A $350 Million Hole in a Hedge Fund
Arthur G. Nadel didn't look or act like Bernard Madoff, the once-heralded Wall Street titan who authorities say is behind a $50 billion Ponzi scheme.
Unlike Madoff, Nadel, a 76-year-old Sarasota, Fla., hedge fund manager, didn't drive fancy cars or own homes around the globe. Rather, Nadel and his wife lived in a modest, $250,000 ranch-style home in Florida and Arthur Nadel drove a light-green Subaru.
But much like Madoff, Nadel handled large sums of money for wealthy investors and was generous, frequently donating to charity, such as Habitat for Humanity.
Nadel, who was charged today with fraud, disappeared on Jan. 14, a day before he was supposed to make good on a pledge to deliver $50 million to angry investors. In a suicide note he left at home, Nadel described "extreme guilt he was feeling over business actions that he had taken which resulted in the loss of other people's money," a Sarasota County sheriff's deputy wrote in a report obtained by the Sarasota Herald Tribune.
Those who knew Nadel said he was essentially a day trader, dealing with leveraged derivatives, such as the one based on the NASDAQ 100 stock market index.
The FBI is investigating (the Herald Tribune reports that authorities have tracked him to Slidell, La.).
The U.S. Securities and Exchange Commission said Nadel misled investors and overstated the value of investments in six hedge funds by about $300 million. Regulators also contend that Nadel transferred at least $1.25 million from two of the hedge funds to secret bank accounts he controlled.
The Nadel case is only the latest of what many observers believe will be multiple frauds and mismanagement laid bare by the breakdown of the financial system. Regulators are promising that schemers will face a new level of scrutiny. (See: How to Avoid Getting Burned by the Next Bernard Madoff)
"Ponzi schemers succeed by creating an illusion of profitability through lies and deceit," said Stephen J. Obie, acting enforcement director of the Commodities Futures Trading Commission. "We are committed to rooting out miscreants who undermine the confidence of investors everywhere."
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