Long or Short Capital

I’ve found the worst investor ever. I mean this has to be him right? His name is Jerome Fisher, the name may be slightly familiar as the founder of shoe-company Nine West. But he has done so much more than that. He lost a significant chunk of change in not one, but two of the biggest hedge fund scams in history, KL Group and Bernie Madoff Investment Securities.

He was an investor with the KL Group, a hedge fund run by Korean-American scam artists who defrauded investors of nearly $200 million. Maybe he should get a pass for this one as it was tough to imagine this being a fraud. I mean, according to the linked article, there were no telltale signs of anything but trustworthy, diligent investment management.

The aura of success and exclusivity around the firm was so strong that investors often begged to be let into its funds, some of which were said to have astounding annualized returns of 125 percent for several years.

…

And there was never a formal independent audit to verify whether the remarkable returns reported by the funds were real.

…

NOT that it was all that difficult for KL to persuade investors to jump into the funds with both feet. Its main fund reported strong returns of 70 percent in 2003 and 40 percent in 2004, according to statements given to investors. The lifestyle of the funds’ original three principals also supported the picture of a business doing well. The young men drove flashy cars: Maseratis, Porsche 911’s and Mercedes SL 500’s. (The firm’s personal masseuse drove a Jaguar X-Type that was provided by KL.) End-of-year holiday parties were held in Las Vegas, where Mr. Kim and Mr. Lee were high-rolling VIP’s at several casinos.

The crown jewel was KL’s luxurious offices in the new Esperante building in downtown West Palm Beach. The large sunlit offices were filled with gorgeous desks designed by Dakota Jackson and a conference table that had to be hoisted 17 floors through the building’s elevator shaft. Some walls were covered in a gray suede fabric, and in the corner of Mr. Kim’s office was a $6,000 massage chair. The trading floor had large flat-panel televisions scattered throughout.

It all was a great way to impress clients, who were ushered in to watch the main attraction: Mr. Kim. From his captain’s chair, he traded frenetically, surrounded by 20 computer screens.

I think we should give him a pass. Nothing in the quoted passage screams to me “I should be hesitant about entrusting my money with these people”. (Full Disclosure: LoS’s personal masseuse is provided a company car, it’s an Escalade Hybrid so it gets good gas mileage).

But we can’t give Fisher a pass for having $150 million dollars with Madoff. Sure lots of smart people were fooled by Madoff, lots of smart people invested with him, but how many of those smart people, who dumbly ignored all the warning signs and were proven to not actually be smart people, had had their fraud-sense heightened by recently having suffered a separate large hedge fund fraud? Wouldn’t that be a signal to review your investment portfolio to ensure that, for example, all your money is managed by people who have been audited by legitimate auditors? Or that your firm had adequate compliance procedures (or ANY compliance procedures)?

Recommendation: Fool you once, shame on you. Fool you twice, you suck at investing AND don’t deserve your money, and we’re just glad that the invisible hand is helping the world sort that out.

Addendum on KL Group: This is just too awesome to neglect sharing.

Tein said the trio lost about $20 million to $30 million of investors’ money through bad investments and then stole the rest, shipping the money overseas and gambling it away during frequent trips to Las Vegas.

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