The Times Investigates Buddy Fletcher
Posted on February 25th, 2014 in Uncategorized | 19 Comments »
Somewhat late to the party, but still: Rachel Abrams in the Times does a nice job bringing the Buddy Fletcher train wreck story up to date.
Millions of dollars have been lost, that much is certain. The explanation of how that happened and who is responsible is still emerging, but the cast, in addition to Mr. Fletcher, includes “those we normally think of as creating a line of protection against such fraud,” as Mr. Davis put it in his report. Named in various lawsuits are the consultant, Mr. Meals; the administrator of the hedge fund, Citco; and its auditor, Grant Thornton, which resigned as auditor after overstating a related fund’s value by $80 million, according to court documents.
This will sound extremely arrogant, but after it does, let me explain and perhaps it won’t, or at least not so much: The most important part of Abram’s article is that she references something I reported for Boston magazine.
While at Kidder, Mr. Fletcher, then in his 20s, managed a portfolio that reported $25 million in profit. When the firm did not pay him his expected bonus, he sued, claiming discrimination.
An arbitration panel eventually awarded Mr. Fletcher $1.3 million but ruled that Kidder had not discriminated against him.
In 2012, Granville Bowie, Kidder’s human resources manager during the time Mr. Fletcher was there, told Boston Magazine that the firm declined to pay the bonus because Mr. Fletcher had refused to tell anyone how he was generating his profits.
Why is this so important? Because it disseminates in the paper of record a quote—and an idea—that I think is both crucial to Fletcher’s story and deeply damning: The idea that coworkers have been suspicious of Fletcher’s accounting since his very first second job on Wall Street. That fact shapes the way you interpret both Fletcher’s subsequent career and his time at Harvard; indeed, the entirety of his life.
I had that fact in the Boston mag piece, and was proud of it; no one had ever gotten someone from Kidder to talk on the record before. But with all due respect to Boston—a magazine I love—the Times has a much broader reach and impact. And when the TImes actually quotes someone else’s reporting, something the paper doesn’t generally like to do, it sends the message, Hey, we think this fact is so important that we’re going to do something that we’d rather not. So for a writer, getting props from the Times is a nice tip of the hat.
The truth, I believe, is that the true story of Buddy Fletcher’s life is so strange and macabre that it’s actually quite hard to tell it in a straight journalistic format; all these news stories about what’s going on in the various lawsuits only scratch the surface. Really, it would require a novel—one that most people, I think, wouldn’t want to read. There’s just nothing positive, nothing redeeming in this story whatsoever. It was one of the hardest things I’ve ever had to report.
19 Responses
2/25/2014 7:50 pm
I thought your article was great.
2/25/2014 10:47 pm
Rachel-Thank you and likewise!
2/25/2014 10:49 pm
And by the way, if you ever want to dig deeper into the story of how Buddy used his investors’ money to invest in his brother’s film, drop me a line-I’ve got some great material on that that I couldn’t use in the piece. It’s just an amazing story.
2/26/2014 7:28 am
I cannot figure how this fellow Fletcher could have conned Kidder Peabody with regard to the dimensions of his profits (which you indicate was a worry to his supervisor). He does not run the firm’s accounting system.
Hank Greenberg at AIG hired a task force to review the work of the Financial Products unit of his firm to ascertain just what it was they were up to so it might be replicated if they departed. Kidder, Peabody would have had a record of his trades. You figure they might have been able to hire someone to review them and reverse-engineer what he was up to.
The other oddity is that he managed a fund which had had no profitable trades in three years. How is that possible?? I would think if you R. Blow/Bradley bought a mess of stocks in 2008 and sold them in 2012, you might find some that went up in value, no??
There are repeated references to the ‘complexity’ of his assets and trades. It would help if someone attempted to delineate that.
I cannot figure why these pension fund managers took the pitchman seriously when he guaranteed 12% per annum nominal returns. You realize that would be a 50-fold increase over an ordinary person’s working years, or, taking into account the rate of currency erosion in recent decades, a 15 fold real increase?
2/26/2014 8:58 am
Art Deco, I could answer the first question if I went back to my notes, which I might do if you were just a little bit politer to people on here. There’s an undercurrent of hostility to a lot of what you post that kind of freaks me out.
