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Nadel Hedge Fund Victims Blame Losses On Newsletter

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MICHAEL POLLICK | Sarasota Herald-Tribune

Published: March 25, 2009

SARASOTA - On Tuesday, investment newsletter writer Don Rowe Tuesday became the target of a $2.3 million lawsuit by six victims of Arthur G. Nadel's failed hedge funds -- investors who claim they took Rowe seriously when he called Nadel "America's Top-Ranked Money Manager."

Lawyer Drew Clayton filed suit in Sarasota Circuit court against Rowe and two of his companies, The Wall Street Digest and Carnegie Asset Management Inc., for the amount of money that the six investors lost when it was discovered in January that the nearly $400 million that had been paid into the funds was gone.

The suit alleges that Rowe never engaged in any "due diligence" in promoting the funds run by Nadel and the father-and-son team of Neil and Christopher Moody from offices on Main Street in Sarasota.

By participating or aiding in the sale of the now-failed hedge funds, Rowe also engaged in securities fraud, the suit claims.

Rowe could not reached for comment on Tuesday.

The suit is part of a growing mound of litigation accumulating around the wreckage left by Nadel's Scoop Management since a federally appointed receiver took over the business's offices, computers, and accounts in mid-January on behalf of the U.S. Securities and Exchange Commission and a federal judge in Tampa.

On Friday, a Tampa law firm filed a federal suit seeking class-action status against one of Florida's largest law firms, Holland & Knight, for its work in preparing Scoop's hedge fund prospectuses.

"At first you are in shock," said Hamilton Hagar of Port Orange, one of the victims now suing Rowe. "You don't quite know what to do. You are just trying to come to grips with it. As it all sinks in, it is a very stark realization."

Hagar, 69, is an untenured associate professor at Embry-Riddle Aeronautical University in Daytona Beach. Before moving to Florida, he held high-powered engineering consulting jobs in the Washington, D.C., area.

He gradually sunk more and more of his money into Scoop's funds as he gained confidence in the firm. In all, he invested $894,000 in four accounts, and withdrew $323,000.

The suit against Rowe alleges that his Carnegie Asset Management unit "received referral fees from Arthur Nadel, Neil Moody, Christopher Moody and/or their hedge funds in exchange for the defendant's fraudulent recommendations that plaintiffs invest in the foregoing hedge funds."

"What is critical is that these defendants were recommending investments in these hedge funds based on what they said was their due diligence, which we know was, at the very least, inadequate," said Clayton, the investors' attorney.

In the suit, Clayton claims that "none of the hedge funds had audited financial statements, that the accountant for the hedge funds had lost his license to practice as a certified public accountant in Florida, and that investors had paid extraordinary fees -- totaling more than $90 million by the time this fraud was discovered -- to Mr. Nadel and his business partners, Neil Moody and Christopher Moody."

From 2000 until 2004, Rowe represented in "The Wall Street Digest" and various promotional pieces that he had personally conducted a "due diligence visit to the offices of Nadel & Moody," the suit alleges.

"What I did learn is very important for the individual investor," Rowe wrote. "After 26 years of reviewing the track records of over 11,000 mutual funds, 6,000 money managers and 5,800 hedge funds, Nadel's computerized investment program has produced the best track record and most consistent returns I have ever seen."

Other investors have told the Herald-Tribune that Rowe's recommendations led them to place their money with Scoop.

Miami investor Stuart Archer put $100,000 into one of the Scoop funds after reading of it in his paid subscription to Rowe's publication.

Archer, 74, says he is disappointed that there is no class-action suit against Rowe for him to join.

"That is exactly how I got there," Archer said. "You pay for his advice and when he comes in and says he has done his due diligence, I took that as legitimate."

A retired airline pilot, Archer just finished filing amended tax returns to get back-taxes he already has paid on $170,000 in phantom profits.

Federal officials have called Scoop's operations a Ponzi scheme, which generally means fresh investments are used to pay off those wishing to cash in.

The latest court documents show investors poured just under $400 million into the six hedge funds run by Scoop. Not counting money that fund managers distributed, investors' losses are now estimated at $168 million.

"It took me 40 years to accumulate this money which I ultimately lost," said Hagar, the Port Orange professor, who said he was planning to retire about this time next year. "I have figured out that I have to work the rest of my life, or until I can no longer work."

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