Fake Astrology-Based Hedge Fund Threatens To Ruin Things For All The Legit Astrology-Based Hedge Funds Out There

One piece of financial advice that is well known among the cognoscenti but less obvious to some folks in Florida is that you can do 90% of your investment due diligence just by looking at a fund’s name. The tricky thing is that the scale sort of wraps around, like so:
(1) Name that specifies how safe it is (“Global Securities Safety-First Principal Protection Ultra-Conservative Fund”) = probably a Ponzi scheme;
(2) Mythological figure, geological feature, wealthy neighborhood, etc. = you’re good, past performance should predict future returns;
(3) Word from Tolkien = dealer’s choice;
(4) Name that specifies how unsafe it is (“Death Star,” “Terrible Ideas Investment Management”) = probably not a great sign but maybe?

White Elephant Trading Co. LLC Conservative Fixed Income Fund” is the first case I have ever seen of flunking at both ends – it is both “an object, scheme, business venture, facility, etc., considered to be without use or value” and a Conservative Fixed Income Fund. It was also the dream of one Gurudeo “Buddy” Persaud, who promised* investors high and stable returns with one teeny little catch:

32. However, Persaud did not tell investors that in making at least 90% of his trading decisions, he relied on directional market forecasts based on lunar cycles and gravitational pull provided by an internet service.

33. The primary principle underlying Persaud’s trading strategy was that the gravitational pull between the moon and Earth affects mass human behavior, which in turn affects the stock markets. For example, Persaud believed that when the moon is positioned so there is a greater gravitational pull on humans, they feel down and are therefore more inclined to sell securities in the markets.

34. Persaud failed to disclose he would trade investors’ contributions based on lunar cycles and gravitational pull between Earth and the moon.

I don’t know. I didn’t take CFA Level 2 so my gravity-based market-prediction skills aren’t fully honed but this seems reasonable to me? Lots of real hedge funds trade on signals and correlations that sound about as silly as that. And the SEC doesn’t come after them to make them disclose the details of their strategies to investors. WHERE IS THE PROBLEM?

Sadly, the problem seems to have come when Persaud went beyond this foolproof investment strategy into Ponzi territory, spending* about half of his $1mm fund on his personal expenses and much of the rest on paying returns to early investors out of later investors’ contributions. (Also the astrology thing seems not to have worked which whatever lots of other strategies didn’t work either.) Anyway the SEC caught up with him today and brought to bear both a lawsuit and withering sarcasm:

“Persaud preyed on people who trusted him by promising high and steady returns while hiding his unconventional trading strategy,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “When Persaud blatantly lied to investors and hid their losses through a Ponzi scheme, he should have known that an SEC enforcement action was in the stars.”

SEC Charges Florida Broker in Astrology-Based Ponzi Scheme [SEC, also complaint]
Earlier: Fake Stock-Picking Robot Threatens To Ruin Things For All The Legit Stock-Picking Robots Out There

* Oh, “allegedly.” Allegedly.**

** Also that footnote was used twice.

(hidden for your protection)
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30 Responses to “Fake Astrology-Based Hedge Fund Threatens To Ruin Things For All The Legit Astrology-Based Hedge Funds Out There”

  1. Puck It says:

    Where are the 1,500 other words?

    —Confused Commenter

  2. agreatdaytothink says:

    Guessing that ~10% of his trades were the greatest contributors to his negative performance.

  3. Like Bernie says:

    Shouldn't the rule really just be that any fund the promises "high and steady returns" is probably a Ponzi?

  4. Guest says:

    What if his returns were made of chesse? Would you eat them? I know I would.

  5. Guest says:

    Footnote within a footnote – Matt just outdid himself.

  6. Guest says:

    What about the Jubilee Absolute Return Fund?

  7. Guys Everywhere says:

    Predicting the moods / irrationality of others based on 28 day cycles is nothing new. Just sayin.'

  8. Ghost of Ponzi says:

    I prefer not to be associated with fund frauds under $1 billion. I would hardly call a $1 million fund a scheme at all, more like just a fleeting thought or something.

  9. P. Diddy says:

    Yo Dawg, I heard you like footnotes, so I put some footnotes in your footnotes and used them twice used them twice

  10. bessbmychristiangray says:

    Dont forget Gartman called the Tsunami based on Moon-Pull. How much money did he make on that?

  11. guest says:

    Twitter is down! anyone check on Derwent Capital?

  12. guest says:

    "Due to circumstances beyond our control, Mad Money is being placed on hiatus"

    – CNBC program director

  13. Guest says:

    Can we at least get a chart of the lunar cycles?

  14. pointer says:

    Buddy Persaud, Werewolf quant

  15. contango says:

    What else would those guys in the front be trading on?!?!

    – Operations Analyst, Pace MBA

  16. Fishhead says:

    Hmmmm, interesting, please tell me more

    Partner – Global Riverview Phoenix Cambridge LT Growth Capital Partners Phase II SVU

  17. Shirley MacLain says:

    I am a fervent supporter of Mr. Persaud's and have been highly satisfied with his methodologies and results.

  18. MadeIt says:

    Gurudev Prasad?

  19. XRunner says:

    How many funds run by a "Buddy"' (this guy and Fletcher) will turn out to be ponzi schemes before the names falls out of favor with investment managers? Did this guy guarantee (in the colloquial, not legal definition) returns as well?

  20. Miko says:

    Well GANN technical analysis is black magic and so is fibonacci retracement. the only logic people have for using fibonnaci is that it is the evident model of all naturally occuring pattern on earth… slight problem here… nature didnt make financial markets- people did. so any model is as good as astrology. after all buying low and praying it goes high to its supposed true value is ………..