Schadenfreude Warning: "Karen the Supertrader"

[ScalperJoe]

More like she was acutally "guilt-tripping" 50% of her fees to a Charity.

You bring up an interesting point. I made a comment on the other thread regarding this structure. She paid half of her fees to a tax-exempt foundation, were SHE was president. That foundation had $10 million of assets, which were invested IN HER OWN HEDGE FUND, lol!

So the fees she collected simply were recycled from the hedge fund, to the foundation, back to the hedge fund. If this isn't a conflict of interest, then I don't know how else to describe it.

 

[Chubbly]

See complaint at paragraphs 105-108.
https://www.sec.gov/litigation/complaints/2016/comp-pr2016-98.pdf
The most revealing part of the ponzi is in paragraph 108, quoted below (emphasis of the ponzi in bold):
"The manner by which the HI Fund pays redemptions (excluding unrealized losses) creates a risk that, if the unrealized losses continue or there is a significant exodus, the last investors to redeem will not get any money. That risk is not expressly disclosed to investors."

Is the fund frozen?
You got to think that any of the investors are madly trying to pull their money out asap which will cause a collapse because nobody wants to be the last one.

 

[ScalperJoe]

Is the fund frozen?
You got to think that any of the investors are madly trying to pull their money out asap which will cause a collapse because nobody wants to be the last one.

It's a new filing, where the SEC has asked the court for a preliminary injunction and a jury trial, so it's very early in the game.

Whatever is left in the account will have to be settled after the jury trial or if Karen makes a deal for restitution. Maybe she can provide a valid defense to justify her accounting methods and the investors will have no claims to their losses (doubtful).

The SEC probably froze the trading account, and investors will simply have to wait for the outcome at trial to seek their remaining funds.

 

[i960]

My gut says this is someone who got in way too deep and rather then coming clean tried to "roll it out" (if you will) in attempts to eventually recover the losses from October, 2014. Even though I think her strategy is totally insane and asking for it, she didn't particularly strike me as the malevolent "gonna fuck you all over" type.

That being said, she definitely put in some significant effort to architect things in a way that this scheme could exist and continue and that doesn't sit right with me one bit.

 

[Chubbly]

My gut says this is someone who got in way too deep and rather then coming clean tried to "roll it out" (if you will) in attempts to eventually recover the losses from October, 2014. Even though I think her strategy is totally insane and asking for it, she didn't particularly strike me as the malevolent "gonna fuck you all over" type.

That being said, she definitely put in some significant effort to architect things in a way that this scheme could exist and continue and that doesn't sit right with me one bit.

If you read the SEC pdf (Paragraph 3)

"The Defendants did not simply delay realization of trading losses, however, they also intentionally sized the Scheme Trades such that the Funds realized a profit every month. Hope employees maintained a spread sheet that tracked, month to date, the realized losses of the Funds. As the end of each month approached, Bruton picked the amount of profit she wished the Funds to show (and de facto, the fees she wished to generate), and her traders would size the Scheme Trades accordingly."

So she knew she was creating a fraud each month.
I have no doubt she was way over leveraged going into Oct 2014

 

[ScalperJoe]

My gut says this is someone who got in way too deep and rather then coming clean tried to "roll it out" (if you will) in attempts to eventually recover the losses from October, 2014. Even though I think her strategy is totally insane and asking for it, she didn't particularly strike me as the malevolent "gonna fuck you all over" type.

That being said, she definitely put in some significant effort to architect things in a way that this scheme could exist and continue and that doesn't sit right with me one bit.

Yes, I think you nailed it. The "scheme trades" were placed to recover the losses. However, if the trades were intentionally designed to generate the incentive fees, then the weight of evidence is definitely against her. The spread sheet described in Paragraph 3 is quite damaging to any claimed defense of ignorance to the outcome of generating the fees.

Her 25 years of being a CPA didn't pay off, obviously.

 

[Pekelo]

The "scheme trades" were placed to recover the losses.

That is incorrect. The scheme trades' only function was to carry over the loss and they were either breakeven or generating a slight loss (it is mentioned in the complaint), depending on how well they executed them. Also, most likely they tied up money AUM, so they had less money to make up the loss...

 

[Dolemite]

So can we officially remove the title of "Supertrader"? Max Ansbacher has traded strangles since the 70's (he has a hedge fund and website with posted returns) and his avg annual return is a whopping 10% and change. Somehow, people just swallowed hook line and sinker that Karen was able to at least triple this return annually. The thing is, I bet if you take Karen's trade logs (minus the ditm call shenanigans) and dramatically reduced the leverage you would probably come out with a pretty decent return comparable to Max's.

 

[RedDuke]

This really sucks. It was such a great and inspirational story.

Knowing how hard it is to raise assets without decent pedigree, it is still amazing she was able to raise such a bug AUM pool.

 

[Chubbly]

This really sucks. It was such a great and inspirational story.

Knowing how hard it is to raise assets without decent pedigree, it is still amazing she was able to raise such a bug AUM pool.

I wonder if her "fame" on TastyTrade lead some people to throw money at her?

From what I can tell she had 200-250 mil AUM and lost 100 mill in Oct 2014.
So she obviously didn't stress test against a 10% drop in the market. The historical average for a 10% drop is approx once every year I believe. We have had 2 such drops in the past 10 months.

She must have been way over leveraged to have a 50% loss on a 10% market drop.

I hope she goes to prison.

Still nothing on Tasty Trade about this? If they don't acknowledge it then they are as much a sham as she was.