They Trusted Him and He Lost $25 Million

Here’s yet another example of a hedge fund losing money courtesy of the Boston Globe:

When MBTA Retirement Fund board members met in March 2007 to consider sinking $25 million into a hedge fund, several of them weren’t convinced it was a smart move. They wondered whether the fund was too risky, too expensive, or even a good match for that slice of pension money, records recently obtained by the Globe show.

But a month later, the board’s executive director at the time, Michael Mulhern, recommended that they commit to the investment. He cited the “level of trust’’ they all had in the man pitching the deal, Karl White — who also happened to be Mulhern’s predecessor as chief of the $1.5 billion MBTA pension fund.

It turned out to be trust that was badly misguided.

The hedge fund, run by Fletcher Asset Management, where White had gone to work just 10 months earlier, eventually collapsed. The trustee overseeing New York-based Fletcher’s bankruptcy called the operation a fraud, and the pension fund lost every dollar it invested on behalf of the MBTA’s more than 12,000 employees and retirees.

Retirement board documents newly released to the Globe cast light on how the MBTA Retirement Fund trustees came to make such a disastrous move, and how they failed to promptly report the investment’s unraveling to transit workers and taxpayers.

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.