At indeterminate times The Weakonomist will award people, companies, or groups with a Weaky. Its our version of the Darwin Awards for those that make bad moves with money. Sadly, most of these people will live to make more mistakes another day.
You know… awarding a Weaky to someone else in the financial services industry is bittersweet. It forces me to admit not everyone in my environment is honest but its also great to bash “the suits” that make the rest of my industry look bad.
Today Ralph Cioffi, who we mentioned earlier this week, gets the Weaky. Ralph, likely related to Ralph Wiggum (pictured), was arrested in June for defrauding investors in his hedge fund at Bear Stearns along with his fellow manager Matthew Tannin. I’ve grown quite fond of the three mistake rule to qualify for the award so let us break it down.
Mistake #1:
Ralph along with Matt were hedge fund managers of two funds with obviously misleading names: “High-Grade Structured Credit Strategies” and “High-Grade Structured Credit Strategies Enhanced Leverage”. In plain English the names of these funds would be “Buying risky sub-prime loans using other loans so you only need to put down a few bucks” and “Buying risky sub-prime loans using MORE loans so you only need to put down even less bucks”. I’m sure this was an exciting opportunity at the time but from the get-go they were not transparent.
Mistake #2:
If you remember from earlier this week, I told you Ralph realized in March or April of 2007 the sub-prime market was toast. Astute guy no doubt, as an honorable man he would have told the investors in the funds to pull out. Liquidate the funds and close shop before everyone else notices the problem. Honorable Ralph is not, instead he told investors its all gravy and there’s nothing to worry about.
Mistake #3:
While reassuring his investors to keep money in the funds (thus preserving his highly paid job and reputation) Ralph moved 1/3 of his money out of the fund into a less risky hedge fund. He again lied to investors and told them all $6 million of his was still with the fund. This was the tipping point giving Ralph the Weaky, because Matthew Tannin has not yet been accused of this action.
Thankfully the selfishness of Ralphy will be punished. Not only does he face the criminal charges mentioned earlier this week, but the SEC is after him in civil court, and you’d better believe those defrauded investors are going to sue his greedy white collar ass off.
The Securities and Exchange Commission also filed civil charges against the two Thursday. “Hedge fund managers owe serious obligations to investors in their funds,” said SEC Chairman Christopher Cox. “Those who commit fraud at the expense of investors will always be the target of a relentless SEC.”
Ralph and Matt may not be the cause of the sub-prime meltdown (though they did help), but they are exactly why the public doesn’t trust Wall Street. Thanks boys, you made it worse for those of us still in the industry. You’re getting what you deserve Ralphy*, so don’t drop the soap!
*Ralph Cioffi is pleading “not-guilty” so a jury will decide if he really did it. Since we are all innocent until proven guilty in this country its only fair to point out he has not been found guilty, yet. If the glove does not fit you must acquit! But in this case the glove is emails and recorded calls.
 By The Weakonomist |
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