Hedge Fund Failures

Hedge Fund Failures

Order Code RL33746
Hedge Fund Failures
Updated September 30, 2008
Mark Jickling
Government and Finance Division

Hedge Fund Failures
Summary
The growth of hedge funds — private, high-risk, unregulated investment pools
for wealthy individuals and institutions — has been a striking development in
financial markets. There are now about 8,000 funds with perhaps $1.5 trillion under
management; both figures are roughly 10 times what they were a decade ago. Hedge
funds are said to account for 20%-30% of trading volume in U.S. stocks and (at
times) even higher proportions in more specialized instruments such as convertible
bonds and credit derivatives. Their trades can move markets.
Since hedge fund investment is limited by law to the very wealthy, who are
presumed to be capable of understanding the risks and bearing the losses of financial
speculation, the traditional view has been that there is no public interest in regulating
them. Many still hold this view. However, as their size and presence in the markets
has grown, hedge funds have attracted scrutiny from regulators and Congress. Does
hedge fund trading now create risk exposure outside the relatively narrow circle of
their principals and investors? There are two ways this could happen.
First, the failure of a large fund (or a number with similar portfolios) could pose
risks to banks and other creditors. If hedge funds had to liquidate a large market
position quickly, prices could fall sharply, widening the circle of losses. It was to
avoid such an outcome that the Federal Reserve organized a rescue of the Long-Term
Capital Management (LTCM) hedge fund in 1998, because it judged that default
posed an unacceptable risk of disruption to the financial system. Since financial
turmoil began in mid-2007, however, there have been relatively few hedge fund
failures, and none that has posed a systemic threat. Hedge funds are one focus of the
Securities and Exchange Commission’s (SEC) investigation into abusive short selling
of financial stocks.
Second, investor protection concerns have emerged as the popularity of hedge
fund investment has grown. Hedge funds are open only to “accredited investors,”
defined as those with over $1 million in assets. In the past, this standard seemed high
enough to exclude the small, unsophisticated investors who provide the rationale for
government regulation. However, since the $1 million figure includes the value of
an individual’s residence, rising home prices and inflation have lifted many who are
not necessarily expert in financial matters over the “accredited” threshold. At the
same time, institutional investors like pension funds and university endowments are
placing more of their money in hedge funds, which means that rank-and-file workers,
retirees, and others may be unwittingly exposed to hedge fund losses.
This report lists major hedge fund failures since LTCM. Because hedge funds
are unregulated and do not file public financial statements, reports of the amount of
losses and the reasons for failure are usually second hand and subject to inaccuracies.
The list is based on sources CRS considers generally reliable, but there are real limits
on the availability of information. For a general discussion of hedge funds, see CRS
Report 94-511, Hedge Funds: Should They Be Regulated?, by Mark Jickling. This
report will be updated as events warrant.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Why Hedge Funds Fail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
List of Tables
Table 1. Selected Hedge Fund Failures and Losses Since Long-Term
Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Acknowledgment: Alison Raab was an original author of this report.
Heather Durkin Negley contributed to several updates.

