E@L's Own Personal Enron

A couple of years back E@L was encouraged by a guy he met at racetrack to invest some money in a sure bet. The horse was still running for a long time, but they're about to shoot it now.

E@L sold his former GHQ in Geelong a few years ago and duly handed off half to the former co-owner, The Ex, who no doubt did clever and wealth amassing things with her share, like buy a quarter of a house in Surrey. E@L was encouraged by a guy he met in a swank Hong Kong office to invest some of the money in a sure bet. Well, he actually said "high risk investment", but he implied it would be a sure bet as well.

The prospect deal was to put some of the house proceeds into a hedge fund set up by a certain Charles Lee Schmitt, the Absolute Returns fund. This Schmitt guy, he's a legend, a master, makes money just by thinking about it. He has this new fund, 15-25% return p/a minimum, hopefully, maybe. Easy money, it's a cert!

Hedge funds, thought E@L? How can you make money out of shrubbery unless you're Jim The Gardener?

What *was* a certainty was that old kludge fingers E@L would put the kiss of death on this fund.

It turned out that this was a "fund-of-hedge-funds", most of which were imaginary hedge funds, a series of dummy companies, a la Enron! Instead, our Charles was living the high life; fair enough if he was using his personal salary and profit from his carefully secured and inspired investments for this, but not if he was using the actual money from his investors directly! Yachting, partying, travelling - the Absolute Returns were being turned into Absolut being drunken. This fund was used as his personal party fund repository. He'd spent about a million US dollars living it up in about a year. The cunt. Didn't even invite me to any of the parties!

"No investments had been made by CSA Absolute Returns into any of the master funds as alleged by the defendant."


He also bought a $3million dollar house in Hawaii with some of my money as well, it seems.

I don't know what he was thinking, that he could get away with this forever? Did he think he really was the smartest guy in the room, like those fucking crooks at Enron? Well he wasn't and, like them, eventually he was caught and charged and then the Schmitt really hit the fan.

The initial break was made when two stalwart and honest employees noted "irregularities" in the fund. The full Enron-like story was detailed initially in the HK Standard early last year. The actual scam is bit too complicated for me - "well planned and sophisticated". I'd need a large color-coded block diagram and several animated Powerpoint slides to sort it out for my tiny non-accounting type brain.

A scenario like this is every investor's worst nightmare: your trusted adviser has been accused of fraud and you may not be getting your money back.

For some 1,300 investors in a hedge fund managed by a collapsed Hong Kong advisory firm, the nightmare has become a reality that doesn't end when the sun comes up.

The founder and owner of the firm, Charles Schmitt, 59, a United States citizen living in Discovery Bay, was charged by Hong Kong police in June [2004] with stealing nearly US$1 million (HK$7.8 million) from the CSA Absolute Return Fund. Nearly US$200 million was invested in the fund, but up to US$50 million may never be recovered, partly because of losses related to the need to close out positions early.

Schmitt, who is free on bail, could face further charges. His next scheduled court appearance is March 1 [2005].

To recover what remains of their money, the investors face a trawl through the murky world of offshore funds and a tedious legal wrangle in Hong Kong.

It is one more cautionary tale about hedge funds, those virtually unregulated, deliberately opaque, high-risk, high-reward vehicles considered even by financial sophisticates as being for "consenting adults'' only.

Regulators tend to give hedge funds a wide berth, not only because their investment strategies are generally byzantine, but because the products are seen as intended for rich people with money to lose, in the case of the CSA Absolute Return Fund, up to US$100,000, the minimum investment.

(Note that not all investors had put in USD$100,000! I certainly don't have that much money to play around with! I don't anymore, anyway.)

Over the last two years, there has been a long drawn out fight to get some of that money back for all the investors, and let me tell you some big boys were stung by this guy. I'd been getting regular updates of the proceedings. My minor investment (25% of my house sale proceeds, equivalent to about year's take home pay back in my old Australia job) was hit pretty hard, but not totally. My investment company (the guys in the swank HK office) have done a great job representing several other small investors as well and secured us a 55% return of our initial outlay. How much more could have been returned if the proceedings had advanced quicker and lawyer fees were less significant is of interest as well.

