An investor in a Charlotte hedge fund suspected something was wrong last year when the manager resisted his request to withdraw money.
The investor contacted a local law firm, and soon hedge fund manager Stephen Maiden was providing documents that showed losses being hidden from investors, attorney Gary Mauney told the Observer this week. The attorney’s discovery would later be laid out in criminal court filings.
Now the law firm, Lewis & Roberts, represents about 30 victims who lost money when the Maiden Capital Opportunity Fund “effectively collapsed,” Mauney said. The investors included longtime friends and neighbors who trusted a money manager with top universities and securities firms on his resume. Some lost a substantial amount of their savings, he said.
“Steve’s investors feel a great sense of betrayal,” Mauney said. “My clients are to this day still stunned to know and realize that their friend and neighbor did this to them.”
Maiden, 40, has agreed to plead guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison and up to a $250,000 fine, according to court documents. The total loss to victims was at least $8.9 million, according to the documents.
The fund’s collapse is the latest tale of an investment firm that ran into trouble during the recession with dire consequences for investors. In this case, the hedge fund manager was known in Charlotte financial circles and owned a home in Charlotte’s affluent Myers Park neighborhood before selling it in December.
Mauney, who has worked with attorney Jim Roberts and forensic accountant Gary Johnson on the case, said his firm has cooperated with the criminal probe and is monitoring its outcome. “At the appropriate time, we will address all of the people or entities that we believe bear civil liability for the fund losses,” he said.
Maiden’s attorney, Richard Glaser Jr., said neither he nor his client would comment. The court has not yet set a final plea hearing for Maiden.
The plea agreement includes a provision that requires Maiden to pay restitution to victims. Property involved in the violations is subject to forfeiture, according to court documents.
Maiden launched the fund in 2006 with investments from individuals in Charlotte and elsewhere, according to court documents. Hedge funds are a type of loosely regulated investment pool for affluent investors.
In promoting the fund, Maiden touted degrees from Duke University and the University of Virginia and past experience as an investment banker at Chase Securities and as an investment analyst at a now-defunct Charlotte hedge fund called Mangan & McColl Partners, according to the documents.
By February 2009, Maiden had lost a substantial amount of investor funds on large investments in a small company and in an international arbitrage investment fund, according to the documents. To keep investors from pulling their money, he began sending out false statements showing that the fund was doing well and making money, according to the documents.
Mauney said it appears that Maiden started the fund with good intentions and that it initially yielded positive results.
“It appears the fund suffered some of its first losses as a function of the overall recent market decline, and then, in an effort to try and offset these losses, Steve made a series of investments in increasingly risky and ill-advised ventures,” he said. “Rather than go to his investors and advise them of the losses, Steve continued to report gains in the fund.”
Investors received positive financial reports from the fund through 2012, Mauney said. Since they have learned about the fund’s demise, it has been “exceptionally difficult” for them to see Maiden in Charlotte “going about his daily routines,” he said.
Staff Researcher Maria David contributed
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