When Pedigree Goes Wrong

Here’s a great lesson for every investor: it does not matter where your fund manager, advisor, or broker went to school or what his/her last name is; doing your own diligent research, asking questions, and being insistent on details and transparency are necessary and obligatory.

Most of you know this anecdote alludes to a Mr. Andrew W.W. Caspersen, who allegedly concocted a fraudulent investment scheme. Long story short, Caspersen solicited capital from multiple institutional investors (hedge funds, pensions, charities) under the guise of his actual job, which was to advise clients who invest in private equity funds.

Instead, he conceived a sham investment fund, developed phony promissory notes, and established fake emails and websites. This was all done for the purpose to steal, at a minimum, $95M. He was successful in wrongfully security $24.4M from a charity associated with a hedge fund (not sure how that works) and $400K from a said hedge fund’s employee.

Sans his two initials in the middle name, you’d reasonably assume he was desperate to make it in the ultra-competitive world of private equity and most likely does not have the background and advantages that supposedly will set you up life.

Well, you’d be wrong. This dude went to Princeton undergrad and Harvard law.  Even more inexplicable, his father, Finn M.W. Caspersen Sr., was in charge of one of the nation’s largest consumer finance shops before it was bought out in 1998.  No doubt Caspersen, both son and patriarch, fancied checkered pants.

Many publications and articles have written about Caspersen’s pedigree and privilege, as if these were perquisites to succeed in his career field.  No one can argue that his background and lineage would get anyone through the door and at a desk, but as we’ve seen time and time again, it ends at the chair.

What intrigues me so much, as someone who loves the financial world and has a legal background, is his motive.  The brief says the illegally obtained funds were used to trade options, yet his Tiger and Crimson schooling were no match for the highly complex and intricate options market—Caspersen lost most of it.

This doesn’t satisfy me in answering his intent.  My personal opinion is that he obtained illegal insider information, of which he’s much more likely to have access to as opposed to most, which he believed to be reliable. However, the situation did not play out as he expected.

Human behavior can be best understood through incentives.  Yes, this is a blanket statement, but it gives us a framework to better understand why people commit moronic, criminal, or even fatal actions.  This is the reason why, with everything equal, I’d take the manager/investor who came from a less illustrious background because he or she has a large incentive to succeed.

Or, our actions could be driven by genetics… turns out Caspersen Sr., right before he took his own life, was being investigated for sheltering tens of millions of tax dollars.

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