Diamonds Not Kim’s Best Friend

The Diamond Lake Investment Group hedge fund venture was launched by Dow Kim in 2007, following a two year stint at Merrill Lynch. But Kim doesn’t have much to smile about today. He was recently sued for the fund for more than $2 million in compensation, accused of having promised this amount to Namuk Cho – who used to be head of US derivatives trading at UBS AG (UBSN) – in 2007. Mere “days after demanding the money,” Cho was terminated.

A year after launching the company, Kim saw that he wouldn’t be able to raise enough money for wages and contract implementation. He was also sued by his managing director and general counsel, Karl Wachter, for compensation. Apparently, “Cho insisted that his $2 million minimum compensation be unconditional and not subject to the launch of Kim’s investment funds.”

There is another case due in two days’ time. Michael Pasternak claimed that he didn’t take a job at Morgan Stanley “based on representations that Kim made and took a job with Diamond Lake.” He’s now claiming $6 million of damages. The greed in these cases is nothing short of heinous.

Kimura Fraud

There hasn’t been such innocent play at Morgan Stanley recently either. Indeed, Ryan Kimura, previously employed at Morgan Stanley Dean Witter, just today “pled guilty” to one count each of: “wire fraud, bank fraud, filing a false federal tax return and money laundering.” Kimura is being accused of encouraging some of his wife’s family “to deposit more than $2.1 million in accounts with the bank by making false and fraudulent representations and omitting facts.”

Members of his wife’s family “unknowingly applied for and received MSDW checks,” which Kimura then used without them knowing. A Japanese company Kimura’s father-in-law owns also received deposits which Kimura then used to make “stock trades with the company’s funds resulting in losses of approximately $360,000, while receiving a commission for each and manufacturing reports of interest allegedly earned.”

All in all Kimura embezzled $1.5 million by forging over 200 signatures on checks and “using the Japanese company’s funds without permission.” Kimura thus owes $1.5 million in restitution to MSDW. According to expert on the case IRS special agent Marcus Williams, “cheating on your income taxes harms us all because most Americans benefit greatly from services made possible by taxpayer money.” As well, US attorney Nakakuni insisted that they will “vigorously investigate financial crimes and ensure that those who commit them are made to pay the price—by serving long sentences and making restitution to taxpayers, as well as victims.”

Now Kimura is looking at decades of sentencing for all his fraud with possible millions of dollar worth of fraud fines. Clearly these two cases are indicative of how success can lead to greed but that ultimately it doesn’t pay. There are too many checks and balances in place for greedy executives to get away with this behavior.

According to Matsumoto, the fund began with around $4 million from both domestic and overseas investors on March 15^th. The fund has a maximum capacity of 20 billion yen, and shoots to collect around 2 billion yen by September.

The fund invests in stocks and futures indexes, based on an algorithmic model developed by Matsumoto himself. The model calculates while taking into account market shifts, fundamental analysis, news and “noise” factors, he explained.

“This is a good time to start,” Matsumoto said. “We lowered our risks to adjust to this crisis condition, but our fund depends on a model that eliminates any human emotions, so that has helped in a market like this.”

The firm explained that it launched the Fortress Asia Macro Fund on March 1^st; just at the start of the month that led to severe losses in many funds across the globe.

Fortress has hopes to expand the size of the hedge fund to $500 million, following its launch supported by the firm’s own money as well as that of a small number of new clients. Co-chief investment officer of global macro funds Adam Levinson shifted to Singapore from New York earlier this year, in order to head the Asian fund’s activities.

Goldman Sachs’ former star trader Morgan Sze is making some real progress in his effort to launch his $1 billion+ hedge fund. Just this week he registered Azentus Capital with the Hong Kong market supervisor.

Sze ran the Goldman Sachs’ Principal Strategies group in Asia until February 16^th. Five days after his departure he joined Azentus Capital in Hong Kong.

The change comes while Goldman and numerous other Wall Street banks shut down various exclusive trading desks because of the “Vlocker Rule.” This puts a limit on the risks a bank can take with their own capital due to the financial crisis.

Sze is busy gathering a team of nearly thirty people to manage Azentus Capital. They plan to launch the fund in the second quarter. It is expected to be one of the largest launched since the beginning of the crisis. It will also be one of the most impressive on the continent.

“We believe that Asia is on the verge of getting its very own post-crisis, home-grown billion dollar club, and expect that high-quality, institutional new entrants such as Azentus will add significantly to it,” said Aradhna Dayal, the editor of AsiaHedge.

In October of last year Morgan Stanley and FrontPoint decided to have FrontPoint become an independent firm. Two weeks later the plan was put on hold by the U.S. Securities and Exchange Commission when a French doctor was accused of providing a FrontPoint manager with confidential information regarding a clinical drug test. The firm has not been charged, but has dismissed the manager in question along with his healthcare investment team.

Steve Eisman, a manager for the firm, currently oversees $1.2 billion. He has recently shared that he may leave the firm in order to start his own hedge fund. 

Business Insider said: “It seems like hedge fund satellite offices are popping up down there for a few reason. One is that Brazil is one of the BRIC emerging economies that are surging right now, so, obviously, hedge funds would be interesting in finding investments in the country.”

Whether it is due to the influence of Renaissance Tech’s  trading or the fact that everyone wants a share of Brazil’s climbing economy, the Brazilian market is certainly on the rise.

“Over time, China will invest more overseas,” Lee stated. “among their overseas investments, we hope they will consider hedge funds as one of their components.”

The head of this major alternative investing trade union explained that while the past has seen only small hedge fund investments by Chinese investors, his organization is aiming to reverse this trend and help to facilitate greater hedge fund participation.

“We want to work with them overtime,” Lee said. “It’s not an imminent thing.”

AIMA has now translated its global hedge fund guide, “AIMA’s Roadmap to Hedge Funds,” into Chinese, to help explain the funds and to better inform its Chinese-speaking readers about the hedge fund industry.

The new fund, Soroban Capital Partners LP will be based in New York and start its operations in October. Soroban Capital Partners will focus its energy on equity trading, yet will also trade debt according to sources close to the fund.