News Columns & Blogs

Sounds too good to be true? Run

We’re all guilty at some time or another of greed.

Whether it’s rushing in for that last slice of pizza — knowing that you could do without it and the others in the room have had less — or, say, plunking a bunch of your hard-earned money into a hedge fund promising stellar returns and market-beating performance.

That’s apparently what happened to investors who committed millions of dollars to a hedge fund run by Sarasotan Arthur G. Nadel.

According to various local news reports, Nadel has vanished, along with about $350 million in funds investors placed with his hedge fund.

In times like these, especially, when most CDs are earning a paltry 1 percent or 2 percent, and stocks — well, let’s not go there — it’s easy to lose sight of logic and walk zombie-like into the clutches of that banner ad touting 10 percent, super-safe CDs, or a guy who can guarantee market-beating returns, no matter what.

To be fair, Nadel has not been charged with a crime.

And the fact that, as reported, his car was found at the Sarasota-Bradenton International Airport, may not necessarily be a bad thing.

Maybe he had to fly somewhere to straighten out the investments for his clients — you know, meet with his people, or his people’s people.

Then again, maybe he flew the coop and investors are left holding the bag.

The incident immediately began drawing comparisons to Bernard Madoff, the New York hedge fund manager who is accused of ripping off investors to the tune of $50 billion in a Ponzi scheme that funded returns from existing investors by taking money from new investors.

Eventually the well runs dry.

Rene-Thierry Magon de la Villehuchet lost more than $1 billion to Madoff’s scheme.

He also disappeared — with the help of sleeping pills and a box cutter he used to slash his wrists.

Point is, there are no sure-things. There are no safe investments that are going to produce spectacular returns consistently.

I learned this firsthand last year, when I was lured to auction-rate securities.

These vehicles — which were essentially short-term debt and commercial paper that reset after being sold at auctions every seven or so days — were touted as being safe as cash and just like a CD, except liquid.

I didn’t have to commit to six months or a year, and I was earning 5 percent, or even more, on my money.

What more could one ask for? The market was beginning its rapid descent, and I thought I had found myself the equivalent of buried treasure.

Why didn’t more people think of using these things?

Then came the bad news: The demand for the auction-rate securities dried up and people — including myself — saw their funds being frozen, unable to redeem their shares.

Luckily, I was able to get out and recoup my funds, but some investors have had to resort to extensive litigation that continues today.

So if it sounds too good to be true, it probably is. Sometimes there is no substitute for time and patience.

And Nadel, wherever you are, some people want to ask you some questions.

  Comments