Hedge Fund Due Diligence

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April 19, 2012: Death of a great investment counselor, Carl H. Otto

Updated: April 20, 2012

Norshield

 

First, I never did any due diligence on Norshield. I had met one of its portfolio managers managing an internal CTA strategy. He seemed over-confident about his strategy saying that the external managers were not adding much value; all the value added came from his own CTA strategy. (So why invest in external underperforming managers?).

In the scandal involving the over $120 Million which disappeared from Cinar through Norshield into the Bahamas, the government seized all assets and liquidated them. I was present at the liquidation thinking I could buy some great furniture for my new home. The president’s desk was really impressive and luxurious. Strangely, most furniture sold at more than market value. Was it that some people wanted to keep some souvenir of their lost investment (More than a Billion dollar disappeared)?

When I visited their office spaces during the liquidation, one thing struck me as saying “we are a fraud”. The board room was filled with paintings sending deceiving signals. There were I think 8 or 10 such paintings. If anyone has photos of the other paintings, please write to me as I would like to add them here. The headings are from my interpretation of the paintings:

(1) “Follow our guidance and fall into the abyss”

A lighthouse helps ships find their way … to a hole!

CA Norshield Follow our Guidance and fall into the abyss

Over $1 Billion disappeared in that hole!

(2) “It all looks beautiful and perfect – it’s just a front setup!”

This painting showed a nice healthy mountain with trees, green vegetation, and water. On the side of the picture, the paintings shows that the mountain is not real as we see metal frames holding what seemed to be a real mountain – like some fake Hollywood decor

The picture on the front cover of the book “Death Spiral: The Collapse of Cinar, Norshield and Mount Real” by William Urseth (2009) is the picture I recalled. (Note that Mr. Urseth worked for Norshield)

CA Norshield It all looks beautiful and perfect – it’s just a front setup!

Yes. Everything looked beautiful on paper. There was nothing supporting it though.

(3) “We show you the best part, the rest is death!”

This painting (unfortunately, I have no picture of it) showed the sun passing through clouds illuminating part of the land. The lighten land showed lively trees and animals. In the shade of clouds, we can distinguish dead trees and animals…

There were other such paintings. They all sent similar scary messages. If you bought or took photos of any such paintings, please contact me.

The original paintings were not signed. I was told they were done by a local artist. Norshield had them reproduced too as they had 100s (probably close to a thousand) prints that they must have sent to clients and prospects. This way, perhaps they thought clients were warned...

  1. “Follow our guidance and fall into the abyss”
  2. “It all looks beautiful and perfect – it’s just a front setup!”
  3. “We show you the best part, the rest is death!”
  4. ...

The message was clear!

For more information on how to detect fraud, please contact us.

Dominic Clermont, ASA, MBA, CFA

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