Weizhen Tang, a hedge fund manager who called himself the "Chinese Warren Buffet," has been accused by the SEC with raising $75 million for a Ponzi scheme.
The SEC claimed in a statement that Mr. Tang admitted in February that he misappropriated new client money to pay existing clients to cover trading losses since 2006 in a classic Ponzi. The SEC claim follow claims by the Ontario Securities Commission ("OSC") last month. Apparently, Mr. Tang was the cause of his own undoing when he was unable to replicate his hedge fund strategy to investors via a public demonstration.
The OSC complaint claimed it couldn't trace $15 million in losses Mr. Tang's Oversea Chinese Fund Limited Partnership. Mr. Tang is being represented by Dallas attorney Edwin Tomko.
The interesting thing about this case is the affinity element. Adding an affinity scheme element to his Ponzi scheme, Tang, who in addition to managing a Plano, Texas investment advisory firm called WinWin Capital Management, had focused on the Chinese-American community in Dallas and California. Similar to Madoff, Mr. Tang sought to target an community based on his ethnic background and hertiage.
Here is a video of Mr. Tang (in Chinese) with a nice slideshow of all the investors (replete with pictures of Warren Buffett and pictures of CNN and CNBC playing in the background) he allegedly ripped off: Chinese Warren Buffet Video Presentation
The SEC put out a guide to avoiding affinity schemes in 2006 which includes such helpful tips as "check out everything" and "be skeptical." Sounds like they are trying to sell something. Gee... thanks, is that everything or everything and anything. How can I possibly check everything? Thanks again, SEC.
DUE DILIGENCE KRYPTONITE
As a general rule, people in general (and hedge fund investors in particular it seems) often let their guard down when dealing with people like themselves. Unfortunately, it seems that this affinity is kryptonite to the red flag sensors which are supposed to go off during the due diligence process - and few if any hedge fund investors exposed to these affinity Ponzi schemes recognize too late the wolf in sheeps clothing. But can investors really practice such professional skepticism all the time?
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