|By Karen Florin, The Day, New London, Conn.|
|McClatchy-Tribune Information Services|
The main investment fund for Fletcher Asset Management is insolvent and in Chapter 11 bankruptcy, and the firm is under investigation by the
"In many ways, the fraud here has many of the characteristics of a Ponzi scheme, where, absent new investor money coming in, the overall structure would collapse," according to the trustee's report.
Fletcher, 48, who has most recently been living in
"It's really the first chance the Fletcher side has ever had in all these years to kind of tell their own story," said
In an affidavit submitted to the court Wednesday, Fletcher vehemently disputes the trustee's conclusions and says the
"I have never supervised anything even remotely resembling a Ponzi," Fletcher said in the affidavit. "I am not the black Madoff."
A recent story in the
The trustee's report also indicates that Fletcher diverted some
The Fletcher family name is associated in
During a brief phone conversation on Thursday, Fletcher's mother politely declined to comment on her son's financial problems.
"It's hard not to say anything," she said.
Fletcher, the oldest of three boys, was the class president of the Class of 1983 at
Fletcher's younger brothers, Geoffrey and Todd, also graduated from
"I remember the young man being in Richard's class," Pendleton said. "He had an excellent reputation. He got a scholarship to
Pendleton was surprised to hear about the content of the bankruptcy trustee's report.
"Everything I know about the young man is pretty good, pretty positive," the police chief said. "It would be really unfortunate if this was even close to being true."
Other contemporaries of Fletcher's in southeastern
After graduation, Fletcher headed for
Fletcher founded his investment firm in 1991 and over the years shared the fruits of his success with various educational charities, giving away or pledging tens of millions. In 1993, he created the
Though Fletcher contends in his affidavit to the bankruptcy court that he has "never welshed on a charitable contribution,"
Fletcher, in the bankruptcy court affidavit, maintains that
'Overextended, highly leveraged'
The bankruptcy trustee's report indicates that the Fletcher funds have been in trouble since 2008, but the first indication that there might be financial problems came in 2010, when he attempted to buy a fifth co-op apartment in
According to documents on file in
When the board denied his application, he sued for discrimination and defamation. The court filings say that the board turned Fletcher down after determining he was "overextended, highly leveraged and at risk of needing to sell one or more of his Dakota apartments in a distressed situation that would adversely affect the value of Dakota apartments."
Fletcher had submitted to the board a financial statement that estimated his net worth at
The board contended Fletcher's business has been losing money and he had been funding his debt by making withdrawals from Fletcher Asset Management, including
In August, Fletcher listed one of his several properties, a castle in
An unregulated industry
Hedge funds, privately managed funds whose main investors are wealthy individuals and institutions, is a "mainly unregulated industry," Kilic said, and fund managers can move money offshore with the push of a button. Several of the Fletcher funds were based in the
"The assumption here is that these are sophisticated investors who have the resources to do their due diligence," Kilic said. "They should know the risk they are getting into."
Fletcher contends in his statements to the bankruptcy court that the pension funds fully understood the risk they were undertaking and that had they not rushed to liquidate their funds, they would have doubled their money. The pension funds invested only a small percentage of their holdings with Fletcher, according to the court filings.
Fletcher also contends that the bankruptcy trustee did not fully understand the investment vehicles, which he says create "asymmetric risk exposure."
"This means that losses may occur frequently but are moderated or hedged, whereas gains, when they occur, can be extraordinary," says the affidavit.
Fletcher says his company's funds are driven by investor needs and structured by experts. He uses the example of a woman who owns two houses in an average beach neighborhood. As a major storm is brewing, he buys the first house from her for
If the neighborhood becomes "hot" any time over the next 10 years, the value of the right to buy the house could be extraordinary. But if the neighborhood never improves, he's lost only the
"With 10 different neighborhoods and 10 such purchases, you have our portfolio in simplistic terms," he says in the affidavit.
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