Saturday, August 27, 2005

Did Hedge Fund Assets Disappear from Bayou Securities?

The shadowy world of hedge funds turned up another case of potentially missing investor money with the disclosure that the Connecticut Banking Commission is probing Bayou Securities LLC, a fund advisor that claimed at one time to have over $400 million in assets under management but apparently there is much less than that these days.  Bayou's founder, Samuel Israel, announced in July that the firm's hedge fund was closing due to his impending divorce, but a troubling sign is the fact that less money is in the firm's accounts than had been touted. That is often a sign that the firm overstated its returns -- to keep investors happy and not trigger a rush of withdrawals -- and usually a prelude to the appearance of those always-friendly FBI agents equipped with grand jury subpoenas or, worse, search warrants.  If the money is gone, this will be another example that can be used in the SEC's push for more regulatory oversight of hedge funds. A CNN.Com story (here) discusses the investigation, which is only just beginning. (ph)

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