Fraud Control

A common concern shared by prospective investors is the understandable fear of the possibility that the Investment Manager will defraud them and embezzle their investment money.

IN SHORT, COMMITTING FRAUD AND EMBEZZLEMENT IS SIMPLY NOT A FEASIBLE OPTION FOR THE INVESTMENT MANAGER OR ANY ONE OF HIS EMPLOYEES.

Three major mechanisms are in place to prevent and/or deter the Investment Manager and his employees from defrauding clients. They are:

Withdrawal Compliance: The Fund has accounts under its name with several banks, brokers, exchanges, and online investment platforms. Each account is a Corporate Account under the name of the Fund, Rapaport Flagship Limited, wherein the Investment Manager and the Directors are Authorized Signatories and have the right and obligation to effect transactions in the accounts for the benefit of the Fund in line with the Fund’s Investment Objective.

The Corporate Accounts of the Fund are NOT under the personal name of the Investment Manager.

Each and every bank, broker, exchange, and online investment platform with which the Fund keeps accounts is subject to strict Anti-Money Laundering (AML) and Know Your Client (KYC) compliance rules. AML and KYC rules have become a global standard and are imposed even on what might be initially thought of as the least regulated entity. AML and KYC compliance extends also, and in particular, to each and every online investment platform and cryptocurrency exchange with which the Fund keeps accounts.

The main AML/KYC rule to prevent embezzlement is the strict control over what is referred to as Third Party Withdrawals. A Third Party Withdrawal is a withdrawal initiated from one of the Fund’s bank, broker, exchange, or online investment platform accounts to an account under the name of anyone other than Rapaport Flagship Limited. No AML/KYC compliance control is required when making a withdrawal to an account under the same name, i.e., from an account under the name Rapaport Flagship Limited to another account under the name Rapaport Flagship Limited, since this is not considered a Third Party Withdrawal.

Any Third Party Withdrawal is passed on for review by the Compliance Department of the respective bank, broker, exchange, or online investment platform, wherein the Compliance Department will only approve such a withdrawal if sufficient documentation and reasoning is provided as justification for the withdrawal. For example, in order for the Fund to fulfill a redemption request by a client, the Investment Manager will have to initiate a Third Party Withdrawal from one of the Fund’s accounts into the Personal Bank account of the redeeming investor. The Fund’s bank or broker, from which the Investment Manager will initiate the withdrawal, will only approve the withdrawal upon display of a redemption request signed by the redeeming investor, and only after having verified that the Third Party is indeed an existing investor by reviewing the Shareholder Registry of the Fund.

An odd Third Party Withdrawal with no supporting documentation to the Investment Manager’s private account or to an unknown Third Party account will be refused by any and all of the respective banks, brokers, exchanges, or online investment platforms from which the withdrawal request was initiated.

The obligation to abide by AML/KYC rules and to control Third Party Withdrawals is imposed on all entities taking in clients’ monies globally either by the local regulator or the regulator in the jurisdiction in which the client resides.

This guarantees that the Investment Manager cannot simply liquidate the Fund’s assets and issue a withdrawal of the cash to his personal account or to another account which he controls.

Criminal Persecution: It is unfortunately always a possibility, however remote, for an Authorized Signatory of an institution entrusted with clients’ monies to commit embezzlement by way of fraud. This unfortunate possibility exists in EVERY financial institution: one of the employees in your bank or broker can potentially embezzle your funds with or without the knowledge of his or her supervisor or the internal risk control functions, your asset manager can potentially embezzle your funds, the trustee of your family trust can embezzle your funds entrusted with him or her. It has been for a very long time impossible to completely prevent the risks of fraud and embezzlement, and this is why each and every country on the planet have long ago legislated laws designating fraud and embezzlement a serious criminal offense punishable by imprisonment, disgorgement of illegally obtained monies, and subject to additional fines and penalties.

In a hypothetical case in which the Investment Manager or one of his employees nonetheless manages to embezzle clients’ monies by way of fraud then:

(1) The embezzlement will be found out upon inspection of the accounts’ histories, which are kept with the Fund’s counterparties (the banks, brokers, exchanges and online platforms with which the Fund keeps accounts) and as such (being kept with the counterparties) the accounts’ histories cannot be tempered with by the Investment Manager or one of his employees. A court order to compel the counterparties to reveal the accounts’ histories will be straight forward to obtain and will be conducted by the receiver/liquidator which will undoubtedly be appointed to the Fund in such a hypothetical time, in accordance with the Memorandum and Articles of Association, and as per the law in the British Virgin Islands. There are other mechanisms which together assure that any such hypothetical embezzlement will be discovered.

(2) The Investment Manager will in this hypothetical case become a person suspected of serious crime in several jurisdictions. Such an egregious act will give rise to civil and criminal claims by Shareholders of the Fund under several jurisdictions: the BVI, the Investment Manager’s country of residence (Switzerland), the Shareholder’s country of residence, and potentially also the country in which the counterparty from which the embezzling withdrawal was initiated is domiciled (e.g., Canada, if the embezzling withdrawal was made from a Canadian bank account owned by the Fund). It would then also be fairly easy, in this hypothetical case, to add the Investment Manager’s name to the Interpol and other international and national law enforcement agencies’ lists. In today’s world it has become much harder to escape the law due to the improvements in surveillance technology and due to the rise in power and vigilance of the authorities entrusted with enforcing against financial crimes for the benefit of all. Lastly related, the Fund will not (and cannot by BVI law) indemnify the Investment Manager against any liability to which he would otherwise be subject to by reason of fraud, willful misfeasance, bad faith or gross negligence (as defined under the laws of the BVI) in the performance of its duties, or reckless disregard of its obligations and duties under the Investment Management Agreement.

Reputation: The Investment Manager has gone through extreme lengths to obtain his education at one of the world’s most prestigious and rigorous academic institutions (double major PhD and MBA at the University of Chicago Booth School of Business and Department of Economics), and had then went on to work at the top of one of the financial industry’s premier international banks (worked for the Board of Directors of UBS Group AG in Zurich). Demand for the Investment Manager’s know-how and skill is perennial and there are plenty of legitimate ways for the Investment Manager to earn a generous living without ever needing to resort to any such hypothetical scenarios.

Prospective or existing investors are encouraged to reach out to the Investment Manager for a personal interview, wherein letters of reference are also available upon request.