Detect accounting fraud, invest safely.

Arthur Nadel, a former attorney turned Ponzi scheme artist, surrendered at the FBI Tampa field office yesterday morning after he failed to stage a false suicide / disappearance act the past two weeks. Nadel’s hedge fund management companies Scoop Capital and Scoop Management reportedly scammed investors out of $270 million. At the end of 2008, the funds had less than $125,000. 

Nadel has been transferring funds into secret bank accounts controlled by him and his wife, Peg Nadel. Investigations also revealed that he owns homes in Sarasota and North Carolina, a 500-acre development in North Carolina, a Learjet 35A (worth about $1 million) and two Cessna Citation IIs (worth about $1 million a pop).

In a recovered letter to his wife that was meant to be shredded, he advised his wife to withdraw as much cash as possible from the bank account because the account might be blocked soon. He also directed her to documents that should give Peg ownership of “what’s left”. And, “sell the Subaru if you need money”, he says.

What’s interesting is there were several giveaways that should have raised suspicion for the prudent investors:

1) According to court records, Arthur Nadel was a former attorney who lost his license to practice for taking client escrow funds back in 1978. He took $50,000. He ended up repaying the full amount.

2) Nadel promised investors an average of more than 20 percent per year. In his sales materials, the funds were represented as earning 11 - 12 percent a month last year! That’s more than double your money in a year.

3) The funds’ reports were never audited. Despite the insistence by Nadel’s two partners to hire an independent auditor after Bernard Madoff’s arrest, Nadel resisted and decided to flea instead.

4) Neither Scoop Capital nor Scoop Management are registered with SEC despite having more than $200 million in assets under management and over 500 investors combined.

To learn more about how to spot a fraudulent hedge fund or a Ponzi scheme, read 5 Red Flags of Fraudulent Hedge Funds.