Hedge Fund Failures
Background
In 1998, the Federal Reserve Bank of New York organized a rescue of Long-
Term Capital Management (LTCM), a hedge fund that was on the brink of collapse.
In exchange for providing about $3 billion to meet the fund’s short-term cash
obligations, 14 of LTCM’s chief creditors (including some of the best-known Wall
Street firms) became the new owners of the hedge fund’s portfolio. The Fed’s
intervention was very unusual. Because investment in hedge funds is by law limited
to wealthy individuals and institutions, who are presumed to be capable of
understanding the risks and bearing the losses of speculation, regulators do not
normally view hedge fund failure as cause for government action. Their strong
preference is to let hedge funds collapse, rather than send a signal to other market
participants that they, too, might be rescued from their mistakes.
In the LTCM case, however, the Fed concluded that default might have
repercussions far beyond the losses that would accrue to the hedge fund’s principals
and investors.1 Investors had about $3 billion in LTCM, but the fund had borrowed
to accumulate a bond portfolio of about $100 billion, and had assumed derivatives
positions with a notional value of about $1 trillion. The Fed feared that a default
might have jeopardized the solvency of LTCM’s creditors, which included several
of the world’s largest financial institutions, and its numerous derivatives
counterparties. Moreover, if LTCM had been forced to liquidate its positions
quickly, prices of bonds and other instruments might have been severely depressed,
and other holders would have suffered unexpected losses, even though they had had
no dealings whatsoever with LTCM. Given that global markets were already under
stress at the time — Russia had defaulted on its sovereign debt and Asia was
experiencing a second round of financial crises — and investor confidence was low,
the Fed chose to intervene rather than risk widespread disruption to the financial
system.
The possibility that the failure of a single institution could set off cascading
failures throughout the financial system is known as systemic risk. The classic case
is a banking crisis, where trouble in one bank can trigger runs on others, including
financially sound institutions, if enough depositors decide to withdraw their funds as
a precaution. With LTCM, regulators recognized that hedge funds can also be a
source of systemic risk. There are several possible scenarios. First, a single hedge
fund could grow large enough to pose a systemic threat if its investments were
concentrated in a single market and constituted a significant share of that of that
1 For more on the LTCM near-default, and on hedge funds generally, see CRS Report 94-
511, Hedge Funds: Should They Be Regulated?, by Mark Jickling.

CRS-2
market. In practice, this is unlikely to happen, as suggested by the case of the
Amaranth hedge fund, which collapsed in September 2006, after losing about $6
billion in natural gas markets, without a major impact on the price of gas or other
energy commodities. The risk increases, however, if a number of hedge funds make
similar investments and incur losses simultaneously, or if other institutions (such as
commercial or investment banks) copy hedge fund strategies.2
Hedge funds may also generate systemic risk when they are successful. During
the Asian crises of 1997-1998, central bankers and regulators in several countries
blamed hedge funds for manipulating currency prices and doing serious harm to the
real economies. In addition, some observers believe that hedge fund speculation
played a role in high and volatile U.S. energy prices in 2005 and 2006.3 In 2008, as
share prices of financial institutions plunged, short selling by hedge funds — perhaps
abetted by the spreading of false information — became a focus of a Securities and
Exchange Commission (SEC) investigation.4
Post-LTCM perceptions of systemic risk are not the only policy concern
associated with hedge fund failure. As hedge fund investment has become more
popular, new investor protection concerns have emerged. Hedge funds are open only
to “accredited investors,” defined as those with assets worth over $1 million. In the
past, this standard seemed high enough to exclude the small, unsophisticated
investors who provide the rationale for government regulation of securities markets.
However, since the $1 million figure includes the value of an individual’s residence,
rising home prices have lifted many who are not necessarily expert in financial
matters over the “accredited” threshold. A decade ago, most hedge funds required
a minimum investment of $200,000 or more, beyond the reach of most households
whose assets were concentrated in their homes. As a result of competition and the
growing number of hedge funds, however, there are now funds that will accept
amounts as low as $20,000. At the same time, pension funds, foundations, and other
institutional investors are placing more and more of their money in hedge funds,
which means that rank-and-file workers, retirees, and others may be unwittingly
exposed to hedge funds losses. The SEC has cited this “retailization” of hedge funds
as a reason to impose some form of disclosure requirements on the funds or their
managers.5
2 This was the case with LTCM. The fund was able to borrow extensively and on very
favorable terms in part because the lenders wanted information about LTCM’s strategy,
which was devised by Nobel prizewinners and executed by legendary Wall Street traders.
3 See Senate Permanent Subcommittee on Investigations, Excessive Speculation in the
Natural Gas Market, Staff Report, June 2007, 135 p.
4 U.S. Securities and Exchange Commission, “SEC Expands Sweeping Investigation of
Market Manipulation: Measure Will Require Statements Under Oath by Market
Participants,” press release 2008-214, September 19, 2008.
5 In testimony before the Senate Committee on Banking, Housing, and Urban Affairs on
February 5, 2003, in response to a question from Sen. Corzine, SEC Chairman Donaldson
described the retailization of hedge funds as “a distressing move” that raised the possibility
that “less sophisticated investors” might not understand the inherent risks. See also
Implications of the Growth of Hedge Funds, SEC Staff Study, September 2003, pp. 80-82.

