Bayou Group: the media are the real frauds
Bayou group’s founders have just admitted they did it: they suckered investors out of perhaps $400 million in money invested with what they had called their “hedge fund.”
But there are far more suckers in the public who are going to think that Bayou Group really was a hedge fund.
Many large respectable newspapers continue to call Bayou Group a “hedge fund fraud.” This is entirely incorrect.
The press is gaga over hedge funds, especially anything indicating that these secretive investment vehicles are dangerous. It makes good copy, but what does Bayou Group have to do with hedge funds at all?
Say I start a company, “JoshCorp,” with the stated purpose of providing passenger rides into outer space and to the moon, as some entrepreneurs now are. I raise $200 million, decide to forget space and enjoy more earthly pleasures on my investors’ dime. Investors find out, contact the Feds and I get pulled into court where I confess to my fraud.
The next day, does the Wall Street Journal condemn privatized space exploration? Of course not.
But heaven forbid some scam artist claims to run a hedge fund. Suddenly, says the media, hedge funds are dangerous. Watch out!
Claiming to be something does not make it so. A “fraud” is one who assumes a false pose; an impostor. One, in the case of Bayou, who assumes the guise of an industry known at worst for being risky, but not for being unethical. When the true purpose of an entity is to deceive, it cannot be categorized as that kind of entity. By definition!
Go ahead and write about how public knowledge of and interest in hedge funds is increasingly being used by fraudsters to ply their deception, but don’t call the fraudsters hedge fund managers or refer to their empty offices as hedge fund headquarters.
If I impersonate a doctor and amputate some wrong limbs, it doesn’t make me a bad doctor! If there are 10 imposters working with me it doesn’t mean we need to reform medical training! (Might be a good idea to beef up hospital security, though.)
Fake lawyers don’t sully the Bar, fake preachers do not harm the church!
Now, the defense I imagine these papers would have is that many folks thought Bayou was a hedge fund, including some pretty smart people. Yeah? Smart people are suckered all the time. Rich people make good targets. People make assumptions. Frauds ply their trade upon assumptions. No one bothered to check the resumes of Bayou’s founder to discover its lies; no one noticed that the auditor was related to the firm, etc. There were several red flags.
This is simply a matter of convenience. It is easier to conceptualize the crime as a hedge fund gone bad. Maybe that is what happened, if the founders initially had good intentions, but that hardly seems to be what happened.
Deception is so horrid a crime because it harms its victims not only by what it takes materially, but by what it does to destroy their faith in an orderly, fair and just world. It reminds us that no such fairness really exists, and makes us doubt the goodness of our fellows. So, call Sam Isreal and his pals cheats, fakes and liars, but please don’t tell me they ran a hedge fund, because they didn’t, and it demeans journalism to repeat as fact the fabrication that underpinned their crimes.
