When Bloggers Uncover Ponzis

If you’re confused by the scandal surrounding the Ponta Negra hedge fund and its Biden landlords, don’t blame yourself: it’s really confusing stuff. If you have the patience for it, just read John Hempton’s archives: start here, and then run through this, this, this, this, and this. (Don’t worry, there’s more to come, but we’re up to something over 6,000 words already.) Alternatively, Alphaville is running its own series, of which the first two parts are now up: 1,700 words on 650 Fifth Avenue, and 1,250 words on the Biden connection. The Alphaville posts are quite hard to follow, partly because the FT lawyers have stripped them of links, and partly because this whole thing is just very opaque and complex.

The one thing which is abundantly clear is that Jeffry Schneider (always mistrust people who can’t spell their own name) is a very shady character indeed, who was fired from various financial-sector jobs before ending up selling fraudulent hedge funds and seemingly working out of the Bidens’ hedge-fund hotel. Schneider was a “marketer” for hedge funds, including Ponta Negra — which means he sold them to rich individuals, and took a commission for so doing. How did he find the rich individuals? Lots of ways, but one was that he paid upwards of $10,000 a month for access to lists of people who were rich enough to qualify as hedge-fund investors.

This is the bucket-shop end of the hedge-fund world: small and sleazy and shadowy. But here’s the thing: if you’re a rich individual who’s phoned up by Jeffry Schneider and told about some fabulous new hedge fund you should put lots of money into, he has a pretty good explanation for why it’s so difficult to get any information on him and his company: under the laws banning the advertising of hedge funds, he’s not allowed to give out much in the way of information.

As part of the forthcoming regulation of hedge funds I think there should be a lot of effort to make them more transparent, rather than allowing them to use SEC regulations to justify their opacity. At the moment, simply giving out information about certain investments is considered to be advertising: I used to run into this problem the whole time when I was in New York, covering 144a bond issues which could only be sold to big institutional investors, and being told that therefore I couldn’t get any information on them. We need to move instead to a world where information is allowed to be free, even if the public at large still isn’t allowed to invest in the funds or securities in question.

Once we get there, it should become much easier for bloggers to uncover Ponzis — which is certainly a good thing. Hempton has a big advantage in that he’s part of that world himself, and has access to information which isn’t freely available online. Why can’t we all have that access?

Comments

[Neil459]

Excellent, this is the type of reporting we need. Why isn't the NY Times and Wall Street Journal all over this. Guess its because they prefer to die as a news source.

2009 Apr 30 04:26 PM

[SA Editor Jonathan Liss]

Agreed, this is where the financial blogosphere really has a leg up on mainstream media. Thanks Felix!

2009 Apr 30 05:41 PM

[Speedspirit]

The power of the people in the new age is the internet. With just a click you can contact your congressman and give them a piece of your mind. Dont expect someone else to do your job. Lets get these crooks out of power.

2009 Apr 30 09:56 PM

[john s. gordon]

somebody said -

the truth shall make you free.
>jack

2009 May 01 09:43 AM

[LKofScotland]

So are you saying Senators, Congressmen and now the Vice President of the United States are selling lists of names in order to profit from their access to "important people"? I enjoy the piece and the access "links" to find out more. Why not come out and say Vice President Joe Biden and his family are conduits for a corrupt enterprise, though? Clearly this strikes me as newsworthy--didn't hear 60 minutes mention it in their interview with Mr. Biden at all. How could such "news business" not mention this? Do agree that this makes Alpha the place to be and not the WSJ or the NYT who long ago became sops for ruling classes (real AND perceived) but, hey, now they're nothing more than starving artists, too. So Alpha has the ride idea for commercial success. How to define professional success? Didn't Henry Ford put his name on his car? Then shouldn't you, too Felix instead of merely offering links? Besides, it's just Joe Biden. Running a corrupt enterprise out of the White House sounds a lot more exciting, doesn't it?

2009 May 01 09:59 AM

[Gedankonomist]

It's hard to get the crooks out of power. The whole point of lowering the voting age to 18 and removing the poll tax was so that the politicians would have a steady stream of know-nothings heading to the polls every November. The "McCain-Feingold campaign finance reform" act? Should be called "incumbent protection act."

In the old days, only landowners voted. That's why we had good government in the old days. Because mostly only people who had a vested interest in maintaining good government voted. Sure there were some abuses. But, suppose you have a hole in your boat, and it's leaking. Do you get out your axe and chop up the boat? No, you do some tweaking and hopefully get the hole stopped up. You don't go and change the whole system.

On Apr 30 09:56 PM Speedspirit wrote:

> The power of the people in the new age is the internet. With just
> a click you can contact your congressman and give them a piece of
> your mind. Dont expect someone else to do your job. Lets get these
> crooks out of power.

Just be careful you don't replace them with even bigger crooks.

2009 May 01 10:08 AM

[Neil459]

The problem Gedankonomist is not the age of the voter, its that we tolerate youth indoctrination in the school system. At 18, they have been lied to for 10 years and do not even realize it. If we were to set an age for wisdom it would have to be on the plus side of 35 because it takes about 2 years to unlearn every year of school. That is if one wants to see the truth in government, history and politics.

On May 01 10:08 AM Gedankonomist wrote:
> It's hard to get the crooks out of power. The whole point of lowering
> the voting age to 18 and removing the poll tax was so that the politicians
> would have a steady stream of know-nothings heading to the polls
> every November.

2009 May 01 05:34 PM

[Zyx007]

Thnaks Felix for sharing this. This reeks at best of incompetence and gross negligence, and at worst of fraud.

2009 May 02 12:49 AM

[Teutonic Knight]

The internet engenders a seemingly powerful paradigm in the education sector too, particularly in higher education, in my view.

For a moment, let us be nostalgic turning our mind back in the old country in the old days when there was only Oxford and Cambridge (St. Andrew's and Edinburgh as well to the north). One had to write those brain wrecking exams to get in, reside there, and cozy up to the professors to ask them to teach you something that only they would comprehend. Knowledge was a private asset.

The internet changes all that. Now I can sit here on my couch learning from the top financial and economic experts on SA.

2009 May 02 03:57 PM