The complexity of his assets involves shuffling assets between multiple funds, funds investing in other funds, inflated values of assets, funds created and assets held in other countries (tropical islands, for example), and on and on and no. I took a lot of Fletcher paperwork to financial guys who are much better at this than I am and even they were stumped. One thing that Fletcher clearly has a talent for is misdirection.
As for the pension fund managers: They got greedy, and they got conned. Pure and simple. And frankly, they were stupid. (No one wants to say this, but it’s true.) If someone says to you, “We’re going to give you 12 percent, and we’re going to guarantee that by taking money from other investors if we don’t hit that mark with your investments,” and you don’t walk out of the room, you’re either stupid or greedy or both. And if someone says to you, you have to make up your mind within 24 hours, and you actually fall for that…. stupid.
2/26/2014 9:06 am
AD, rather than saying: “I cannot figure how this fellow Fletcher could have conned Kidder Peabody with regard to the dimensions of his profits”,make the same statement, but substitute Harvard for Kidder Peabody and gift for profits.
2/26/2014 12:06 pm
Art Deco, I could answer the first question if I went back to my notes, which I might do if you were just a little bit politer to people on here. There’s an undercurrent of hostility to a lot of what you post that kind of freaks me out.
I am playful with contemporary pieties and make sour remarks about liberal mascot groups. Nothing particularly impolite about it or hostile, just dismissive. This is unacceptable to people with certain sensibilities (many of whom think nothing of being authentically hostile and obnoxious). Joan Rivers was once asked what subjects she avoided in her routines and she said: “deformed children; and religion I am very careful with”. Barbara Ehrehreich used to have a regular berth at Time where she made cracks of a sort that Joan Rivers would not use. What riles magazine editors is not what riles normal people.
Now you get on the subject of academic administration, teachers’ colleges, the social work apparat, the appellate judiciary, abortionists, &c. & I might get hostile.
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As far as I can see, Rudenstine was willing to accept a gift in illiquid form either because he was blindsided and the monograms were already on the tea towels or because of the educational apparat’s usual obsessions with both race and p.r.
Unless I misunderstood both articles, his supervisor at Kidder Peabody was seriously concerned that the profits were phantom. I cannot imagine that the state of financial controls were such at Kidder Peabody that this could have been possible.
When you say ‘inflated values of assets’, I assume you are referring to assets not exchange traded.
There is certainly a literature on financial economics and portfolio management. I tend to doubt that there is a theoretical or empirical basis to the practice of rococo assemblage of portfolios, but I suppose we could research the matter. I do know investment professionals, and they do not work that way. They shuffle resources between the money market, municipal bonds, equities, exchange traded funds according to their strategies.
2/26/2014 12:39 pm
Rudenstine was not blindsided. He was told that there were problems with the assets.
Fletcher’s short investment record, after he went out on his own, was too good to be true and could not be verified. Harvard took the money “because of the educational apparat’s usual obsession with both race and p.r.” And his name is still on a University professorship.
2/26/2014 1:31 pm
Art Deco, no offense, but Joan Rivers is funny. You’re just, as you say, dismissive. It’s not that this is “unacceptable”, it’s just boring.
On the Fletcher front, I’m not sure what you’re driving at: Are you surprised that he was able to get away with -what he did for so long, or are you saying that journalists aren’t doing a good job of explaining what he did, or something else?
I mean, Buddy Fletcher was running a hedge fund firm (composed of multiple funds based in different countries) in which the accounting was dubious and the methodologies improbable. He got a lot of good press early, which I think the media should be embarrassed about now—and yes, race probably had something to do with that. But it doesn’t seem like he’s gotten much if any new money-other than the pension fund cash from Louisiana—since around 2008 now. And at the same time he’s been draining cash from his funds to support his lifestyle. Which is why he’s broke. The investments are complicated-in the end, he may not be found to have done anything that’s actually illegal. But the larger story is simple enough.
2/26/2014 3:53 pm
A lot can be illegal. Mis-pricing of assets. Taking out cash that is not yours. Conflicts of interest. False statements.
Why does Gates hold a Fletcher University Chair?
