Moazzam “Mark” Malik, a 33-year-old New Yorker, allegedly convinced at least 16 investors to invest approximately $840,000 in his so-called hedge fund. Malik is charged with using most of his investors’ funds to finance his lavish lifestyle.
According to the SEC’s complaint against Malik, investors reported him to the agency after Malik ignored repeated demands for the returns of their funds (and tried to fake his own death). The SEC alleges that he claimed to be a “professional money manager” for the past eleven years who had degrees in marketing and finance and was educated at Harvard. According to the SEC, however, Malik had only attended high school and worked as a stock broker trainee for less than two years. The allegations against Malik parallel a contemporaneous report that a “dashing” young financier employed a contrived CV to rapidly build up and then bust out Southport Lane Management before checking himself into Bellevue Hospital. Apparently, the economy is sufficiently restored to allow such schemes to prosper again.
The SEC alleges that Malik generated publicity for his fraudulent fund by providing reputable news and information service outlets with false information that grossly overstated assets and performance. For example, Malik sent Barclay Hedge a statement indicating that his fund held over $100 million of assets under management when the SEC believes Malik’s brokerage account held only $269.52. Malik has pleaded not guilty.
Malik allegedly attracted investors to his fund due to the accolades reported on Bloomberg and Barclay Hedge. Bloomberg had identified Malik as a rising fund manager, reporting that his fund had a whopping 92.73% return on investments. Barclay Hedge had also awarded Malik a “gold star” as a high performing fund manager. Neither service independently verified Malik’s information.
Jeff Kopiwoda, a member of FVLD who regularly advises clients in the financial services industry, tells us: “Prudent investors should perform their own due diligence prior to selecting an investment manager. Even a basic due diligence should include an independent background investigation, as well a review of reports prepared by third-party service providers to confirm that assets under management and performance figures are accurate.”
The SEC is seeking a disgorgement of Malik’s ill-gotten gains but investors may recover only a fraction of their losses. For example, Irving Picard, the trustee handling the bankruptcy of Bernie Madoff’s firm, has returned to investors just $5.3 billion of the $17.3 billion stolen in Madoff’s Ponzi scheme. The problems with recovery include delays which allow a fraudster to dissipate funds or transfer them to family members and offshore accounts. Only time will tell whether investors will be able to recover their money from Mark Malik.