Newsletter Touted Missing Money Manager as U.S. No.1 |
Date: Thursday, January 22, 2009
Author: Jason Szep, Thomson Reuters.com
"America's Top Ranked Money Manager," read the 2003 headline in The Wall Street Digest, an investment newsletter.
Fast-forward six years: that money manager, Arthur Nadel, has vanished
along with an estimated $350 million of his clients' money, and
investors are fuming over the glowing report promoting the "unusual
success" of the Florida hedge fund manager, who disappeared last
Wednesday [Jan. 14].
As a probe widens into Mr. Nadel, his burned investors are seeking
answers. Some say they were blindsided by the losses. Others are quoted
as saying they saw warning signs recently.
Some, like 68-year-old Tony Hagar, say they were drawn to his funds by The Wall Street Digest
and the upbeat report by its editor, Donald Rowe, and now question how
much due diligence the investment newsletter industry conducts. "He
seemed to indicate that they were a reasonable investment. They put out
a letter that says these folks have done substantially well, and that
Don Rowe had looked at them closely," said Mr. Hagar.
Mr. Hagar lost $1.5 million, nearly his entire retirement savings,
along with any hope of retiring next year as planned from the
Embry-Riddle Aeronautical University, where he works as a professor in
Daytona Beach, Fla. "That's not going to happen," he said.
The FBI's Tampa office opened an investigation into Mr. Nadel on
Tuesday, launching a search for the 76-year-old former New York jazz
pianist whose disappearance has drawn parallels to last month's arrest
of former Nasdaq Stock Market chairman Bernard Madoff. Like Mr.
Madoff's funds, Mr. Nadel's investments generated returns regardless of
whether markets rose or fell. Mr. Hagar estimates he saw a total return
of about 70% over seven years.
Mr. Madoff allegedly confessed to his sons that his firm's
investment-advisory business was "basically a giant Ponzi scheme" in
which money from new investors is used to pay distributions and
redemptions to existing investors.
A visit to the offices of Mr. Nadel's company, Scoop Management Inc, in
Sarasota, Fla., on Tuesday [Jan. 20] found the doors locked and lights
out. Through a window, the office looked orderly with papers stacked as
if it were just closed for the weekend.
"They're out of business," a man said as he walked by.
At Mr. Nadel's home in a quiet, upscale neighborhood in Sarasota, his
daughter Alex came outside to address reporters but would only say, "We
can't say anything now."
Sarasota Police Capt. William Spitler said detectives were trying to
determine the total amount of money that might be missing, based on
calls from investors. "It's alarming. It's hundreds of millions of
dollars for sure," Mr. Spitler said.
He said one man who had invested $750,000 with Mr. Nadel told detectives, "I'll be working for the rest of my life."
'Highly Technical Program'
The Sarasota Herald-Tribune quoted another investor who learned about Mr. Nadel's hedge fund from the Sarasota-based Wall Street Digest. He invested about $200,000 and earned between 6% and 11% a year, according to the report.
Mr. Rowe wrote in the Wall Street Digest in 2003 that
he conducted a due diligence visit to the office of Mr. Nadel and his
business partner, Neil Moody, who has said he was not aware of any
problems until last week.
"I did not learn the various mathematical formulas in Nadel's
'black box' computer program," Mr. Rowe wrote. "What I did learn is
very important for the individual investor. After 26 years of reviewing
the track records of over 11,000 mutual funds, 6,000 money managers and
5,800 hedge funds, Nadel's computerized investment program has produced
the best track record and most consistent returns I have ever seen. The
highly technical program used by the group is proprietary, but I was
given an opportunity to see it in action during a due diligence visit
to their office."
Fine print at the bottom of the report notes that Mr. Rowe
from time to time makes referrals to The Nadel Moody Group. Experts say
that while such referrals could pose a conflict of interest there is
little regulation over investment newsletters.
"I have no specific knowledge of Don Rowe, but it is not uncommon for
money managers to compensate newsletter editors for providing leads,"
said Mark Hulbert, editor of the Hulbert Financial Digest, which tracks market newsletters.
Mr. Rowe did not return calls seeking comment for this story.
The Sarasota Herald Tribune said in its Tuesday edition
that Mr. Nadel was believed to be in Slidell, La. It also quoted some
investors as saying they were baffled recently by an unusual delay in
getting at their money back.
Mr. Nadel and his wife Peg were well known in Sarasota, a city of about 100,000 in southwest Florida with many wealthy retirees.
By Jason Szep