An exclusive corner of the New York financial community is buzzing about why a politically-connected and high-profile hedge fund didn’t tell investors that regulators slammed one of its founders with a six-figure fine for shady trading.
Investors in Mangan and McColl Partners’ flagship hedge fund were never told John Mangan was nailed by the NASD for sleazy trading in a separate business, in a puny Nasdaq stock called Compudyne.
Mangan, an arbitrage trader managing $1 billion as recently as 2004, and his partner Hugh McColl Jr., son of Bank of America architect Hugh McColl, declined to volunteer the information in the fund’s December letter to investors.
McColl was not involved in any wrongdoing. Mangan was fined $125,000 and barred from NASD member firms for life. He was accused of making naked short sales, in which you sell stocks you don’t own and fail to properly borrow the stock before trading.
The NASD said he neither admitted nor denied charges.
According to the NASD, Mangan’s illegal trading was done using a company McColl owned, called HLM Securities. Fund investors told The Post the existence of HLM was never disclosed to them.
At the time of the illegal trades, Mangan also was managing hedge funds for Friedman Billings Ramsey Group, a fact disclosed to investors.
Though the illegal trading did not take place in M&M’s fund, a former investor in the fund, whose investment was pulled 18 months ago, said their decision to avoid the issue is baffling.
“You are given a chance to make an argument in front of people and institutions who have given you millions of dollars and are reading about you doing illegal acts,” the former investor said. “Their silence spoke volumes.”
The fund also has a close relationship with Marvin Bush, the brother of President George W. Bush and a founder of private-equity and fund-of-funds Winston Partners. Bush told The Post he happily served as a reference for Mangan when he was raising capital for the fund.
“John [Mangan] was a neighbor and a friend from Alexandria going back nearly 15 years. We started out playing tennis – he’s an incredible player – and the relationship grew,” Bush said.
“He needed a reference and he was one of the hardest working and smartest guys I knew, so I was happy to tell anyone about that,” he added.
Bush declined to comment on whether he had an investment with Mangan and McColl.
The fund’s December update did report a loss of 2.10 percent for the fourth quarter – as opposed to a gain of 5.69 percent for the Hedge Fund Research merger arbitrage index – but the partners didn’t discuss how they lost money.
Mangan did not return a call seeking comment.
Over the past year, Mangan and McColl’s assets have shrunk to around $400 million from $1 billion as investors withdrew capital.
roddy.boyd@nypost.com