Cockeyed Optimists

by Steven M. Cohen  •  Jan 14, 2008 at 12:11 pm

http://www.buyselljump.com/2008/01/cockeyed-optimists

Wall Street always has a constant supply of disaster stories, investment funds that "blow up," seemingly without warning. When this happens, investors often lose all of their capital or, at best, might recover pennies on the dollar.

The most spectacular hedge fund catastrophe took place nearly ten years ago, when John Meriweather's merry band of Nobel Prize winners at Long Term Capital Management used absurdly high leverage in their "convergence" strategy to drive the partnership into oblivion; along with it, billions of dollars were vaporized into the ozone. Those dollars were supplied for the most part by institutional investors, who had lined up like customers taking numbers at a busy bakery, in a frantic effort to get in on the next great thing.

These investors poured money into LTCM even though its strategy was so opaque that none of them could posssibly begin to understand what it was all about, even if the fund's managers had provided any degree of transparency, which they did not.

Blow-ups like LTCM, even those far smaller and less spectacular, leave a string of bitter, disillusioned investors, as well as a mess for regulators to clean up and a field day for lawyers.

But here's one that's refreshingly different: the Joel Nathan Ward Forex Fund, a total wreck that lost about 100 investors $11 million, a mere blip on the radar screen of investment pileups. However, Mr. Ward stands out in bold relief as a money manager much better at picking investors than trading currencies.

What makes Joel's investors so special: evidently a great many of them forgive him and want him to continue trading to make back the losses.

Ward pleaded guilty to nine separate felony counts, among them fraud and money laundering. His purported currency trading vehicle was nothing more than a run-of-the-mill Ponzi scheme, where he would make payments to longer-term investors with monies taken in from new ones.

Notwithstanding his guilty plea, Mr. Ward has given new meaning to the word chutzpah: he has asked the judge to let him continue his trading activities so that he can pay back the purloined funds, since, he says movingly, "my first concern is for the victims." Evidently the judge is unimpressed, and has refused his request.

Ward possesses an unparalleled and unique talent in being able to identify dream investors--people who have lost all of their money, and rather than complain, continue to support the efforts of the man who stole it from them. These are very understanding folks, especially among the normally hard-hearted ranks of hedge fund investors seeking fancy returns rather than catastrophic losses.

Boy, talk about engendering loyalty among investors! According to a Wall Street Journal article, one investor who lost close to half a million dollars expressed confidence that Mr. Ward can "exceed by vast measure what he has lost" and evidently is anxious to see Mr. Ward return to his trading activities. In fact, his former mother-in-law still supports him, and estimates that more than half of his victims want to see Mr. Ward in action again in an effort to make back their money. (Talk about a dream mother-in-law as well!)

When Mr. Ward gets out of prison he should pursue a career in investor relations. And even if P.T. Barnum never said it, there is, indeed, a sucker born every minute in the maternity ward of Wall Street.

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