Karen at court

[Pekelo]

OK, so this was her lawyer's argument for dismissal of the complaint: There was no claim stated in the complaint upon which relief can be granted.

On the second page it starts out badly, stating "complex and volatile word of futures". As we know Karen sold options, mostly puts and she didn't trade futures (or if she did, that wasn't her main trading vehicle). So that is one strike against her lawyer.

Anyhow, I skipped through it and this is what it all comes down:

Intent to deceive and full disclosure.

I think her lawyer did prove that they did have full disclosure, both about the incentives and how investors leaving taking no losses (Ponzi). Actually that 100K fine might save Karen's ass, because they started full disclosure AFTER they got fined for not having it. That was probably one of the best spent 100K in SEC history.

Now, if they had full disclosure then the intent to deceive can not be proven, because after all everything was laid out all in black and white. "The SEC might not like this fee structure", indeed. Being greedy is a feature, not a bug...

 

[Pekelo]

As discussed in the other Karen thread, I don't think we have enough information to say that she made or lost money for her investors one way or the other.

https://www.elitetrader.com/et/thre...r-tastytrade-hybrid-experiment.300013/page-89

That is just silly to say, because without losses, there would be no case. Let me quote YOURSELF:

So back-of-the-envelope math suggests losses of $57 - 30 = $27 million (NAV) for the November 2014 to March 2016 period. I don't argue she suffered losses during this period, but it remains unclear what her performance was prior to this period and for the entire tenure of the fund.

What I personally find suspicious that her fund suffered losses in 2014 October, when nothing special happened in the market. The Yahoo group traders nicely made money using her strategy in those months. I wouldn't be surprised that there was some heavy book cooking prior to 2014 October...

 

[atrp2biz]

I suggest you read what I said again and really stop and think about it.

 

[Pekelo]

For the benefit of those who are new to the case, I am going to quote my post #888 from a separate thread, explaining the different issues. I slightly edited the post:

There are a couple of separate issues with her and the HF, not necessary related to each other:

1. She suffered a loss when the Yahoo boys were doing just fine. The market didn't even moved that big, although it did whipsaw. Possible explanation for the loss is too much leverage. So plain old greed got the better of her.

2. The cover up of the loss, the rolling of the loss ad infinitum. This was probably done in the hope that she could make the loss back while still earning fees. Maybe not completely illegal, but definitely amoral. The problem was, that it tied up her capital without making profits and there was no extra capital left or incoming capital that could have generated new profits.
2/b. The HF's fees based on non-realized gains is unusual and I guess pretty rare. This should have tipped off investors as a red flag. This rule made her roll, rather than take the hit. A HF with such a fee set up after a big hit would just close doors, because they wouldn't earn fees for years...

3. "The last man standing holds the bag" rule. This one is quite hard to explain and outright fishy. I have never heard such a rule before and it gives out a Ponzi type of smell. Whoever left standing without a chair when the music stops takes the hit. This is impossible to explain (unless someone wanted to do fraud from the start) and I don't know why would anyone set up a HF with such a rule? Nor do I understand why any late comer would agree to that rule when sending in their money? A late comer is taking all the losses and nothing of the gains...
But as long as it is fully disclosed, it is not illegal.

4. The reinvesting of the charity fund money was some sort of accounting trick to avoid taxes. Again, doesn't give out a super duper kosher vibe, but hey, she is an accountant.

 

[Pekelo]

I suggest you read what I said again and really stop and think about it.

I suggest you read the original Complaint again, page #9:

"The HI Fund had unrealized losses fluctuating between 3 and 62 million."

Those unrealized losses EVENTUALLY had to be realized, so there is your loss...

 

[atrp2biz]

What about the realized gains (that generated the fees) which is what the case is really about?

Do you know the amount of realized gains from 2011 to 2014? If so, please share because that is the missing piece of information.

Reading comprehension--it's important to understand what is written explicitly. It's even more important to understand what is not written but what our minds are implying.

 

[Pekelo]

What about the realized gains (that generated the fees) which is what the case is really about?
Do you know the amount of realized gains from 2011 to 2014?

The realized gains prior to 2014 are not relevant to the case, but the % are somehow known from the TT interviews. I think I summarized them in another thread, you can try to find them.

You can not talk about realized gains after 2014 Oct, without the unrealized losses. This is not Tesla and Elon's non-GAAP accounting. We add together BOTH realized gains and unrealized losses and what we have in the end, according to you is about a 30 mill loss. Probably it is in the 50-60 mill range...

What you are trying to drive at is that there are actually no losses simply RIDICULOUS....

RTFM...

 

[atrp2biz]

I give up. Some people just can't think critically.

 

[Pekelo]

I give up. Some people just can't think critically.

I agree. Just ask yourself, if there were no losses, why did she start the scheme trades? That only made sense if they had to make realized gains artificially to get the incentives. No other explanation exist.

But you don't have to believe me, just keep reading this court report and in a few weeks, you will see. Now she might not get a guilty verdict, but the money lost won't miraculously appear...

 

[traider]

I agree. Just ask yourself, if there were no losses, why did she start the scheme trades? That only made sense if they had to make realized gains artificially to get the incentives. No other explanation exist.

But you don't have to believe me, just keep reading this court report and in a few weeks, you will see. Now she might not get a guilty verdict, but the money lost won't miraculously appear...

If S&P 500 keeps going up, her money will return. Glory to the queen.