Wednesday, March 1, 2006

Poof Goes Over $100 Million

The mess at International Management Associates (IMA), the Atlanta-based hedge fund manager accused by a group of former NFL players of fraud and embezzlement, looks like it will result in a nearly complete loss for investors.  The SEC filed a securities fraud suit against IMA and its CEO, Kirk Wright, on Feb. 27 alleging that the firm lied to investors and that its has only minimal assets.  According to the SEC Litigation Release (here):

The Complaint alleges that from February 1997 to the present, approximately $115 million, and as much as $185 million, was raised from up to 500 investors through the fraudulent investment scheme. IMA and IMA Advisory, through Wright, have been providing investors with quarterly statements that misrepresented both the amount of assets in the respective funds and the rates of return obtained by them. In fact, by 2005, the assets of the funds had been largely dissipated, and this fact was not disclosed to the investors of the funds. The Complaint further alleges that Wright produced for certain investors account statements purportedly from a securities broker-dealer, showing over $155 million in securities in four accounts for August 2005, when in fact the first three accounts did not exist, and the fourth account number pertained to an account unrelated to the defendants. The Complaint also alleges that account statements and summaries which Wright displayed to an investor's representative reflecting the balances of Platinum I, Platinum II and Emerald Funds as of December 30, 2005 were fabricated and reflected assets which the funds did not possess at that time.

It has been reported that only $150,000 has been found to this point, and that Wright is no where to be found at the moment (see CNN.Com story here); a warrant was issued by a Georgia state court for his arrest in connection with the appointed receiver's efforts to find the firm's money.  More ominously for Wright, the FBI is surely on the scene looking for him and the money.  As noted in an earlier post (here), the only real protection for investors in hedge funds is the integrity of the operators, and in this case it looks like there won't anything more tangible than falsified records for investors to chew on. (ph)

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Civil Enforcement, Fraud, Securities | Permalink

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