Blog: Bearmoor Notes

Friday, April 17, 2009

What We Can Learn From Recent Scandals or Back To The Basics

The use of the term “Ponzi scheme” is appearing quite regularly in the financial press these days. While several such alleged schemes have received their fair share of the headlines, what hasn’t been as evident are the warning signs that should have been heeded. Fiduciaries have a duty to control and mitigate the risks associated with all investments. While much focus has been placed on the alternative investment arena, the re-enforcement of some basic risk mitigation policies will provide confidence for your clients and prospects. Perhaps the horse has already left the barn so to speak, but here are some basic “red flags” to consider when making investment decisions:

· Lack of segregated custody

· Use of an affiliated broker dealer

· Use of a small, unknown auditing firm not registered with PCAOB

· Lack of access to Portfolio Managers

· Lack of transparency

· Secretive or unexplainable investment strategy

Nothing in the above list is unique or worthy of a lengthy dissertation, but rather the simplicity of it makes it all the more amazing that approximately $60 billion has been put at risk because due diligence on the above was not adequately addressed.

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