Investment firms are constantly on the lookout for opportunities to cut costs on investing while still assuring decent returns and reducing risk. With all this in mind, Marin’s James Murray thought he had it wired.
Murray, 42, is the principal at the San Francisco firm called Market Neutral Trading LLC. Market Neutral bills itself as a hedge fund that uses proprietary formulas to bring its investors superior returns while keeping risk to a minimum in transactions geared toward stock deals. According to marketing materials, Murray retains 25 percent of the fund’s profits.
Hedge funds have garnered some tough press in recent months with the Galleon Group’s Raj Rajaratnam insider trading allegations and MF Global Holdings misplacing $1.2 billion. Historically, hedge funds have managed millions and sometimes billions of dollars raised from institutional investors and wealthy individuals. The investment vehicles employ highly sophisticated and, in some cases, complicated models that take advantage of inefficiencies in markets. They like to be the first ones into a market and the first ones out, taking advantage of the trading environment before more mainstream players begin changing the investment landscape.
Hedge funds have been largely unregulated, in part because they weren’t open to everyday investors, but rather, were investment vehicles for larger investors thought to be sophisticated in their understandings of the sometimes rough and tumble world of high finance. Of late, federal regulators have begun a series of moves designed to keep a closer eye on hedge funds in an effort to give investors more information on how investments are made and how those investments affect markets.
Hedge fund operators take comfort in keeping a low profile, making their investment moves quietly without drawing attention to the markets they’re taking advantage of. Rightly or wrongly, they have the reputation of regarding themselves as the smartest guys in the room.
Which brings us back to Murray. A resident of Larkspur, Murray’s fund was tiny by industry standards, with just $4.6 million under management from only 10 investors, according to a civil complaint filed in San Francisco by the Securities and Exchange Commission. The fed’s case said Murray allegedly came to a formula that wasn’t overly complicated by the standards of Wall Street, but perhaps not worthy of the smartest guys in the room, either.
The SEC says Murray defrauded his investors by handing them an audit displaying glowing financials that painted a picture of a well-performing fund without any concerns. The audit overstated the fund’s gains by 90 percent. It claimed the fund’s income was 35 percent more than what it actually was, and the fund’s assets were inflated by 10 percent. Beyond the audit results, however, there’s a bigger problem according to the financial regulator. That is, the audit came from a firm that doesn’t actually exist. In fact, Murray created the firm to fool his investors.
Marc Fagel, director of the SEC’s San Francisco office, said in a statement, “Murray conjured up an accounting firm and deliberately faked the audit to induce investors into believing the fund was in better shape than it actually was.”
The audit firm, Jones, Moore & Associates Ltd., is a Delaware shell corporation that’s owned and controlled by Murray, the SEC says. Shell companies are created for a variety of reasons, from going public to making a paper trail harder to follow. In this instance, since the company isn’t registered or licensed in Delaware as an accounting firm, the SEC looked into the firm. Though it has an elaborate website that lists a dozen employees, the principals of the firm, Richard Jones and Joseph Moore, don’t exist. For that matter, neither do three other employees listed. The website includes links to the Delaware Society of Accounts and the American Institute of Certified Public Accountants. A search on both websites shows that Jones, Moore & Associates isn’t a member. A call to the firm for comment was not returned.
The address listed on its website is a “virtual office,” according to Davire Solutions. It’s part of the Brandywine Plaza West in Wilmington, Delaware. The office includes a lobby greeter, mail and package receipts and conference room rentals that are available for $40 per hour. But hanging a license someplace costs extra.
An entity controlled by Murray paid for the auditor’s domain name and website. And Murray tried to open stock trading accounts in Jones Moore’s name, identifying himself as its CFO, thus linking himself with the phantom accounting firm.
The U.S. attorney general for Northern California also filed a criminal case against Murray, alleging that not only did he defraud his investors, he also committed wire fraud. At this writing, the day after St. Patrick’s Day, Murray sits in a federal detention center in Pleasanton, looking at a 20-year stretch in Uncle Sam’s care, three years of supervised release and a fine of $250,100.
The U.S. attorney says Murray took Chase Paymentech, a credit card/ATM processing company, for almost $350,000. The criminal complaint alleges Murray tried to process $657,000 in refunds, but the bank disallowed $257,000. The refunds went to Murray and his family as well as business associates, according to the SEC. A search of Murray’s home turned up the terminal that was used to process the refunds, according to the U.S. attorney’s office in San Francisco.
The civil suit asks the court for unspecified fines and the return of the cash investors lost.
A call to Market Neutral Trading was not returned.
According to Murray’s LinkedIn profile, his professional background includes stints at UBS, Bear Stearns, Merrill Lynch, Paretto Capital and JW Genesis.
