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.

30 comments (hidden to protect delicate sensibilities)
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Comments (30)

  1. Posted by Puck It | June 21, 2012 at 1:18 PM

    Where are the 1,500 other words?

    —Confused Commenter

  2. Posted by agreatdaytothink | June 21, 2012 at 1:20 PM

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

  3. Posted by Like Bernie | June 21, 2012 at 1:26 PM

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

  4. Posted by Guest | June 21, 2012 at 1:35 PM

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

  5. Posted by Guest | June 21, 2012 at 1:35 PM

    Footnote within a footnote – Matt just outdid himself.

  6. Posted by guesticle | June 21, 2012 at 1:44 PM

    Matt: Brain function in the footnote is about twenty times to normal. When you enter a footnote within that footnote, the effect is compounded: it's three footnotes, that's ten hours to read times twen…

    Readers: TL; DR

  7. Posted by Guest | June 21, 2012 at 1:46 PM

    What about the Jubilee Absolute Return Fund?

  8. Posted by guest | June 21, 2012 at 2:00 PM

    Waiting on the second half of the article!

  9. Posted by Guys Everywhere | June 21, 2012 at 2:13 PM

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

  10. Posted by PermaGuestII | June 21, 2012 at 2:19 PM

    We are not amused.


  11. Posted by Footception | June 21, 2012 at 2:22 PM

    They'll think we're in Matt's footnote, but we're really in Hasselbeck's footnote.

  12. Posted by Guesticular Cancer | June 21, 2012 at 2:23 PM

    You sir, have won.

  13. Posted by Ghost of Ponzi | June 21, 2012 at 2:27 PM

    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.

  14. Posted by P. Diddy | June 21, 2012 at 2:32 PM

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

  15. Posted by bessbmychristiangray | June 21, 2012 at 2:34 PM

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

  16. Posted by guest | June 21, 2012 at 2:38 PM

    Twitter is down! anyone check on Derwent Capital?

  17. Posted by Guest | June 21, 2012 at 2:39 PM

    –UBS Rapper Quant

  18. Posted by guest | June 21, 2012 at 2:43 PM

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

    – CNBC program director

  19. Posted by Guest | June 21, 2012 at 2:51 PM

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

  20. Posted by Güest | June 21, 2012 at 2:53 PM

    I find that only the Intraday charts are useful

    – UBS Lunar Quant

  21. Posted by 10xLevered | June 21, 2012 at 2:54 PM

    There is the theory of the mobius…

  22. Posted by pointer | June 21, 2012 at 2:55 PM

    Buddy Persaud, Werewolf quant

  23. Posted by contango | June 21, 2012 at 3:34 PM

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

    – Operations Analyst, Pace MBA

  24. Posted by .Bo | June 21, 2012 at 3:42 PM

    P. Diddy cramping on Xzibit's game right there.

  25. Posted by Fishhead | June 21, 2012 at 3:43 PM

    Hmmmm, interesting, please tell me more

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

  26. Posted by Shirley MacLain | June 21, 2012 at 3:49 PM

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

  27. Posted by MadeIt | June 21, 2012 at 4:10 PM

    Gurudev Prasad?

  28. Posted by XRunner | June 21, 2012 at 4:41 PM

    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?

  29. Posted by Leo | June 21, 2012 at 5:58 PM

    I like it.

  30. Posted by Miko | June 22, 2012 at 5:57 AM

    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 ………..