CRS-3
Systemic risk and investor protection concerns make hedge fund failure a
subject of regulatory and legislative interest. Table 1 below provides basic
information about the most prominent hedge fund failures since the LTCM episode.
The list is not comprehensive: many funds fail each year without attracting much
notice. Because the list has been generated by searching periodical literature
databases (principally ProQuest, Nexis, and Factiva), the cases included have been
newsworthy for one reason or another — generally because of their size, the amount
of investor losses, the risky or exotic trading strategies employed, or because fraud
was involved — and thus should not be taken as representative of the entire hedge
fund industry.
Why Hedge Funds Fail
Although some employ very conservative investment strategies, hedge funds can
generally be characterized as high-risk, high-return operations. Pursuit of risk
implies a high failure rate: various studies have estimated that from 7% to 10% of
hedge funds fail each year.6 Estimates of the number of hedge funds range from
7,000 to 9,000, which suggests that several hundred funds cease operations each year.
A recent study7 distinguishes between three reasons for hedge fund failure:
! financial issues, or losses stemming from unfavorable market
moves;
! operational issues, such as errors in trade processing or mispricing
complex, opaque financial instruments; and
! fraud, or misbehavior by fund management.
The most common cause is undoubtedly the first. When hedge funds fail to earn
the hoped-for returns, they are generally unable to attract new investors, and
managers find it unprofitable to continue. The normal course is to dissolve the fund,
in accordance with the partnership agreement, and return funds to investors. In many
cases, investors suffer no loss at all (other than the opportunity cost of their failure
to select a more profitable fund), and the end of the hedge fund receives no public
notice. Such failures are not captured in the table below.
When financial losses to hedge funds are sudden or severe, investors are likely
to suffer major losses, and the event is more likely to be reported in the press.
Several such cases are listed below. It is noteworthy, however, that none of the post-
LTCM failures has appeared to pose such a risk to the financial system that the
6 See, e.g., Naohiko Babo and Hiromichi Goko, Survival Analysis of Hedge Funds, Bank of
Japan Working Paper 06-E-06, March 2006, p. 30, and Nicholas Chan, Mila Getmansky,
Shane Haas, and Andrew Lo, Systemic Risk and Hedge Funds, prepared for the NBER
Conference on the Risks of Financial Institutions, August 2005, p. 51.
7 Constantin Christory, Stephane Daul, and Jean-Rene Giraud, “Quantification of Hedge
Fund Default Risk,” Journal of Alternative Investments, fall 2006, pp. 71-86.

CRS-4
Federal Reserve has had to intervene. Nor have there been waves of hedge fund
failures stemming from major market movements, such as the bear market in stocks
of 2000-2002, the subsequent sharp fall in interest rates, or the energy price volatility
that followed the invasion of Iraq. The most recent episodes, however, show that
problems in the subprime mortgage market (and perhaps other corporate debt
markets) have caused difficulties for a number of funds around the world. When the
market turmoil that began in the summer of 2007 has subsided, the multiple failures
may be seen as having constituted a significant risk to the system.
The incidence of failure as a result of operational issues is probably much lower,
but is difficult to judge because hedge funds disclose so little information about
themselves. Operational concerns have been addressed by regulators, however. In
October 2005, the Federal Reserve Bank of New York convened a meeting of 14
major credit derivatives dealers to address back-office problems and to set goals to
reduce the backlog of unprocessed trades in that market, where hedge funds play a
significant role.8
Where fraud is involved in a hedge fund failure, legal and regulatory actions
ensure that an unusual amount of information is made public about the fund and the
circumstances of the failure.9 Thus, cases of fraud are likely to be over-represented
in any tabulation of failures. While the SEC has noted many times that the lack of
disclosure makes hedge fund fraud a potentially serious problem,10 there is no
consensus as to whether actual fraud is more common among hedge funds than other
types of private investment vehicles.
Limited information is available about the relative frequency of these three
reasons for failure. Christory, Daul, and Giraud categorize 109 cases of hedge fund
default between 1994 and 2005, and find that 54% involved fraud, 33% involved
financial issues, and 13% involved operational issues.11 Sometimes the categories
may overlap: some cases of fraud begin with financial losses that fund managers seek
to cover up by reporting false earnings data to investors.
8 “Statement Regarding Developments in the Credit Derivatives Market,” Federal Reserve
Bank of New York Press Release, October 5, 2005. A year later, the Fed reported that
considerable progress had been made: “Statement Regarding Progress in Credit Derivatives
Markets,” Federal Reserve Bank of New York Press Release, September 27, 2006.
9 Regulators’ and prosecutors’ versions of events are, of course, commonly disputed.
10 Implications of the Growth of Hedge Funds, SEC Staff Study, September 2003, p. 76.
11 Christory, Daul, and Giraud, “Quantification of Hedge Fund Default Risk,” p. 76. The
authors define default as “a loss large enough to prevent the manager from pursuing his
strategy with his existing investors (resulting in investors exiting the fund at a significant
loss),” as opposed to “dissolutions,” where funds return all money to investors because of
poor performance. Ibid., p. 72.

