MARCH 25, 2009
Six victims in the Arthur Nadel (Scoop Management, Inc.) scandal have filed a $2.3 million lawsuit against newsletter editor and publisher (Don Rowe) . Nadel's Scoop managed six private investment funds.
The basis of the lawsuit, the victims argue, is that they took Rowe's newsletter seriously when it called Mr. Nadel "America's Top-Ranked Money manager." The suit against Rowe also alleges that his Carnegie Asset Management unit "received referral fees from Arthur Nadel, Neil Moody, Christopher Moody and/or their hedge funds in exchange for the defendant's fraudulent recommendations that plaintiffs invest in the foregoing hedge funds."
Putting this specific case aside, as well as all first amendment protections of the free press, it is unclear how people can blindly rely on newsletters and similar publications to make hedge fund investments.
Based on media reports it doesn't seem as if the newsletter (The Wall Street Digest) held itself out as being a fiduciary or had any fiduciary liabilities. It seems as if this was simply a subscription based newsletter. If people could sue newspapers, websites etc. for providing rankings than certainly similar suits should be filed against Entrepreneur Magazine who in May 2008 ranked Agape World Inc. as number 73 in the publication HOT 100 fastest growing businesses. Nicholas Cosmo CEO of Agape World surrendered himself to authorities been accused of among other things mail-fraud in a fraudulent hedge fund scheme.
But similar lawsuit have not been filed (as opposed to other class-action lawsuits which have been filed against the law firm - Holland & Knight - which prepared Nadel's legal documents). While it is unfortunate that people were taken in by alleged frauds such as Nadel and Cosmo, complete responsibility for performing detailed due diligence should not be wholly outsourced - especially to a newsletter.
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