If you're a manager at a hedge fund, chances are Randy Shain has a file on you -- an unauthorized bio of sorts -- tracing your life back to freshman year in college.
It's all there: the job changes, the SEC filings, that pesky possession charge from the early eighties. The dossier was commissioned, for around $3,500, by prospective investors, who may or may not have told you about it, and it's stored in the Chelsea offices of Shain's private-investigation firm, BackTrack Reports.
"Very rarely does someone flame out who hasn't had a pattern of behavior that would indicate their potential to do so," says Shain, 37, who looks more like a cast member of Friends than like Magnum P.I.
Though this may be the season of corporate malfeasance, background checks on Wall Street are hardly new (one investment-firm vet recalls that Goldman Sachs "went all the way back to elementary school!"). But hedge funds -- which combine long- and short-term stocks to "hedge" against market shifts -- were once the rarefied realm of star traders with supposedly spotless reputations.
In the past two and a half years, however, a cratering market has sent scores of action-hungry cowboys into the breach, doubling the number of funds. The clubhouse now has a "boiler room."
"There used to be nothing to find!" says Shain. But now fund managers compose 85 percent of BackTrack's cases. "And 25 percent of the time, we'll find something. The quality's been diluted," he sniffs. "If we doubled the number of mechanics in this country overnight, would they all be good? Probably not."
Dan Gressel, president of Teleos Asset Management, says that if clients want Shain and Company to investigate him, he welcomes the invasion of privacy. "There's really no professional-standards board, so they're trying to create one."
BackTrack's white-collar-crime Precogs sift through court documents and interview the subject's associates, searching for red flags -- "something that's a bit off, a lie or an omission on their biography, or worse," says Shain.
"I've seen a guy with four DWIs, including one on a boat. I've seen a rapist, an attempted murderer, a lot of domestic violence, a lot of people who say they got their master's but only went for two semesters, people with tons of tax liens -- people who've gone bankrupt.
"A hedge-fund manager who's gone bankrupt, by the way, is not a good sign."