'Til Jail Do Us Part? How Much Do You Know About Your Money Manager?
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A recent news article chronicles another insider trading scam that highlights a dangerous variation of pillow talk. According to a May 11 article, "A husband and wife were arrested and charged yesterday after allegedly netting nearly $600,000 (£300,000) of illicit profits from shares they bought in a takeover target." Times.com journalist Steve Hawkes writes that this joint arrest follows quickly on the heels of another couple's guilty plea for providing material non-public information about pending mergers and acquisitions. Click here to read more.
Does nuptial bliss mean scandal? Prison is now a known commodity to Mr. and Mrs. Fastow of Enron fame. Similar allegations were recently launched against a husband and wife team who worked at a hedge fund and investment bank, respectively, and engaged in questionable "chatting."
Fraud is not uniquely committed by power couples with privileged access. Sometimes it's a family act. A former New York University student pled guilty last year to bank and wire fraud. His mother "was sentenced in March to two years in prison after she pleaded guilty last year to conspiracy to commit wire fraud in the scheme. The two lived in Pound Ridge before they were arrested in June 2005." Click here to read more.
These cases are yet another reminder that risk comes in many forms. It's simply not enough to look at risk-adjusted return performance (historical, current and projected). Pension fiduciaries must carefully vet money managers (regardless of asset class) on a comprehensive basis. This includes a rigorous assessment of their internal controls that relate to trading, how valuable information is protected and the ethical requirements for anyone on the "production line."