CRS-5
Table 1. Selected Hedge Fund Failures and Losses Since Long-Term Capital Management
Fund Name (Principal)
Date
Description of Failure or Loss
Sources
Modulus Europe
9/08
Fund liquidated after losses to its $500 million
[London] Independent, 9/25/08.
(Powe Capital Management)
portfolio of investments in small and medium-sized
companies.
SageCrest II
8/08
Filed Chapter 11 bankruptcy after losses to its $1
Reuters.com, 8/18/08.
(Alan and Philip Milton)
billion portfolio of short-term credit instruments.
Turnberry Capital Management
8/08
Boston-based fund liquidated after 70% losses to its
Reuters.com, 8/14/08.
(Jeff Dobbs)
$800 million credit derivatives and distressed debt
portfolio.
Absolute Capital Management
7/08
Absolute Capital closed one of its family of funds
FT.Com, 7/23/08.
(Public company listed on London AIM
after losses from undisclosed investments in illiquid
stock market)
U.S. penny stocks (originally valued at $550 million).
Old Lane Partners
5/08
In April 2008, substantially all unaffiliated investors
Bloomberg.com, 5/3/08.
(Citigroup)
notified Old Lane of their intention to redeem.
Citigroup took a first-quarter charge of $202 million
to write down the value of its investment in Old
Lane.
Navesink Equity Derivative Fund
5/08
The convertible-bond arbitrage fund, which held
www.finalternatives.com, 5/2/08
(Rumson Capital)
$500 million at its peak, announced that it would
close by June 30.
Alternative Strategies Funds
4/08
Two fund-of-funds closed for “underperformance,”
FT.Com, 4/3/08.
(Russell Investments)
after losing about $4 billion out of $6 billion.
Endeavour Capital LLP
4/08
London fund shut down after losses to its $2.9 billion
Bloomberg.com, 5/9/08.
(Paul Matthews)
portfolio of Japanese government debt.

CRS-6
Fund Name (Principal)
Date
Description of Failure or Loss
Sources
Blue River Asset Management
3/08
Liquidated its main $1 billion municipal bond fund,
Financial Times, 3/14/08;
(Robert E. Bigelow III and Paul Sinsar)
after it lost about 80% of its value.
International Herald Tribune, 3/14/08.
Global Opportunities Fund
3/08
Investor exits have been blocked from this €601
Reuters News, 3/18/08.
(GO Capital Asset Management)
million ($950 million) fund for a year because
liquidity has dried up in the small and mid-cap stocks
it holds.
Focus Capital
3/08
The fund had $1billion invested in Swiss stocks, and
Financial Times, 3/5/08.
(Tim O’Brien and Philippe Bubb)
was unable to meet margin calls when the portfolio
lost value.
Carlyle Capital Corp.
3/08
The fund invested $670 million of investors’ capital
Wall Street Journal, 3/7/08.
(Carlyle Group)
in highly-rated mortgage-backed securities. It was
unable to meet margin calls on its $21.7 billion
leveraged portfolio.
Asset-Backed Securities Fund
2/08
The fund collapsed after losses to its $17 billion
[London] Independent, 2/29/08.
(Peloton Partners/Ron Beller)
portfolio, which was supported by $2 billion in
investors’ capital.
Sailfish Capital Partners
2/08
The $2 billion bond fund was forced to close after
New York Times, 2/12/08.
(Mark Fishman and Sal Naro)
trading losses.
Tequesta Capital Advisors
2/08
The fund invested $150 million in mortgage-backed
Chicago Tribune, 3/11/08.
(Ivan Ross)
securities, and was liquidated after it failed to meet
margin calls from lenders.
Tribeca Global Investments
9/07
Citigroup announced the closing of its $2.4 billion
New York Times, 9/6/07.
(Citigroup)
fund, which had lost 1.6% of its value over the first 8
months of 2007. Many of its assets will be
transferred to Old Lane, a hedge fund purchased by
Citigroup earlier in 2007.

