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Friday, March 29, 2024

Three Lessons from the Twitter Hedge Fund Ponzi

Three Lessons from the Twitter Hedge Fund Ponzi

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The SEC has charged Anthony Davian, a make-believe "successful hedge fund manager" from Akron, Ohio with operating a Ponzi scheme. Independent journalist Roddy Boyd ripped the lid off this fraud at his excellentSouthern Investigative Journalism Foundation and the regulators have put a stop to it. From the complaint, now posted in its entirety at Zero Hedge:

On June 29th, 2011, an investor wired $100,400 into a LP II bank account that previously had a balance of less than thirteen dollars. Davian immediately transferred $65,000 of that money to a previously empty bank account belonging to Davian Capital. With it he bought himself an AUDI Q7 Prestige automobile.

More recently, in mid-June 2013, Davian pressured three brothers to bundle together several hundred thousand dollars to invest with his funds. He told them that if they acted fast he would give them a break on his firm's management fees. Not wanting to miss out on such an opportunity, the three brothers each contributed $75,000. On July 5th, 2013, they wired $225,000 to Cleveland Gravity's bank account. The three brothers never authorized Davian to use the funds for anything other than investing in Cleveland Gravity [the fund]. But unbeknownst to them, Davian immediately used their money to fund the construction of his luxury house.

It goes on and on. Somehow the guy managed to get local investors to hand over $1.5 million to him before the feds stepped in.

Three lessons below:

1. Anthony Davian's twitter handle was @hedgieguy. He had a website called the thehedgies.com and everywhere he had a bio posted, it included some variation of "I'm a successful hedge fund manager." If you know any actual hedge fund managers or employees, you know that they go out of their way to downplay their careers when you meet them in real life and they never introduce themselves this way. It's like if you met Buzz Aldrin and he was carrying around astronaut ice cream. This guy was a fucking child playing dress-up.

2. Davian was incredibly combative online. Everything I've ever seen him do online involved attempting to pick fights with others. Especially people who appeared on CNBC, his bete noir, which reflects the fact that he was probably secretly jealous and would have done just about anything to get some of their recognition. He brawled with just about every prominent finance person I can think of in the early days of Twitter, I had to block him myself a few years ago. Ask yourself this – do "successful hedge fund managers" pick fights with TV anchors and other traders on the internet?

3. Once again, investors got stung by wiring money into a bank account without having a third party custodian involved. Avoiding this is the simplest and most effective way of protecting yourself against fraud. Madoff was self-clearing as was that other asshole Allen Stanford. The biggest and brightest red flag a potential scammer can wave in front of you is the fact they need custody of your money, not just control over the trading decisions. There is a huge difference.

Congrats to Roddy Boyd and the SEC for nailing this guy before things progressed any further.

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