2/26/2014 8:49 pm
The Trustees report is actually pretty good reading if you want to get a sense of how the shell game was played. Here is one example drawn from the report. (The FXXX’s are Fletcher this and that, various legally distinct entities Buddy controlled.)
One example of inflated valuations, the investment in ANTS, a small company that produces high performance data management software for corporate customers, demonstrates how the systematic misvaluation of assets worked:
• On March 15, 2010, FILB invested $1.5 million in ANTS, receiving common stock (then trading at 90 cents) and warrants to purchase another ten million shares.
• On March 31, 2010, FAM marked up this investment, despite there having been no fundamental change at ANTS, to $17.3 million (a 1,053% gain in 16 days) even though at the same time the ANTS 2009 audited financials were released, raising “going concern” issues (a fact FAM neglected to mention in highly optimistic reports to the MBTA Pension Fund).
• FILB, either directly or through BRG (a FILB subsidiary), invested an additional $5.9 million in ANTS during 2010, and at its high point, FAM marked the investment at $62.8 million.
• Ultimately, FILB recovered $4.9 million of the $7.4 million it invested; the remaining warrants are worthless.
• Nevertheless, on an investment where FILB lost $2.5 million (ANTS), FAM took management and incentive fees as if it were worth 1,164% more than the investment actually returned.
https://www.mbtarf.com/sites/default/files/DocketNo327.pdf, pp. 7-8
2/26/2014 9:23 pm
Is it just me or does the scam described in the excerpt Harry Lewis just posted sound exactly like what Jordan Belfort is depicted doing in The Wolf of Wall Street?
2/27/2014 9:37 am
Its common in public discourse for people to talk as if bad business decisions must be criminal because they dislike Jon Corzine or Richard Fuld, but I would be flabbergasted were I to discover that what Dr. Lewis is describing was not an indictable felony. That is an exchange-traded asset and he just baldly lied on the financial statements.
Art Deco, no offense, but Joan Rivers is funny. You’re just, as you say, dismissive. It’s not that this is “unacceptable”, it’s just boring.
I am not employed as a comedian. I am not sure how it is I can be ‘boring’ and ‘creep you out’ at the same time.
2/27/2014 9:48 am
Management fees are commonly a percentage of portfolio value. If he lied about the value, he defrauded them with his fee assessments as well.
You remember Russell Harding, the seedy character who ran one of New York City’s public corporations? He spent five years in federal prison (not to mention months in a federal lockup in Manhattan) for misappropriating a six figure sum drawn from his expense account and for 11 filthy digital images found on his home computer (which may have been planted by federal investigators) - and he pled guilty. Conrad Black also served a multi-year stint in the federal pen (for no one knows quite what). If that’s the deal, this fellow Fletcher merits at least what these two received.
3/2/2024 6:00 pm
Mr. Bradley:
The trustee has described Fletcher’s financial dealings as Ponzi scheme-like in nature, Obviously, the pertinent law enforcement entities do not have sufficient evidence to arrest him. Until that happens (or if) can Fletcher still work in the securities industry? What happened to his apartments at the Dakota? How he is paying his maintenance and mortgage on those apartments? This entire saga would make a great film and your article was superb. I also read your book about Harvard.
3/8/2024 1:54 pm
I agree with THINK. A screenplay would be better than a novelization, only with Fletcher as a secondary, passing Gatsby-esque character (would drive his ego nuts), and maybe Ellen Pao as the protagonist who finally flees his grasp and flourishes ala Mia Farrow in Woody Allen’s ‘Alice’. Unfortunately, I don’t think this saga will have a clean hollywood ending
4/29/2014 4:13 pm
Isn’t this clown in jail yet?
6/2/2024 1:46 pm
Fletch, as your close friend and business colleague, I gotta say I’d start using your head- just like I did with you- before it’s too late and they’re fitting you up with the orange jumpsuit. Actually, I might have a turtleneck you can borrow from the Harvard Club…
6/2/2024 2:10 pm
Hey Budman, you gonna be needing that $364,000 of Louisiana pensioners’ money that you funnelled to my Inauguration Fund through your family, your company, your wife, and Kiel-dog?