Tag: Reg D

My missing hedge fund letter

There are some cracks being made about Bear Stearn’s recent hedge fund meltdown. I doubt we’ve seen the end of it (meaning the jabs or the meltdowns). But I do have to give Bear Stearns credit for actually getting a letter out that told the worst possible news, as it’s more than I can say for other’s efforts.

Some time ago, I was touched by the Refco fiasco, having been an investor in one of the funds they managed. I never saw it coming, and I never got a letter either. The brokerage at hand simply wiped the balances and cried innocence. When I inquired about the matter, I was told that I should have read “the letter.” What letter?

Of course, I did get “the letter” after that, and it recommended that all investors of XYZ immediately put in sale orders. Would have been nice to get that letter around the time it was dated (which was five months prior to my actually getting it). As it turns out, it wasn’t much money (although it was in a retirement account so I didn’t get a write-off), and I knew the rules (almost too well, in fact) going into it. It’s a cautionary tale, and one that makes me think Bear Stearns is just the tip of the iceberg, much as the inability to find a seat in a day-trading office was an ominous sign during the late 90’s.

We’ve been in a big wealth creation boom, meaning a lot of folks now easily qualify as “accredited” investors in accordance with regulations. So we have a lot of people and small charities, etc. over the hump of those rules (which are outlined in Reg. D/501), pouring assets into private funds.

I don’t think they should all be there. And I won’t be surprised when a lot of them don’t get their letter.