The SEC has announced that Bret Grebow and Robert Massimi, the dynamic duo behind the defunct Philadelphia-based HMC International hedge-fund-slash-ponzi-scheme have agreed to pay restitution to their former investors in order to settle pending charges relating to their misuse of investor funds. Details here.

-- MDT

Labels: Bret Grebow, Fraud, hedge fund, HMC Internationa, ponzi scheme, Robert Massimi

Business Week is featuring a brief article suggesting that investors would be well served by doing their own due diligence before trusting their finances to an investment advisor.

This uncontroversal advice goes without saying, I think - that one should seek both anecdotal opinions and conduct a personal review of potential regulatory and legal issues that might be an early warning sign of porential recklessness or illegalities is hardly earth shattering news. However, is should be noted that in no way does this sort of preliminary review replace a proper due diligence investigation.

The savvy or sophisiticated investor certainly does not consider "googling" adequate DD in making an investment decision. Google (or your search engine of choice) is an imprecise tool and, while it might produce some quick hits that may warn one away from a bad egg or risky deal the volume of responses can also hide crucial tidbits amid a sea of search returns. Moreover, there is no guarantee that any relevant details may show up in Google.

As the article rightly points out, one should supplement Google with other resources - litigation databases, indices of regulatory filings and the like. But this is only where a proper investigation begins. For those opportunities that pass this "whiff test" having professionals review the matter for other potential liabilities is essential. A thorough background review of the entities involved comprised informed by database info as well as on-site court searches and first person interviews / references checks is the surest way to avoid horror stories such as the recent HMC debacle.

The article:

Hedge Funds: Do-It-Yourself Due Diligence - A little sleuthing online can turn up information that may signal trouble ahead

January 16, 2006
By Anne Tergesen
BusinessWeek

Hedge funds generally don't make it easy for investors to get information about their inner workings. But the 80-odd investors in the most recent hedge fund to collapse, tiny HMC International Fund of Montvale, N.J., could have saved themselves trouble and money simply by using the Internet to do some due diligence on HMC's managers.

One, Bret Grebow, left a trail of legal problems that include a property lien, an arrest on charges of possessing drug paraphernalia, and failure to repay much of a loan to a former employer.

Grebow and co-manager Robert Massimi now face Securities & Exchange Commission charges of securities fraud and the misappropriation of more than $5.2 million of the $12.9 million invested in HMC. The managers "sent investors false monthly account statements that portrayed their investments as profitable when, in reality, Grebow was systematically looting the Fund's trading account," the SEC alleges in a Dec. 21 complaint filed in the Southern District of New York. Among the items the duo is alleged to have paid for with investor funds are rent and furniture for a Manhattan apartment.

What warning signs were detectable? A search of public databases -- including those maintained by Google (), LexisNexis, and various federal, state, and county courts -- dredged up enough dirt on Grebow to cause alarm. The record includes arrests in 1994 and 1995 in Arizona -- where Grebow attended college, according to HMC's Web site -- on charges of possessing marijuana and drug paraphernalia and damaging property worth less than $100. According to the Pima County Justice Court in Tucson, the drug-related charges were dismissed in July, 1996. Grebow pleaded guilty to a lesser charge -- unlawful acts regarding alcohol -- and was fined $284. According to the court, there is an outstanding warrant for Grebow's arrest on the damage charge because of his failure to complete a drug education course. "It was staggeringly easy to get this information," says Michael Allison, CEO of International Business Research of Princeton, N.J., a company that performs background checks on hedge funds and managers (Personal Business, Nov. 21, 2005).

That's not all. In 2002, Grebow's former employer, defunct New York brokerage Bluestone Capital, won a judgment against him for not repaying a loan of more than $118,000, says Eric Streich, an attorney who represented Bluestone. Grebow has since repaid $3,212, he says. Court records also show an October, 2004 judgment against Grebow for failing to pay his former wife, Jamie Grebow, some $127,000 in support. An attorney who represented Jamie Grebow didn't return calls. Bret Grebow's attorney declined to comment on the SEC charges or his client's past. With hedge fund blowups becoming common, do some sleuthing before you write a check.

The original article appears here.

-- MDT

Labels: background checks, Bret Grebow, database, HMC International, Robert Massimi

Perhaps it is more important to call this one a "phoney" hedge fund, as it doesn't appear the proprietors of HMC, Robert Massimi and Bret Grebow had any intent to do anything but fund their own retirement. Curiously...news of the SEC action hasn't yet made it to the top of the heap on HMC's "news page."

Via Reuters:

SEC charges hedge fund managers with fraud

December 22, 2005
Reuters

U.S. financial regulators charged the founders of a $12.9 million (7.4 million pound) hedge fund with fraud on suspicions they stole roughly half of the money from roughly 80 investors to spend on themselves.

The U.S. Securities and Exchange Commission said it filed an emergency enforcement action charging that Robert Massimi and Bret Grebow, who founded HMC International, raised the $12.9 million through a "fraudulent offering of investments." The government also charged the pair misappropriated more than $5.2 million for their own use. The fund, based in Montvale, New Jersey, collapsed this fall when the pair could not return money to several investors who wanted to leave.

On their Web site, the team said the fund was a pure stock trading fund and that its trading strategy made the investments relatively "insensitive to world events, overall market events and such events as corporate fraud or terror warnings."

The SEC also charged Jaime Elliott, Massimi's wife, because Massimi diverted some money to her after investors and the government began probing the fund. This is the latest in a series of fraud cases involving funds in the $1 trillion hedge fund industry.

The original article appears here.

And in happier times, here's a snippit from shaggy-maned HMC co-honcho Bret Grebow bragging in the Wall Street Journal about his big-spending ways (quote originally from the WSJ and found here):

"A year ago, Bret Grebow, a 28-year-old who runs hedge fund HMC International, was taking cheap flights on JetBlue Airways and keeping a lid on his spending. But his fund's investment portfolio surged nearly 40 percent last year, and Grebow says he's confident that the market has regained its footing. So two months ago he bought a new $160,000 Lamborghini Gallardo. He says it was his first "treat" in months.

These days when Grebow and his girlfriend travel between his Highland Beach, Fla., home and his New York office, he charters a catered plane with a bar, paying as much as $10,000 for the three-hour flight. Last weekend he spent more than $12,000 to fly himself and some friends on a Learjet 55 to the Super Bowl."

Comments sure to haunt him.

-- MDT

Labels: Bret Grebow, HMC International, Robert Massimi