Seeking Alpha – Scammy and Danny Bayou still await sentencing on charges associated with the collapse of their corrupt hedge fund – formerly based in the eponymous Scamford, Conn. – but the investorswho thought they’d safely escaped the pair’s clutches have their judgement: Keep the original stake, but cough up gains that turned out to be ill-gotten.
In what has come to be pretty much the standard deal in hedge fund fraud cases, UT Medical Group Basic Pension Plan agreed to repay $432,847 in what it thought was profits, but gets to keep its original $2 million investment. Bayou’s bankruptcy trustee has sued investors for more than $121.7 million in principal and almost $16 million in fictional profits. UTMG was one of several investors put into the various Bayou entities by Memphis-based Consulting Services Group.
According to court papers, UTMG made its first investment, of $1.6 million, in Nov. 2002 but filed its redemption notice in Apr. 2004 on the advice of UTMG’s auditors and ERISA counsel because a six-month lag between Dec. 31 audit and the Jun. 30 pension plan year-end meant they could not readily ascertain the value of UTMG’s investment. UTMG contemporaneously sought redemptions of other other investments that posed similar valuation problems.
(The Bayou audit was, of course, prepared by the entirely faux Richmond-Fairfield Associates, meaning the six-month lag was, in fact, the least of issues at hand).
