Another day, another hedge fund scandal. The SEC announced charges this week against a Detroit hedge fund for bilking investors of tens of millions of dollars.
From Financial Advisor magazine:
The Securities and Exchange Commission today announced fraud charges against Detroit-based EIA All Weather Alpha Fund Partners I LLC (EIA) and its sole owner, RIA Andrew M. Middlebrooks, for an alleged multiyear Ponzi scheme that the agency said included the misappropriation and loss of nearly $39 million in investor funds.
The commission said in its complaint that from at least mid-2017 to April 2022, EIA and Middlebrooks deceived investors in their hedge fund, the EIA All Weather Alpha Fund I LP, by making false and misleading statements that “wildly” misstated the fund’s performance and total assets. The SEC also said in the complaint that the fund and Middlebrooks provided falsified investor account statements, misrepresented that the fund had an auditor and created and disseminated a fake audit opinion to investors.
In addition to being a rotten trader, Middlebrooks had a taste for the finer things in life. He paid for them with investor money:
Middlebrooks also misappropriated investor funds for personal use, allegedly transferring at least $470,000 to his wife’s business, making more than $750,000 in transfers to his personal bank account and using $64,000 in investor money to pay for jewelry, the agency said.
It seems likely that his victims will lose their entire investment:
“Middlebrook’s losing trading strategy coupled with his misappropriation has resulted in near total loss of investor funds,” the SEC said.
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The hedge fund describes itself rather differently on its website:
We are active investors, not closet indexers, and we have structured an investment process and environment that enables us to be disciplined, to be patient and to exercise good judgment.
It turns out investors would have been far better off with that boring index fund. Indeed, they form the core of my portfolio.
The fund’s LinkedIn profile comes closer to telling the truth:
This intellectual framework allows the Portfolio Manager to manage the Fund unencumbered by emotions or inherent bias.
Emotions definitely didn’t stop Middlebrooks and his cronies from bilking unsuspecting investors.
I was able to find what appears to be the actual slide deck that Middlebrooks used to pitch investors. The scariest part about it is that the pitch seems fairly plausible, proposing a long/short strategy that combines value and momentum.
In addition to their thieving, it appears that EIA partners were paid well. Glassdoor records total compensation of $254,000.
I guess that wasn’t quite enough to cover their expensive tastes.
We see one case of shady behavior after another in the hedge fund world. The SEC and DOJ need to step up and start seriously scrutinizing these funds.
I’m as pro-free enterprise as anyone you’re likely to meet. But fraud doesn’t qualify.
As Memorial Day approaches for those of us in the United States, one of the more patriotic things we can do is to safeguard that free-enterprise system by purging its bad actors.
What do you think will be the next hedge fund to fall? Leave a comment at the bottom and let me know!
There will be no blog on Monday for the holiday. Have a great Memorial Day weekend everyone! 🥳🇺🇸
More on markets:
$6B Hedge Fund Cut Off from Trading As Investigation Looms
Hedge Fund Giant Tiger Global Losing $28 Million an Hour
Citadel Adds Millions to AMC Options Bet
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Photo: EIA Alpha Partners CEO Andrew Middlebrooks
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