The Tycoon Report

This is My Suicide Note and Confession...

WHAT THE HECK EVER HAPPENED TO GARY COOPER?

The kind of guy who faced down his responsibilities like a man. The kind of guy who knows what the "right thing" is and does it. The kind of guy who doesn't cry to Dr. Friggin Phil just because daddy didn't hug him when he was young.

Those are the first thoughts that popped into my mind this week when I heard about what happened at hedge fund Bayou Management LLC.

Let me explain:

Several months ago Bayou Management mailed a letter to investors saying it was closing up shop and returning the $400 million it had under management. Bayou founder Samuel Israel III told his investors that he wanted to spend more time with his family. Fair enough.

But there was only one small problem - there was no $400 million left. It had disappeared. Gone with the Wind. See ya later. What the cops found instead of the cash was a note. A suicide note. It was on the desk of the Chief Financial Officer Dan Marino (no, not the football player).

The note, like all corny suicide notes, started with:"THIS IS MY SUICIDE NOTE AND CONFESSION..."It went on to detail how the firm had defrauded investors since 1998 and how Dan, the C.F.O. had been abused - sometimes physically - by the founder of the firm Samuel Israel.

It seems that Dan Marino actually helped commit fraud because he didn't have the nerve to stand up to his big mean boss or come clean back in 98. Had he stood up and did the RIGHT THING many people wouldn't have lost their money!But it wasn't even the suicide note that pissed me off. What pissed me off was that Dan didn't do it. Nope, Dan didn't fall on his sword. He wimped out of that too.

Instead, he was found alive and well sipping tea in his Armani robe at his $3.5 million dollar mansion in Connecticut. The latest thief to rob Americans who have to fight through bad bosses and traffic just to provide a better life for their kids didn't even have the nerve to do the deed. Boy does this country need Gary Cooper.

We need some people that know how and when to fall on their swords when they mess up big time. Back in the Roman days when people messed up badly they begged for the chance to fall on their swords. You may be thinking to yourself that I'm being insensitive. According to Doctor Phil you'd be right. But aren't you just sick to your stomach of people doing bad things to good people, apologizing and then having a "spiritual awakening" on national television?

Just so you don't have to find out what it's like to run into goons like this I've created 6 Rules that you should follow to help you detect any potential danger when looking at hedge fund investments:

THE DAN MARINO RULES TO RED FLAGGING BAD HEDGE FUNDS

RULE #1: Never forget that Wall Street is all about eliminating conflicts of interest.

What I mean by this is that make sure that any hedge fund you invest has an independent accounting firm AND executes its trades through an UNAFFILIATED brokerage firm.

In the case of Bayou, good old Dan was the accountant of the "independent" accounting firm and was also a head of the brokerage firm they used to execute trades.

RULE #2: Consult the marketing materials for references.

In the marketing materials sent out by the fund it was said that Samuel Israel, the founder of Bayou, was a big shot at Omega Advisors. Omega Advisors, the hedge fund family run by billionaire Leon Cooperman,is a big deal.

But the reality is that Samuel was just a low level guy at Omega. He didn't have trading authority at all. In fact, he barely worked at the firm for one year.

When I got my first job at McDonalds the manager checked my references better than the people who invested in this.

Lesson - always check references.

RULE #3: People who come from wealthy families can be criminals also.

Just because somebody comes from wealthy family doesn't mean they're not criminals. In fact, during my career on Wall Street, I met plenty of trust fund kids who were big degenerates.

What I learned was that they had all kinds of pressure to impress their families and sometimes would do whatever it took to win daddy's approval.

RULE #4: Average returns do not mean "true" returns.

Most people equate financial fraud with outrageous claims. If you see returns of 100% per year for ten years in a row generally you notice it's a fraud.

But these guys were a bit smarter than that. The marketing materials they used showed "above average returns" that seemed reasonable. Just like a wolf in sheep's clothing.

RULE #5: Beware of discounted fees.

Hedge funds are generally compensated by the 2/20 rule. 2% of assets under management and 20% of the profits. We all like bargains. But when a hedge fund says it's not taking any management fees ask the person how he's able to pay for that fancy office of his.

RULE #6: Beware of excessive flash (the P.T. Barnum Rule)

As a rule, people who need to show off with excessive jewelry or brag too much scare me. A penny saved is a penny earned. Low cost operators are generally experienced businesspeople that know what it's like to survive economic cycles. What really count are the basic things. Match minds, not wallets...

Send me all your hate mail....