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Hedge Fund Industry Further Undermined

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Following on from previous HPC discussions here:






City firm faces £100m rogue trader action

Man Group challenges US court papers over hidden offshore losses

Nils Pratley

Saturday October 1, 2005

The Guardian

Man Group, the hedge fund manager regarded as the heart of London's new financial establishment, has been accused of trying to conceal a "rogue trader" style scandal involving one of its senior employees.

Documents filed in a Pennsylvania court this week accuse Man, the company that sponsors the Booker literary prize, of allowing losses of $175m (£100m) to be hidden from investors in a third-party hedge fund. The mechanism is claimed to be a secret and unauthorised account in the Cayman Islands known as the "50 account'.

The allegations are made by the receiver to the collapsed fund. Man Financial, a Man subsidiary, acted as broker to the fund and the receiver's claims are, in effect, a direct challenge to the London group's reputation for financial probity.

Man is led by some of the City's wealthiest individuals, who have amassed multi-million fortunes as they have built the business into a FTSE 100 company. The chief executive, Stanley Fink, has shares worth £70m and last year was paid £3.8m. In a statement, Man said it was cooperating fully with the receiver and regulatory bodies, but would not comment on the receiver's claims "other than to say that there are a number of areas where we do not agree with his interpretation of information obtained during his investigation".

The allegations relate to the collapse of Philadelphia Alternative Asset Management Company, a hedge fund set up by Paul Eustace, a former star performer in the world of hedge funds. The fund last year raised about $300m from international investors and collapsed in June this year. Man Financial is accused by the receiver of helping Mr Eustace disguise his true investment performance by supposedly using a secret account to hide losses. Thomas Gilmartin, a senior vice-president at Man Financial in New York, is named in the documents as Mr Eustace's chief point of contact.

Only the statistics for the "10 account", it is alleged, were presented to investors and Swiss bank UBS, which also acted as broker, as official performance figures.

It is said a separate, unauthorised "50 account" was being used "as an artifice to hide losing transactions and thereby mask the true financial results of the investments."

The receiver alleges "suspicious trades between accounts, the unusual transfers between accounts and the back-dating of transactions that occurred at Man Financial". A motion to find Man Financial in contempt of a court order in the Eastern District of Pennsylvania states: "As of 23 June 2005, Man Financial reported a deficit of $175m in the 50 Account in the name of the Offshore Fund.

Despite the staggering losses incurred in the '50 account' and the extreme deficit balance in that account, the documents produced to date suggest that Man Financial only provided the information relating to the '10 account' to UBS and to the investors."

The receiver to the collapsed fund, Clark Hodgson, further alleges that Man is refusing to cooperate with his inquiries.

Man said it was "surprised and disappointed by the receiver's actions" and added: "We have provided more than 4,200 pages of documentation at the request of the receiver, and have offered to meet him to discuss any further requirements that he has - an offer that has to date been ignored."

Edited by Baz63

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"We have provided more than 4,200 pages of documentation at the request of the receiver, " Man Group

Or to put it another way, "in order to aid finding the needle, we have surrendered the entire haystack into which it was dropped, plus a couple more for good measure." ;)

NB : Top marks to Baz for referencing previous related articles. If everyone followed his example we wouldn't have so many threads on the same topics. I admit I'm not perfect in this respect, but a little more use of the site search facility may go a long way to reducing the number of repeated threads.

Edited by Sledgehead

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