I was recently informed of the Ponzi scheme involving a hedge fund that has no assets and therefore the details I have are sketchy and could be factually incorrect, however the point of the essay nevertheless is valid.
Echoing the recent Sakvithi scandal where a person of supposed repute defrauded untold number of investors of their life savings and skipped town, I understand a hedge fund manager in the US has just been arrested, and it has been exposed that the fund does not have any assets, and instead investments by new people were used for redemptions until as we know redemptions in the wake of the financial crisis now exceed new investments and the fund was unable to pay out due to no funds in the kitty. This is almost equivalent to the Sakvithi fraud referred to above where the same method was used to cover withdrawals.
The fund was run by a reputable person known within hedge funds and is also similar to the above. This alone makes people lose their sense of care when making investments based only a person’s reputation. I know better now than to invest with any person however reputable they may be.
It is no surprise that due to the lack of careful oversight this has come about. I fear this is the tip of the iceberg and there are many more like this to surface as they always do when times are tough and the charade can no longer be played. The sad result of all this is that people’s money is at stake with no recourse and therefore permanent loss with the resultant consequences of hardship and in some cases suicide when people with means suddenly become destitute and are then unable to cope.
There is a body of people I hold responsible as they are expected to report on these scandals and they are auditors, the only people from outside allowed in to inspect the records of these companies. Just as in the fall of the banks, the auditors have been conspicuous by their absence as they fear for their survival. I firmly believe they should also bear some of the responsibility as their systems fail to detect such mega fraud and that is not acceptable.
I have left the field of accounting due in part to my belief that they defraud investors money by not performing a satisfactory inspection, and we have the current financial scandal begun by the secondary mortgage crisis as an example of their failure. It should have been brought to light in a good audit.