Every few days or so the SEC or CFTC brings a lawsuit against some small-time, or I guess medium-time, fraudster and today's, a joint SEC/CFTC effort, is a representative example. It's about Kevin G. White, his company KGW Capital, "one of the world's leading private investment firms," and its "$1 billion highly specialized currency hedge fund," the Revelation Forex Fund, and they're up to the usual sorts of no good. Per the SEC, the billion-dollar Revelation actually only raised $7.1 million, and lost some $2 million of that trading forex. Another $1.7 million was allegedly swiped by White "to, among other things, pay for personal expenses, finance other businesses, and for other undisclosed purposes unrelated to the Fund's investment activities." Such as:
White used the misappropriated funds for personal expenses, including a gym membership, retail purchases, meals, travel, a dog training service, vehicle maintenance, and alimony payments as well as business expenses including furniture, electronic equipment, and marketing services.
I feel like the bulk of the $1.7 million went to marketing? Or else that's a very well-trained dog. But the marketing included:
[O]n May 14, 2013, White and KGW Capital hosted a presentation at the MoneyShow in Las Vegas to solicit investments in the Fund. During this presentation, White distributed marketing materials to prospective investors that: (i) touted the Fund's 385 percent total return from January 2009 through April 30, 2013, and its 36 percent annual growth rate; and (ii) compared the Fund's historical performance and growth to seven indices and to gold, purporting to show that the Fund has more than doubled the next closest investment. ... These representations are false ...
The MoneyShow seems to be a real, or real-ish, thing; here's its website with a bunch of pictures of its 2012 speakers for some reason. Some of their names might sound dimly familiar to you! This, on the other hand, is less real:1
To lure prospective pool participants to invest, while concealing their trading losses, Defendants claimed that RFF was recently recognized as the “#2 best performing [forex] fund” in the world by EliteForexFunds, which purports to be “The Definitive Source on The World’s Best Forex Funds.” To support these claims, Defendants solicited prospective pool participants with a chart depicting their fraudulent claims of annual profits for RFF since 2009 and which maintained that the “#2” ranking is based upon “a minimum of 4 years [of] audited results.” These claims are totally false. Defendants’ chart showed purported profits for four full years, from 2009 to 2012, when in fact they only began trading in September 2011, and lost money in both 2011 and 2012. Furthermore, upon information and belief, EliteForexFunds is a sham ranking system manipulated by Defendants to mislead prospective pool participants through fraudulent claims of “audited” results.
KGW Capital Management LLC is pleased to announce that as of March 31, 2013, Elite Forex Funds ranked KGW's Revelation Forex Fund as the #2 best performing fund on its Elite 10 ranking. The Revelation Forex Fund returned 6.27% in the first quarter 2013, and a compound annual growth rate of over 37.08% since the fund's inception in 2009. ...
KGW's Revelation Forex Fund is an absolute return fund that remains open to investors, offering preferential tax treatment to U.S. investors. The fund is a highly specialized hedge fund that trades in the cash Forex market and seeks to capture large macro moves between global exchange rates while remaining market neutral.
"The Revelation Forex Fund is the real deal," says Sean Hyman, Editor of Ultimate Wealth Report. Revelation continues to outperform the equity markets, precious metals and most of the hedge funds across the U.S."
The Ultimate Wealth Report also seems to be a real or near-real thing, by which I mean there is a web page with its name on it that will take your credit card information. And then send you a monthly newsletter about how to get ultimately wealthy? I do not know. Try it and find out!
Anyway KGW is all a bunch of horseshit apparently and the SEC and CFTC have frozen its assets and put it in receivership and sued White. Like I said this is a a pretty typical example of SEC's huckster targets, which is to say he's no more hilarious than average.
But it's a timely example, given the SEC's newly liberalized rules for hedge fund advertising. Will those new rules expose the gullible, medium-rich to more scams? Maybe? But Kevin White didn't need to wait for more liberal general-solicitation rules to put out press releases touting his hedge fund. If you're going to just run a fraud anyway, why would you be a stickler for the advertising rules?2 If you outlaw hedge fund advertising only outlaw hedge funds will advertise etc. etc. Giving the scams some competition, from advertised legit or semi-legit private investment opportunities, can't really hurt.
1.Also not real are White's credentials:
In their solicitation of pool participants, Defendants touted White’s purported 25-year Wall Street career as including a “long distinguished tenure at Shearson Loeb Rhodes and predecessor firms . . . Shearson Lehman Brothers, Shearson Lehman Hutton . . . .” Defendants’ claims are false and contain material omissions. White’s Wall Street career lasted only approximately seven years and he was fired by both Shearson Lehman Brothers and its successor firm, Shearson Lehman Hutton. White was subsequently censured and barred by the NYSE, for unauthorized trades in customer accounts and making material misstatements.
He sounds like a charmer.
2.As Felix Salmon said:
if you have a million dollars to spare and are the kind of person who’s easily persuaded by fast-talking snake-oil salesmen on the telly, then you might wind up writing an ill-advised big check. But then again, if you have a million dollars to spare and are the kind of person who’s easily persuaded by fast-talking snake-oil salesmen, then you’re probably on the speed-dial list of all manner of such people already — selling not only hedge funds but even more hazardous instruments like penny stocks.
You probably go to the MoneyShow!