Investor Nightmare: Regulators Take Over

In the aftermath of fraud, government agents take control. What happens then?

From Honey Pots, Ch. 6, Ponzi Regulation

“The Manhattan Capital taken over by regulators in January 2000 consisted of a small Park Avenue office where a lone assistant was technically still employed. There was no other staff. This was a tiny business. The management firm owned only about $280,000 in cash and the lease for the office. But the hedge fund still contained the $36.5 million left of clients’ cash. ….”

That money was sitting in various bank accounts.

“Asked what was going on with Manhattan Fund, a spokesman for the Securities and Exchange Commission replied that the receiver was expected to distribute the remaining money fairly to the claimants. ‘Generally speaking, a receiver will take charge of the remaining assets and then draw up a plan for the equitable distribution of the assets among the shareholders,’ he told a news service….”

The SEC named as receiver a lawyer with ties to regulators and other lawyers. The receiver hired additional teams of lawyers.

“Outside observers like myself knew that (this was) a plum assignment. But we did not fully appreciate what a plum it was. We thought the assignment consisted mainly of divvying up the assets, as officially proclaimed….”

In fact, for well over a decade the receiver and allied lawyers controlled the estate. During this time they engaged in major lawsuits and myriad legal maneuvers, billing the estate many millions of dollars.

The investors had no say over what was done with their money. They objected, but this had no effect.


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