CRS-7
Fund Name (Principal)
Date
Description of Failure or Loss
Sources
Global Advisors Commodity Investment Fund
9/07
The two commodity funds, with assets totaling about
Financial Times, 9/6/07;
and Global Commodity Index Plus
$70 million, were shut after losing about 13% since
[http://www.cnbc.com/id/20606649].
(Global Advisors)
the beginning of 2007.
Synapse High Grade ABS Fund No. 1
9/07
The London-based management firm shut down the
Wall Street Journal, 9/4/07.
(Synapse Investment Management LLP)
$272.5 million fund after mortgage-related losses
caused a key investor, the German bank Sachsen LB,
to withdraw its capital.
Global Equity Opportunities Fund
8/07
This “quant” fund, which uses a computerized model
Wall Street Journal, 9/14/07;
(Goldman Sachs)
to trade stocks, had to be bailed out with a $3 billion
Financial Times, 8/14/07.
cash injection from its parent investment bank and
other investors. Another Goldman Sachs fund,
Global Alpha, lost about $4 billion, or 37%, over the
year ending August 2007.
Geronimo Multi-Strategy Fund, Geronimo
8/07
Geronimo Funds announced the closure of 3 SEC-
SEC filing (Supplement to the
Sector Opportunity Fund, and Geronimo
registered funds, which had all lost money in 2007.
Prospectus dated March 31, 2007),
Option & Income Fund
Funds will be returned to investors by 9/30/07.
8/22/07.
(David Prokupek)
Yield Alpha Fund
8/07
This Australian fund, which invested in U.S.
Financial Times, 9/8/07; Financial
(Basis Capital)
mortgages, collapsed after losing about 80% of the
Times, 12/18/07.
$700 million it held at the start of 2007.
Sowood Capital Management LP
7/07
The fund, which invested in credit derivatives and
Bloomberg.Com, 8/01/07.
(Jeff Larson)
corporate loans, lost over 50% of its $3 billion in
capital in a single week during late July. Remaining
assets were sold to Citadel, a larger hedge fund.
Absolute Capital Group
7/07
This Australian fund group suspended withdrawals
Bloomberg.Com, 7/27/07.
(ABN Amro)
on 7/26/07 after forecasting losses related to U.S.
subprime mortgages. The funds held about $177
million.

