“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?