The Pot of Gold at the End of the Rainbow

With all of the SEC enforcement actions, it takes something related to my area or a quirk to catch my attention. The fraud that caught my attention this morning was a hedge fund manager claiming he no longer needed income and instead wanted to help friends and charitable causes. He told investors that his 20% of the trading profits would fund his wife’s charitable organization for abused women and children, The End of the Rainbow Foundation in Colorado.

Running a hedge fund for charity sounds nice. I’m not sure I’ve heard that happening. It didn’t in this case. Michael Anderson, the hedge fund manger, talked 18 investors into giving him $5.3 million to “invest.”

He didn’t.

He suffered $600,000 in trading losses, used some of the investor money to redeem investors based on falsified returns, and pilfered at least $2.3 million.

The SEC got wind of the problems in early 2017 and launched an investigation and hoped to shut down the fraud.

Whatever thread Mr. Anderson had been hanging on to justify his fraud snapped. He was found dead in his garage with his ATV running and filled with carbon monoxide. According to the SEC complaint, a few weeks before his death, Mr. Anderson hired an attorney to help him draft a sworn confession, admitting to defrauding Rainbow Partners’ investors, fabricating their account statements, making Ponzi payments, and misappropriating investors’ funds. The confession also stated that he controlled all aspects of Rainbow Partners’ business and was wholly responsible for the transactions. This was an attempt to isolate his wife from the fraud.

According to another action, Mr. Anderson was also involved with another investment firm, BigHorn Wealth. It also sounded sketchy, with a promotion that it went to cash at then end of each day. That strategy makes it easy to hide trading account balances from investors. It turns out that BigHorn had taked a big position in an exchange-traded gold fund and had lost $2.4 million in that fund.

There was also $1 million wired to purchase bars of gold around the time of his confession. That 53 pounds of gold has not been recovered.

It sounds like Mr. Anderson had a tangled web of investment firms and control, some of which sustained losses, and he raised funds to redeem investors to keep his facade of success in place. He tried to save his wife from the fraud.

Perhaps he stashed those gold bars for her at the end of the rainbow.

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