CRS-8
Fund Name (Principal)
Date
Description of Failure or Loss
Sources
High-Grade Structured Credit Strategies
6/07
The two funds invested in bonds backed by sub-
Chicago Tribune, 6/21/07.
Enhanced Leverage Fund and High-Grade
prime mortgages. Attempts to rescue the funds failed
Structured Credit Strategies Fund
when Merrill Lynch seized and sold about $850
(Bear Stearns Cos.)
million of bonds it held as loan collateral; bankruptcy
petitions were filed on 8/1/07.
Dillon Read Capital Management
5/07
The fund was closed after losing $123 million in the
Investment Dealers’ Digest, 5/7/07;
(John Costas/UBS)
first quarter of 2007, as a result of investment in
International Herald Tribune, 6/5/07.
bonds backed by sub-prime mortgages.
KL Funds
1/07
The three principals were indicted on charges of
New York Times, 1/11/07.
(Won Sok Lee, Yung Bae Kim, and Jung
securities fraud; about 250 investors lost $194
Bae Kim)
million.
Ritchie Capital Management LLC
12/06
Liquidated the assets of its largest fund (Multi-
Wall Street Journal, 12/14/06.
(A.R. Thane Ritchie)
Strategy Fund, worth about $1 billion) after it earned
only 1% during the first three-quarters of 2006.
Amaranth Advisors LLC
9/06
Ill-timed speculation in natural gas prices; investors
Futures, 11/06;
(Brian Hunter and Nicholas Maounis)
lost about $6.4 billion from the fund’s peak value of
Wall Street Journal, 10/28/06;
$9 billion. In May 2007, Amaranth agreed to pay
The Globe and Mail (Canada), 9/23/06.
more than $716,000 to settle SEC charges of
securities law violations.
Archeus Capital
9/06
Started in 2003 by bond traders from Salomon
New York Times, 10/31/06;
(Gary K. Kilberg and Peter G. Hirsch)
Brothers, Archeus’s assets grew to $3 billion by
MarketWatch, 10/30/06;
2005. By September 2006, assets had shrunk to
New York Times, 10/05/06.
about $682 million, and the fund announced it would
close by the end of 2006.
Latitude Fund
8/06
Swedish global macro fund closed after losing 27%
Daily Telegraph, 10/28/06;
(Brummer and Partners)
of its capital in 13 months.
Powerswings
[http://www.powerswings.com],
9/14/06.

CRS-9
Fund Name (Principal)
Date
Description of Failure or Loss
Sources
Mother Rock LP
8/06
Energy fund fell victim to natural gas price volatility
Futures, 11/06;
(Robert “Bo” Collins)
— lost $230 million in June and July 2006.
Barron’s, 8/07/06.
International Management Associates LLC
2/06
Founder fled after $150 million in investor assets
The Atlanta Journal-Constitution,
(Kirk Wright)
were discovered missing; arrested in May 2006,
10/26/06, 7/14/06, 2/23/06;
Wright faces trial on various counts of mail and
Daily Deal/The Deal, 7/10/06;
securities fraud.
Los Angeles Times, 3/14/06.
Wood River Partners
10/05
Fund was placed in receivership, and the SEC
Forbes, 12/12/05;
(John H. Whittier)
brought civil fraud charges, in October 2005.
Financial Times, 10/14/05;
Criminal charges were filed against Whittier in May
Wall Street Journal, 10/12/05.
2007. Wood River had invested 65% of its assets,
about $265 million, in a single telecom stock,
Endwave, whose value plunged in 2005.
Bayou Management
9/05
The fund’s founder, Israel , and its finance chief,
Forbes, 12/12/05;
(Samuel Israel III and Daniel E. Marino)
Marino, and others pleaded guilty to fraud and
Futures, 11/06, 10/06;
conspiracy charges, admitting to using fake results
U.S. Fed News, 9/29/06;
and accounting to hide trading losses. Investor losses
New York Times, 12/15/06.
reportedly about $350million-$400 million.
Philadelphia Alternative Asset Management
7/05
Fund was shut down by the Commodity Futures
Washington Post, 10/19/05;
(Paul M. Eustace)
Trading Commission (CFTC) amid charges of
The Guardian (UK), 10/10/05;
trading improprieties which involved Man Group, a
Barron’s, 7/25/05;
large UK hedge fund that executed trades for
Wall Street Journal, 7/06/05.
Philadelphia. Assets were $320 at the peak; investor
losses estimated at $175 million.
Bailey Coates Asset Management LLP
6/05
This stock fund incurred losses of nearly 25% in
Investment News, 8/22/05;
(Jonathan Bailey and Stephen Coates)
2005, and ceased operations after promising to return
Financial News, 7/31/05;
about $500 million to investors. At its peak, the fund
Asian Wall Street Journal, 6/22/05.
held about $1.3 billion.

