The Wall Street Journal on March 9, 2006 has published a long front page article on Kirk Wright and his International Management Associates hedge fund entitled Troubles at Atlanta Hedge Fund Snare Doctors, Football Players written by Ian McDonald and Valerie Baurlein. This premium content article on the Wall Street Journal web site contains many details and is well worth reading completely to gain a better understanding of what happened at IMA. One interesting section of this story reads as follows:
Period of Expansion
Between 2000 and 2004, the firm opened offices in Las Vegas, Los Angeles and New York, and began drawing substantial money from outside of Atlanta. In 2004, it hired Thomas H. Birk, a Los Angeles-based salesman who previously raised money for several major brokerage firms. Mr. Birk, who is white, would troll Western golf courses talking up Mr. Wright's investment record, according to clients who invested through him. Mr. Birk eventually raised more than $10 million, his lawyer says.
In early 2004, Drs. Bond and Harper started a new unit of the firm, through which Mr. Wright was to manage two new funds, according to a sworn statement by Dr. Harper in the SEC litigation. In mid-2004, Dr. Bond persuaded Mr. Atwater, the former Denver Bronco, and Mr. Bishop, the former Tennessee Titan, to invest, the two investors say in affidavits. Mr. Atwater became an employee of the firm, and together with Mr. Bishop, brought in several other football players, including Mr. Davis, the former star Bronco running back, and Mr. Smith, a current wide receiver. The players and their friends invested some $15 million, according to a lawsuit they later filed against the firm and its principals.
Messrs. Atwater and Bishop chose to invest in a so-called House Account, for which Mr. Wright provided no prospectus, both men said in affidavits. Mr. Wright told Mr. Bishop the account could post returns as high as 10% in as little as a month, Mr. Bishop said. In his affidavit, Mr. Atwater said he became uncomfortable with the firm's promises, and with the fact that "Mr. Wright was in the office far less often than I would expect." Mr. Frenkel, Mr. Wright's lawyer, has said that Mr. Wright often managed money while outside the office.
Drs. Bond and Harper had hired an accountant, Kenneth Turchin, for the new unit. On Aug. 23 of last year, Mr. Turchin informed Dr. Harper by email that the firm appeared to have violated various securities and tax laws. He wrote that two new International Management funds hadn't done any trading since May and had posted losses, but had reported gains to investors. The email was attached to Dr. Harper's sworn statement in the SEC case. "I can't comment on the allegations in that email," Mr. Wright said in a recent interview.
On Sept. 20, Dr. Harper forwarded the email to C. Gladwyn Goins, a former lawyer for the SEC who until January served as International Management's lawyer. That same month, the SEC received a tip and began an inquiry, according to one person close to the investigation. Mr. Goins didn't return calls seeking comment, and the SEC's lead investigator declined to comment.
In October, Dr. Harper, the salesman Mr. Birk, and the two former players, Messrs. Atwater and Bishop, met with Mr. Wright. Mr. Wright showed them a handful of account statements from Ameritrade, an online brokerage service owned by TD Ameritrade Holding Corp., which listed total assets of roughly $155 million, but he wouldn't let anyone touch them, according to Mr. Harper's declaration. Mr. Atwater was concerned by Mr. Wright's "evasive and ambiguous" answers, according to his affidavit. The statements with the Ameritrade logo were fake, according to a sworn statement by an SEC investigator. Mr. Wright declines to comment on allegations contained in the suit.
Toomre Capital Markets would like to ask why a month elapsed between when the new accountant, Kenneth Turchin, raised the flag about possible violations of various securities and tax laws and when that information was forwarded to IMA’s counsel on September 20th, 2005. Clearly, the internal controls at International Management Associates failed, but why was not more action immediately taken when someone saw that there was no trading, the accounts declined in value and yet the fund investors were given reports of positive returns?