With a few of E@L's other investments that have also gone belly up and the only investment doing well is the one he took 95% of his money *out off* in order to bail out the previously mentioned belly-up investment (a negatively-geared loan that was going in a negative profit direction fast), E@L's history in the world of big finance is extremely sad. At the moment the strategy is to cash up the whole lot and invest in Aussie dollars here in Singapore where term deposits are running at up to 5.8%.

That's POSITIVE 5.8%. As opposed to NEGATIVE 45% with the Charles Schmitt affair.

An email came today, prompting this disclosure by informing E@L that Mr Schmitt finally had had his day in court, on 20th September this year.

Four and a half years jail and no more business for 10 years. He'll be 70 by the time that limitation is lifted. Not soon enough.


He was also banned from trading for life by the Hong Kong Securites and Futures Commision. Yay.

I hope he enjoys the partying when it's time to "play moms and dads" in prison, Schmitt the shit.

And, just rereading one of the references for this post, I notice that not only was he a crook, but he was also your classic American Christian hypocrite as well. A typically sanctimonious example of what I like to call "The Protestant Embezzlement Ethic".

Schmitt, who set up Charles Schmitt Associates in Hong Kong in 1992, recruited high-earning friends and acquaintances to invest in his fund in 2001 through his contacts in the church and the prominent American Club.

The former senior business manager for the New York Stock Exchange was accompanied to court today by his wife and other friends, who gathered in a group prayer before the case commenced. He kissed his spouse before entering the dock. (my emphasis)

There's probably more, but I'm fuming with too much anger than is healthy for me right now...



Posted by: expat@large on Nov 29, 06 | 11:29 am | Profile


Something must be wrong with my eyes, I swear I saw five of the same posts, and then suddenly there was only one. Ooh.

Posted by: VirginPornStar on Nov 29, 06 | 3:36 pm

Something funny with those new contact lenses, kiddo.

Wouldn't be my browser playing the fuck up, making me think I was UPDATING minor typos rather than REPOSTING.

Posted by: expat@large on Nov 29, 06 | 3:48 pm

"...but he was also your classic American Christian hypocrite as well. A typically sanctimonious example of what I like to call “The Protestant Embezzlement Ethic”."

yeah, we seem to breed'em like rabbits here...and they're always so mystified when caught.

the wednesday night gathering will raise a glass in your name, sir!

Posted by: savannah on Nov 29, 06 | 9:21 pm

Like rabbits in a spotlight!

Have a nice one, y'all!

Posted by: expat@large on Nov 29, 06 | 9:30 pm

barely after 1pm...and all i can think about is a G&T...i think i need to quit early today...

Posted by: savannah on Nov 30, 06 | 1:06 am

in your honor (and for a delightful change of pace) copious amounts of bombay sapphire were consumed courtesy of our local mixologist! we did start off with G&T, however, as that seems to be your beverage of choice! cheers!
...and yes, in true southern fashion, we slandered, maligned and vilified the carpetbagging bastard that dishonored you...

Posted by: savannah on Nov 30, 06 | 9:57 am

Not pilloried? Disappointed he wasn't pilloried as well... Pillorification is one of my favorite forms of castigating someone.

Bombay Sapphire, pure class - pure empty marketing crap actually...

It is the iPod of gins.

Bombay Sapphire is a London Dry Gin (of course) with has nothing at all to do with Bombay (Mumbai) or London. It is made in Bermuda by Bacardi and has only been around since 1987!

Nevertheless the bootle is cool and I drink it.

Gordon's is my other favorite. It dates from 1769. As seen in James Bond - Casino Royale! Stirred, never shaken (my motto?) Shaken is uncouth.

p.s. isn't Wikipaedia a great thing!

Posted by: expat@large on Nov 30, 06 | 10:46 am


Notify me when someone replies to this post?
Submit the word you see below:

Powered by pMachine