So says Business Week, recounting the sad, sorry, now-familiar tale - a promise of returns combined too-good-to-be-true with too little due diligence. And it all ends in tears:

Another Fishy Hedge Fund

October 13, 2005
By Justin Hibbard and Adrienne Carter
Business Week

A mysterious money manager, nonstop hype, plunging returns, empty offices, and now an SEC probe -- the intrigue at Wood River deepens.

Ketchum, Idaho, is the kind of place where people tend to know each other. Close to the Sun Valley ski resort, the tony town of 3,873 boasts several Wall Street refugees who manage money for wealthy neighbors and clients elsewhere. Yet few residents say they know John Whittier, a 39-year-old money manager who moved to the area about five years ago and opened an office for his fledgling hedge-fund firm, Wood River Capital Management, named for the picturesque river that runs through Ketchum.

Locals describe Whittier as an absent-minded-professor type who drives a Lincoln Navigator and sometimes fetches his morning coffee from a Tully's café in his pajamas. Beyond that he keeps to himself, they say. Investors in Wood River's funds apparently didn't know much about Whittier, either. The ex-stock analyst at investment bank Donaldson, Lufkin & Jenrette presented himself as a savvy stock trader overseeing hundreds of millions of dollars for investors. Marketing materials for his flagship fund trumpet 25% returns in the first eight months of this year, a period when the stock market was basically flat.

But some investors got nervous and tried -- unsuccessfully -- to get their money back late last month when Whittier's big bet on an obscure Silicon Valley stock slumped badly, say investors' lawyers. The firm stopped answering its phone. Last week, Wood River's offices in downtown Ketchum were locked and apparently unoccupied. FedEx packages piled up outside next to strollers and a red wagon left by Whittier's two young children.

Wood River is now the subject of a preliminary investigation by the Securities & Exchange Commission -- the latest hedge-fund scandal that is sure to intensify calls for greater government oversight of these lightly regulated investment pools. Only two weeks ago the founders of collapsed Bayou Management, a hedge fund in Stamford, Conn., pled guilty to criminal fraud.

As in the Bayou affair, Wood River presented red flags that careful investors should have noticed. The firms Wood River's promoters named as its outside auditor and bookkeeper, for example, say flatly that they didn't provide those services to the hedge fund. Morgan Stanley (MWD ), listed in April as one of the hedge fund's two prime brokers, in fact was not, according to a person familiar with the matter...

This is just the start of quite the lengthy article and one well-worth reading. The full version can be found here, courtesy of BusinessWeek.com.

-- MDT

Labels: Bayou Group, John Whittier, Morgan Stanley, Wood River Capital