Roundtable Sheds Light On ‘Secretive’ Industry

Dec 19 2008 | 2:00am ET

Not many people can get away with interrupting legendary investor Carl Icahn in the middle of a speech, but the corporate raider’s fierce reputation did not dissuade Stanley Goldstein.

At a recent event celebrating the fifth anniversary of the New York Hedge Fund Roundtable, an industry group founded by Goldstein to facilitate networking and education amongst hedge fund professionals, Icahn’s keynote speech started to run over its allotted time. Goldstein, who is well-known for running things with military precision, stood up, put on a huge toothy grin, thanked Icahn and seamlessly whisked him away from the podium.

“Only Stanley could cut off Carl,” commented one of the roughly 200 attendees.

The 900-member Roundtable was created to allow hedge fund industry professionals to share ideas, but as it grows, Goldstein is working to make the group a beacon of light in what many see as a dark and secretive industry.

“We use peer pressure to enforce ethical behavior,” said Goldstein, who believes that the two poster children of recent investment scams—Bayou Group founder Samuel Israel and alleged $50 billion Ponzi scheme mastermind Bernard Madoff—could not have pulled off their investment cons for so long had they been members of the Roundtable.

Goldstein, himself a career investor and the retired founder of an eponymous accounting firm, which eventually became Goldstein, Golub Kessler & Co., spoke with FINalternatives a few weeks ago about Israel, who was convicted earlier this year of securities fraud in relation to his defunct Bayou hedge fund. 

“He had a fictitious accounting firm doing his books,” Goldstein said. “If he had come to one of our meetings or tried to get one of our members involved in any way, we would have uncovered the scam immediately. Between me and the other folks in the group, we know every legitimate accounting firm out there.”

This week, those words have special resonance: Madoff’s firm, which claims many hedge funds and funds of funds as victims, employed an obscure two-man accounting firm to audit its books. The firm, Friehling & Horowitz, worked out of a small storefront office in suburban Rockland County, N.Y.

“If any of the feeder funds [investing in Madoff] had followed up the billions of investment dollars with a visit to Rockland County, this would have blown up many years ago,” Goldstein said.

The Roundtable and Regulation

Recently, Goldstein turned the reins of the Roundtable over to Tim Selby, a partner at law firm Alston+Bird.

“There is a lot of misperception about hedge funds,” said Selby, who will serve as the group’s new president. “What I’d like the Roundtable to do is to better educate people on how hedge funds operate and what they do for the industry. They are meant to be about risk management, and they are designed to help people preserve capital.”

Selby, whose law practice involves advising clients on the structuring, formation and management of hedge funds, predicts that the New Year, and a new presidential administration, will bring with it a new wave of regulation.

“During 2009, the hedge fund industry will get a very close congressional look. There will be enormous changes with respect to regulation of their activities and even re-regulation,” Selby said. “I don’t think registration of hedge fund managers is what you should expect, but rather regulating the markets in which they trade. The concern is the enormous amount of leverage that hedge funds control trading OTC derivatives.”

To address these and other issues, Selby is planning to have a diverse series of speakers headline the monthly Roundtable gatherings. In the past, notable speakers have included Sen. Christopher Dodd (D-Conn.), former Westchester County, N.Y., district attorney and current television personality Jeannine Pirro, and veteran financial journalist Myron Kandel.

And while Roundtable gatherings are considered exclusive, member-only events, Selby is eager to grow the Roundtable’s ranks.

“You just have to be involved in the [hedge fund] industry and have something to contribute to the group,” Selby said.

For more information, visit the New York Hedge Fund Roundtable's Web site

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