Private Investigators Benefit From Hedge Funds Dustups

Dec 1 2005 | 9:34pm ET

Investors in now-defunct hedge fund Bayou Group may have been burned by the scandal, but the recent spate of high-profile hedge fund dustups has been a boon for private investigation firms specializing in finance.

"Bayou put it back on everyone's mind," said Kevin Jones, president of, a firm that searches public records to provide background checks on hedge funds. "I have a lot of stable clients, but now I am getting more inquiries."

Jeffrey Brenner, a principal at Intelysis Corp., an international financial investigation firm, says another reason for the increase in demand for hedge fund investigations could be fear of culpability.

"There is a fear of being sued if you haven't done due diligence," said Brenner. "Fund-of-funds are doing it because they have exposure, and family offices are doing it because they are concerned on behalf of their clients."

But what exactly do these services offer, and at what cost? For $750-$1,000 will conduct a background check on one manager, which includes a search of public records for convictions, a credit check and verification of past employment and educational credentials. On the pricier side, Kroll Inc., one of the most well-known risk management firms in the business, provides enhances services such as forensic accounting, Patriot Act compliance and international background checks on fund managers. These services can cost a client $40,000 to $50,000 or more, according to Peter Turecek, managing director of the New York office of Kroll.

Along with the wide-ranging cost if these firms, they also vary in their approach to investigations. While Jones rarely tells a hedge fund manager that he is being investigated, Turecek prefers to let a fund manager know. "It gives us more leeway when we do reputation investigations," he said, though the final decision about whether to disclose the investigation is up to the client.

The most common anomalies investigators find when sifting though a manager's past include fictitious educational credentials, resume fraud and misdemeanor convictions for driving while intoxicated.

"A few months ago we came across a prominent restaurateur who was out marketing his hedge fund," said Jones. "It was very strange, [the hedge fund] was coming from a chef, he no background in finance."

Brenner said that one recent case that struck him as unusual was a hedge fund manager who was caught shoplifting and then resisted arrest. For the most part, however, Brenner said the firms he investigates are clean.

"Sixty percent don't have any blemishes, 40% may have civil litigation or problems with employment history, and 5% you would really have to question," said Brenner. "It's a small percentage, but that can really ruin your reputation."

Turecek advises anyone who is making a financial investment to approach their decision on a money manager like a consumer. "Just like when you buy a car, you have to do your research and your due diligence," he said.

In Depth

JOBS Act Propels Real-Estate Crowdfunding Platform

Oct 21 2014 | 2:57am ET

If D.J. Paul were a real estate development, he would be described as “multi-use...


Strippers Accused Of Robbing Hedge-Fund Manager Face Jail

Oct 20 2014 | 9:20am ET

A group of alleged stripper-thieves—whose victims include a hedge-fund manager...

Guest Contributor

PAAMCO: European Equity Exposure - Challenging Year, But All is Not Lost

Oct 16 2014 | 4:12am ET

European equity hedge fund managers have had a tough time so far this year. The...



Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…


Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.