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Angry hedge fund clients at the gate


Date: Friday, July 4, 2008
Author: Ross Kerber, Boston.com

When investments go bad, angry investors sometimes write nasty letters to the people in charge. Others sue. This week Paul Omeara took things a step further.

Omeara broke into the Wayland home of hedge fund manager Michael C. Regan and stole a laptop computer and paper files in hopes of finding the $1.5 million he invested in Regan's troubled hedge fund, according to a police report and Regan's lawyer. Omeara, who didn't return phone messages, fled in an SUV, chased by a farm tractor.

The incident was the latest in a series of charged confrontations between Regan and investors, and another example of extreme lengths to which people have gone as high flying hedge funds and other investments crash to earth. Convicted hedge fund swindler Samuel Israel III faked his own death to avoid federal prison before turning himself in to Southwick police Wednesday after a three-week manhunt.

Last year, CIBC stock analyst Meredith Whitney received death threats from investors in a stock she had downgraded, Citigroup. Her marriage to the former professional wrestler known as Death Mask apparently proved no deterrent.

By hedge fund standards, Regan's $15 million fund, known as River Stream, was small time. Regan, 65, launched the fund in 1998 from an office in Wellesley, asking for minimum investments of $25,000.

He told prospective clients he would use an "extremely reliable" trading strategy that had produced annual returns of more than 80 percent by purchasing big stocks such as Intel, Dell, and Cisco but holding them for just a few days. A modest investment in the fund, Regan wrote, "is a good complement to a larger investment plan."

Hedge funds are supposed to limit their marketing to sophisticated investors who understand the high risks involved - investors defined as those with a net worth of more than $1 million or an annual income of at least $200,000.

Many of Regan's investors hardly fit that profile, according to a complaint filed by Massachusetts Secretary of State William F. Galvin claiming Regan violated securities rules. His investors included retirees, widows, and young adults trying to build retirement nest eggs. Among them were Fred Dodd of Sherborn; Rimas Viktor Gorodeckis, who operates an eco-tourism hotel in Venezuela; and Omeara of West Tisbury. Police reports occasionally refer to him as "O'Meara." Dodd had introduced Gorodeckis to Regan.

As recently as April 15, Regan was telling clients he had more than 60 accounts, worth $15 million, according to Galvin's complaint. But just three weeks later clients were told the funds were frozen pending an audit. The letter also said the funds were being reviewed for "possible fraud."

"This guy has $234,000 of my money," said Dodd, who runs a company taking students and tour groups on ecological trips to Belize and Venezuela, "and he kept sending reports to us telling us what a good job he was doing."

Increasingly worried, Dodd and Gorodeckis showed up at Regan's home in Wayland on a Sunday morning last month, banging loudly on the front door, according to police reports. Regan answered the door, but told them he couldn't talk because of the investigation.

Dodd, Regan told police, warned that he had crossed "the wrong men. You will get us our money back."

Gorodeckis, who had invested about $50,000, allegedly returned alone a week later. In the second visit, Regan told police, Gorodeckis demanded repayment within two days or he would send two other men, adding: "and you know what that means, don't you?" Regan took this as a threat to him and his family and police later filed charges against Gorodeckis for "extortion by threat of injury."

"I was there, but I didn't threaten the guy," said Gorodeckis, in an interview. "It's my life savings, and I wanted to know how to get it back."

Dodd acknowledged making the earlier visit, but said he never threatened Regan. "Part of it's true, but he's slanting it to make it look like we're the bad guys," Dodd said.

About a week later, on Monday, Regan reported his laptop computer and paperwork stolen from his home. A neighbor, who farms land next to the home, took down the license plate of a black SUV driving away from Regan's home.

Later that day, the neighbor's son saw the SUV near the house again. When the SUV occupants saw the son, who was driving a tractor, they sped away, according to police. The son followed on the tractor, honking his horn to draw the attention of a nearby officer.

The SUV got away, but police used the license plate number to track down Omeara. Questioned the next day, Omeara admitted taking the laptop and files after finding no one home, according to the report. He accused Regan of running "an investment scam."

No charges were filed, at Regan's request.

Only a fraction of the fund's peak value of $17 million remains, said Regan's lawyer, Ray Mansolillo. Mansolillo declined to discuss what went wrong with the hedge fund. Eventually, he said, "you will find out this isn't the typical hedge fund operator who intentionally pilfered people's money and lived the high life. He's a 65-year-old gentleman who had over $1 million of his own money in the fund that he probably lost.''

Ross Kerber can be reached at kerber@globe.com.