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Fund Of Hedge Funds Wishing It Invested In Paper Shredder In Addition To Madoff Feeder Fund

Gentlemen prefer safes.
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By rpongsaj (Flickr) [CC BY 2.0], via Wikimedia Commons

By rpongsaj (Flickr) [CC BY 2.0], via Wikimedia Commons

Randall Dillard, Jeff Holland and Ben Funk had a secret: The founders, head of research (respectively) and owners (collectively) of fund of hedge fund Liongate Capital Management hadn’t invested with Bernard Madoff, exactly, but then they hadn’t not invested with him, either, putting $18.5 million of its $2 billion into a little operation called Fairfield Sentry, which proved to be the largest Madoff feeder fund around. Luckily, they also had the only evidence: A pair of files locked securely in their safe in London.

Three years after Madoff’s arrest, the Liongate trio were in talks to sell half the firm to Principal Financial Group, and during those talks, the arch-fraudster’s name happened came up. Liongate’s IR manager assured Principal that the firm “was never invested in Madoff,” which was of course both true and not true, but then laid it on a little thick by offering “to explain the obvious reasons as to why Madoff was not an appropriate investment for any prudent fund of hedge fund or finance company.”

It could have ended there, if Holland or Funk had just gone to the safe (Dillard says he didn’t have the combination) and shredded the files, or set them on fire, or eaten them. But since they had no intention of giving up the code, what was the harm in just leaving them there?

Principal said it discovered the investments in late June 2015 after staff opened a locked safe at Liongate’s offices in the Mayfair neighborhood in London, with the help of the safe’s manufacturers….

Principal, which also claims the trio "misappropriated" $18.5 million of Liongate funds, is seeking damages for breach of contract and deceit. That includes the money it paid for Liongate, $1 million in legal fees and almost $4 million for "wasted time" by Principal employees.

Presumably that time was spent dropping the safe from the roof of the building, or trying to blow it up, before they just called the locksmiths in.

In any event, Dillard, Holland and Funk aren’t having any of it, making the highly dubious claim that Fairfield Sentry wasn’t a Madoff feeder fund, and the argument that, even if it was, so what?

Dillard and Holland, who deny the allegations, said in their filings that Principal’s claim about Fairfield Sentry was brought beyond the legal time limit, and that it wasn’t a Madoff feeder fund. Dillard, who said he didn’t have access to the safe, denied that it was used for "concealing documents for dishonest purposes….”

He said the $18.5 million transaction didn’t amount to misappropriation and didn’t benefit the trio "beyond that to which they were lawfully entitled.”

Madoff Deals Locked in Safe at Center of U.K. Hedge-Fund Lawsuit [Bloomberg]


Rob Lavinsky, – CC-BY-SA-3.0 [CC BY-SA 3.0], via Wikimedia Commons

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