The Ruthless, Secretive, and Sometimes Seedy World of Hedge Fund Private Investigators Illustrations by Richard A. Chance “We’re not trying to find the chairman [with] hookers. . . . This is not a revenge business. I’m trying to figure out what’s going on.” By Michelle Celarier May 01, 2019 The day after Paul Singer’s hedge fund, Elliott Management Corp., disclosed it had increased its stake in aluminum-parts manufacturer Arconic to more than 10 percent, its private investigators hit the pavement. its website, DDC says it once found that “the president of a large U.S. asset manager was arrested twice for major art theft” but was never charged due to the expiration of the statute of limitations. The art theft case was a “thing of beauty,” Barakett recalls. The manager, who still runs $2 billion, was even discovered to have one of the stolen paintings in his office when a police investigator went to interview him regarding the second theft. (The man was in college at the time of the thefts, which were from the university.) DDC’s client, a family office considering making a big investment, “could not believe what we were telling them,” Barakett says. It decided to walk away. Another case involved a Bear Stearns executive whose murder conviction had previously gone undetected because, Barakett suspects, a casual background check either did not look at records in every state he had lived in or checked the wrong name or date of birth. “Our client [an asset manager who was considering hiring the man for an IR position] could not believe it, and we showed him the proof,” he recalls. Work for activist hedge funds is a particularly revealing task, according to Barakett. “I’m never surprised by what we find,” he says, mentioning a public company executive who had a “wife and kids in one city, and another wife and kids in another city in another — nonadjacent — state.” Another married CEO of a public company “had his gay lover on the payroll and was also living in a condo owned by the company,” Barakett says. Such results have burnished the reputation of Barakett’s firm, a boutique that has grown solely by word of mouth. “He is one of my go-to private investigators,” says attorney Liekefett, who works on corporate defense in activist campaigns. “Peter used to work at an activist hedge fund and knows exactly what to look for. It’s often a race to hire him.” Applications of ESG to Securitized Assets[/paste:font] That’s where it can get tricky, he says, because sometimes midway through the call the person remembers that maybe they did sign an NDA after all. If it’s in the gray area, the lawyers get called in. Blue Heron’s researchers also ask if the person being interviewed has an immediate family member who is an executive or employee at the company they’re talking about. Such people are off limits. The firm only contacts business relationships of the individual they are researching and does not track down social acquaintances, Nussbaum says. The interviews are recorded (with the subject’s permission), transcribed, edited, and double-checked for potential legal problems before being sent back to the client. It is basically raw intelligence, with no analysis, according to Nussbaum. CSX Corp. proxy battle being orchestrated by Paul Hilal’s activist fund Mantle Ridge, which won the fight and installed Harrison as CEO. posted online, Block said, “I know you’re not the real Bill Horobin. Do you mind telling me who you really are?” The man admitted he wasn’t the WSJreporter but said, “I wanted to meet you. There is no other way to meet you,” and then got up and left. “It was pretty comical when he first sat down. He still has a French accent,” Block recounts. Horobin, Block knew, is British. “It was a Keystone Kops kind of move.” During the Elliott proxy battle with Arconic, CEO Kleinfeld’s PR consultant Norbert Essing says he too received a call from someone claiming to be a WSJ reporter. In this case, Essing says, the name used was David Benoit, who was covering the proxy battle. Essing, who had spoken with Benoit in the past, says the man didn’t sound like the reporter and finally insisted he was not Benoit. “The guy said, ‘We warned you. Don’t go after Mr. Singer.’ And then he hung up,” according to a letter Essing’s attorney wrote Singer. In response, Elliott’s general counsel, Richard Zabel — who joined the hedge fund in 2015 from the Manhattan U.S. attorney's office for the Southern District of New York, where he was the deputy to Preet Bharara — wrote the attorney that the firm knew nothing about the alleged incident and questioned the story’s credibility. Zabel also sent his own warning: “We will consider legal options if you or your client try to impugn Mr. Singer or Elliott in this or any similar manner.” Berkeley Research, whose employees gave out business cards to Kleinfeld’s neighbors, did not respond to an inquiry. Essing — who was apparently so rattled by the call that he forced this writer to prove she was a reporter — calls Elliott’s tactics “pure terror.” Elliott declined to comment for this story. Kleinfeld left Arconic in the midst of the battle. Elliott ended up with several board seats, and Arconic hired a new CEO. But Elliott’s victory was short lived. The stock has since tanked — due in part to President Trump’s aluminum tariffs and also to a mammoth potential liability associated with a fire in a U.K. public housing tower that was insulated with flammable materials manufactured by Arconic. There are less intrusive, if still questionable, ways to engage in pretexting. For example, some investigators will apply for jobs at a company, especially warehouse jobs, to get access to more employees and try to glean information. “Sometimes they’ll even take the jobs, but that’s getting pretty expensive for the client,” says one short seller. They may pretend to be employment recruiters and search resumes of people who’ve worked at a specific company and ask them to come in for an interview. Black Cube, the famous investigative firm run by former Israeli intelligence agents, is reported to have used this tactic. “You have to make it seem like you’re really recruiting for the position,” the short seller says. “You can’t be too obvious about what you’re really trying to learn.” Some even hire recruiters to do the jobs for them. “There’s an element of deception,” he acknowledges, saying his firm has also engaged in this tactic on its own. But in certain countries, like China, “nobody is going to talk to you just because you asked.” The desire for gain seems to be the operative motivation. “There has to be an element of self-interest in it,” the short seller explains. His firm won’t pay people directly, thinking that taints the information. The recruitment gambit is a way of getting them to think maybe they’ll get hired if they “impress you with how smart they are.” This person admits his firm “is probably engaging in the more hardcore research in the investor world,” but stakes out the moral high ground by saying he’s generally not going after personal information on people, like CEOs. “We’re not blackmailing anybody or trying to find their weakness,” he explains. “We think the company has a problem, and we’re trying to build a case.” The investigation also might involve surveillance. “Maybe they can fly drones for you or set up position to film or photograph or observe,” he says. In China, he says, he has investigators who can chat up security guards or low-level workers. “Sometimes they have an interesting perspective on what’s going on.” This short seller might want a visual record, but he insists, “We’re not trying to find the chairman [with] hookers. It’s how many trucks are coming in and out of the facility in a given day. This is not a revenge business. I’m trying to figure out what’s going on
"This person admits his firm “is probably engaging in the more hardcore research in the investor world,” but stakes out the moral high ground by saying he’s generally not going after personal information on people, like CEOs. " That is such a hypocritical statement. They are not going after personal information and yet they find this executive has wife & kids in one city and another wife & kids in another city and another executive with gay lover on the payroll. To me, that's pretty personal information that people usually don't talk about in parties. And how are those information relevant and useful for the hedge fund besides giving a good laugh? If the guy is running the company well and the company is making profit, what do you care how many wives & kids he has and where they are? He can have a whole harem of women, men and everything in between and all over the place, if he can make money, that should be the only thing that matters for a hedge fund. I find these private investigators are scrutinizing for nothing. What they should concentrate more of their energies and resources on are Chinese scam companies who is making nothing and then all of sudden get themselves listed on major US exchanges by reverse takeovers of zombie US companies. If they could expose them better and faster then they would really be doing something worthwhile for the US investing public and professionals.