After he was caught three months later by the pool at a ritzy hotel in Florida, U.S. Magistrate Stephen Brown in Miami denied the government’s request for detention on a mail fraud charge, and ordered a $1 million corporate surety bond. But before the bond is granted, Wright must prove the collateral backing the bond comes from legitimate sources.

He now also faces 21 counts of mail fraud and three counts of securities fraud, each carrying a maximum sentence of 20 years behind bars. Additionally, Wright and his company face a federal lawsuit from the Securities and Exchange Commission filed Feb. 27 and a civil complaint filed in Georgia state court on Feb. 17.

Examples of Wright’s alleged duplicity are listed in court documents. When several investors demanded to see brokerage account statements from hedge funds in October, Wright produced statements he said were from online brokerage Ameritrade, showing over $166.6 million in assets spread across five hedge funds. To date, authorities and creditors have located less than $200,000.

In hindsight, there were many red flags at International Management: unusually consistent high returns, vague descriptions of investment strategies, aggressive marketing, no auditing, and secretive behavior by the manager. Not to mention the lavish wedding reception at his sprawling home, the $55,000 engagement ring his bride wore, the entertainment suites at Atlanta Falcon football games, Atlanta Hawk basketball games, and concerts, the Bentley, the Jaguar, the Aston Martin, the BMW, and the Lamborghini, and as proof of his investment returns, only photocopied spreadsheets.

The tale is all too familiar to the roughly 500 people who invested with Wright, from a Los Angeles real estate developer to a 74-year-old retired car salesman in Las Vegas, to Wright’s own mother, who’s not a plaintiff in the suits.

Another fraudulent hedge fund, GLT Venture Fund, pled guilty to federal charges that may have cost investors as much as $14 million, admitting that he lied to investors about the fraudulent operation. More than 40 investors poured money into Capital Management from September 2000 to January 2005, when the company was abruptly closed.

John Sahenk, the alias of former New York University student Hakan Yalincak, cost investors more than $7 million in a fake hedge fund scheme. The FBI seized blank checks and a counterfeit $8.8 million check in Yalincak’s name, prosecutors said. Also seized were 23 credit cards, including 13 in Yalincak’s name, and documents in the name of Yalincak’s alias. He is now pleading guilty.

Prosecutors say Terrence Gasper, chief financial officer of the Ohio state’s $15 billion insurance fund for injured workers is charged with a felony count of violating the Racketeer Influenced and Corrupt Organizations Act. He had tried to keep mounting losses in a hedge fund managed by MDL Financial Management quiet. Those losses ultimately hit $215 million, he also played a central role in the state’s $50 million rare-coin investment and the loss of $216 million of bureau money in a Bermuda-based hedge fund.

The 2006 Financial Executive Report on Risk Management surveyed financial executives about their feelings on hedge funds. Extremely popular today, hedge funds now number more than 8,000. The growth of these largely unregulated investment vehicles has been considerable, more than quadrupling their assets since 1999, today hedge funds manage close to $1 trillion.

Nearly all respondents, 92 percent, feel leery about hedge funds, reporting they do not have any of their personal funds invested in hedge funds. Accordingly, 94 percent of respondents feel hedge funds should be required to have a higher-level of transparency. Many fraud cases are dropped by the courts, as investors carry most of the responsibility as to whom they choose to invest in.

Alex Akesson
Contributing Writer
HedgeCo.Net
Email: Editor@hedgeco.net