Is it cultural? Is it just luck? Honestly, anyone contemplating robbing a bank is a moron. Much better to buy an MBA from an Internet university and get a job inside the bank (an inside job as it were). What a crazy world.

  • Guest

    I know a business I can get to enjoy doing: Collections agency
    specializing in high finance crimes. Fee is 10% of gross collected
    amount. Old Testament justice guaranteed…

  • Reptilian

    Well, I’m sure those who were defrauded of millions would want their money back no matter how long it takes. There’s a business I can get to enjoy doing: Collections agency specializing in high finance crimes. Fee is 10% of gross collected amount. Old Testament justice guaranteed.