If a manager who runs a $30 million hedge fund decides to embezzle money, it usually makes sense to actually embezzle it and then run away, rather than just transferring it to a shell-company brokerage account and then losing half of it selling short Treasuries. Evidently someone forgot to give that sage advice to Matthew La Madrid and his hedge fund management company Plus Money. According to a recent SEC complaint:
The complaint further alleges that, unbeknownst to investors, in the fall 2007 Plus Money and La Madrid abandoned the covered call trading strategy, emptied out the monies in the Premium Return Funds’ brokerage accounts, and dissipated the money through a series of illicit transfers.
The SEC’s complaint alleges that investors were not told that in the fall 2007, La Madrid and Plus Money transferred nearly all monies from the Premium Return Funds’ brokerage accounts to Vision Quest Investments, a La Madrid dba, which in turn transferred $10 million to relief defendant Palladium Holding Company. The complaint further alleges that Palladium:
* Transferred $5 million to its own brokerage account and used the funds to trade in numerous short-sell transactions involving Treasury bonds; as of April 25, this activity had depleted more than half of the account’s value
* Wired $500,000 back to La Madrid
* Transferred $1.8 million to several real estate title companies
* Used $95,000 towards the purchase of two automobiles
* Transferred another $90,000 to a Denver-based car dealership
What I do not understand is why La Madrid did not simply make the losing bets in the hedge fund. If he had lost the money in the fund then he would have been guilty of little more than misleading his investors about his investment strategy (the fund was supposed to invest in covered calls).