Judge extends freeze on Nadel\'s assets

Date: Wednesday, February 4, 2009
Author: John Hielscher & Michael Pollick, Hereald Tribune.com

A federal judge extended a freeze on the assets of Sarasota's Arthur G. Nadel on Tuesday, but failed to include other partners -- a measure some investors with the accused hedge fund swindler have been pushing for aggressively because Nadel shared $95.5 million in incentive fees with other Scoop Management Inc. principals.

Nadel did not contest U.S. District Judge Richard A. Lazzara's order freezing personal and business bank accounts, property and other assets Nadel controls solely or with others, so a hearing scheduled for today was canceled.

Investors like Fort Lauderdale's Louis Paolino Jr., who is out $5.8 million since the Jan. 14 implosion of the six funds Nadel managed, had hoped the hearing might shed light on why the U.S. Securities and Exchange Commission was not seeking to include Nadel partners Neil or Chris Moody in the freeze.

"My dealings were always with the Moodys," said Paolino, the former chief executive of Mace Security, maker of the Mace defense spray. Paolino said Neil Moody consistently reassured him that the funds were overwhelmingly liquid and that redemptions were no problem.

Sarasota attorney Morgan Bentley, who represents 45 clients who invested $50 million in the funds, said, "People who are concerned about dissipation of assets are going to have to make a decision whether to keep waiting or to proceed on their own."

Asked to be more specific about his target, Bentley said, "The Moodys."

Contacted Tuesday, Neil Moody did not remember talking with Paolino. "I don't recall speaking to him," he said. "I know the name, but I don't remember a conversation."

Neil Moody said he wonders if instead of talking with him, Paolino actually conversed with his son, Chris Moody. Reminded that Paolino was a relative heavy hitter with $5.8 million invested, Neil Moody said: "I had $12 million in, so I feel for him too. That's all I'm going to say."

Nadel, 76, has been accused of plundering millions of dollars from the funds. He is being held without bond and will be sent to New York to await trial on federal securities and wire fraud charges. He faces up to 40 years in prison.

No other person has been charged in either the criminal complaint or in the SEC's civil complaint against Nadel.

Tuesday's injunction orders Nadel to make a sworn accounting of all compensation he received from his management companies and the hedge funds. It also orders him to repatriate all funds and assets of investors that are held outside the United States.

During a bond hearing last week, a federal prosecutor said a court-appointed receiver had found a Nadel bank account in Switzerland.

While the injunction only covers Nadel, his companies and the hedge funds, it affects anyone who may jointly own or utilize assets with him, said SEC senior trial counsel Scott Masel.

"It doesn't mean we won't come back and seek asset freezes against other people or entities later," Masel said. "It doesn't mean we will."

Masel would not comment on the ongoing investigation or any others who may be targets, but said the time could come when individuals may have to relinquish profits they received from Nadel's businesses.

"Anybody out there who has access to investor assets as a result of these hedge funds, whether they are under the asset freeze or not, need to be quite careful about what they do with those assets," Masel said.

Paolino's mainstay hedge fund, the one he thought would carry his estate through a turbulent decade, was Viking Fund LLC.

"I always viewed Viking as a safer, less volatile fund," Paolino said. "Nadel was just a trader for Viking. The Moodys were the fund managers."

He recalled that Neil Moody told him the fund, which traded stock market futures, was supposed to remain 90 percent liquid by the end of each day.

"Redemptions were never a problem because they were always in cash at night," Paolino said he was told.