CRS-10
Fund Name (Principal)
Date
Description of Failure or Loss
Sources
Marin Capital
6/05
This bond arbitrage fund had $1.7 billion in capital at
Wall Street Journal, 8/31/05, 6/16/05.

its peak. It closed after sharp losses triggered by the
downgrading of General Motors to junk bond status.
Investor losses were not disclosed; fund promised to
return losses to investors.
Aman Capital Global
4/05
This Singapore fund was closed after losing
Financial Times, 4/04/06;
(Mayur Ghelani and Rahul Kumar)
derivatives trades cost it 18% of its $200 million
The Edge Singapore, 6/27/05.
capital.
Lyceum Capital
2/05
Technology stock fund closed after 28 months of
Wall Street Journal, 6/16/05, 2/10/05.
(John Muresianu)
operation, having earned minuscule returns on
investors’ $112 million capital.
Sterling Watters Group
6/04
The fund made “over-under” (long-short) stock
Institutional Investor, 2/15/06, 8/05
(Angelo Haligiannis)
investments, and claimed to have had $180 million
under management. Haligiannias was arrested and
charged with running a Ponzi scheme, but
subsequently went into hiding.
Lancer Offshore Fund
5/03
SEC charged Lauer with fraud and manipulation
Forbes, 12/26/05; HedgeWorld News,
(Michael Lauer)
related to investment in small-cap technology stocks.
1/06/06; National Post, 5/28/03.
Investor losses estimated at $500 million.
Eifuku Master Trust
1/03
Founded in 2000, Eifuku had $300 million assets at
Wall Street Journal, 4/10/03.
(John Koonmen)
its peak, invested in various Japanese stocks. During
3 weeks in January 2003, the fund lost 98% of its
capital.
Beacon Hill Asset Management
11/02
This “market neutral” stock fund was shut down by
Derivatives Litigation Reporter,
(John D. Barry)
the SEC, which brought fraud charges based on
11/12/06; Los Angeles Times, 10/29/04;
trading improprieties. Charges against Barry and
Institutional Investor, 2/03.
other principals were settled in 2004. Investor losses
estimated at $300 million.

CRS-11
Fund Name (Principal)
Date
Description of Failure or Loss
Sources
Klesch European Distressed Fund
9/02
Bond “vulture” fund lost money trading WorldCom
Global Finance, 10/02;
(Gary Klesch)
debt. When closed, the fund (which had aimed to
The Times, 9/10/02; Reuters, 9/9/02.
raise $100 million when it was launched in March
2001) had only $15 million in capital.
Lipper Convertibles LP
2/02
Bond arbitrage fund was liquidated after losing 40%
Business Week, 12/9/02;
(Kenneth Lipper)
of its value, or about $315 million, in 2001. Fund’s
Pensions & Investments, 8/19/02.
capital was reportedly $2.85 billion at its peak, much
of it contributed by Hollywood celebrities.
Maricopa Investment Fund
10/01
Founder was sentenced to 17 years in prison and
Barron’s, 5/30/05; Business Week,
(David Mobley )
ordered to repay $76 million to defrauded investors.
5/26/03; Derivatives Litigation Reporter,
6/2/02.
Tiger Management
3/00
Once the world’s largest hedge fund, with capital of
Institutional Investor, 12/1/02;
(Julian Robertson)
$22 billion, Tiger closed after losses stemming from
Wall Street Journal, 3/30/00.
the tech stock crash.
Quantum Fund
3/00
Fund lost 11% of its capital in five days when the
Wall Street Journal, 5/22/00.
(George Soros)
tech-stock bubble burst. By May 2000, losses were
22%. Quantum Fund was subsequently renamed
Quantum Endowment Fund and abandoned high-risk
strategies.
Manhattan Investment Fund
1/00
In January 2000, the SEC brought charges of fraud
Newsday, 9/2/06;
(Michael Berger)
against this fund, which sold Internet stocks short
Wall Street Journal, 1/19/00.
during the boom. In 2003, Berger failed to appear for
sentencing after pleading guilty to criminal charges,
and remains a fugitive. Investor losses estimated at
$575 million.
Sources: Factiva, LexisNexis, and ProQuest databases.