New York City always bubbles like a teapot, but today it is aswirl with an ornerier tempest than the norm. Famous hedge funds, famous philanthropists, respected institutions, all in the eye of the storm.
The current uproar has consumed New York society. As one prominent attorney put it, “no one is talking about anything else.” A statement like that in the midst of Trump mania, Brexit panic, Orlando shooting and Istanbul bombing is really saying something.
This all stems from a story published in the New York Observer by its fine Editor, Ken Kurson. Ken was Rudolph Giuliani’s speechwriter and right hand man for many years. He and his older brother, Robert, may well be the finest brother act in literature today. (Full disclosure: After I reviewed his best-seller, Shadow Divers, Robert wrote that although the book had been reviewed by Newsweek and the New York Times, I was the first to really “get it.”)
Ken Kurson’s exclusive story tells of a letter by an attorney for Abraham Fruchthandler and the Yeshiva Rabbi Chaim Berlin Fund to Murray Huberfeld and the hedge fund, Platinum Properties, he owns in partnership with David Bodner. Let us pause a moment to review the cast of characters, all friends of mine.
Abraham Fruchthandler is a real estate tycoon in New York, who dedicates virtually all his time and energy outside the boardroom to the support and maintenance of Yeshiva Rabbi Chaim Berlin, an institution of higher Biblical and Talmudic learning. Mister Fruchthandler has been a close friend of my father. His brother, Rabbi Joseph Fruchthandler, was my teacher and his late brother, Moses, was my tutor and mentor. His youngest brother, Zachary, is a close friend.
The Yeshiva itself is my alma mater, which I attended during the day from 1973 through 1977 while majoring in English at Brooklyn College in the nighttime. My father studied there before me, and its influence has molded the character of my family,
Mister Huberfeld is a friend of my brother, and he and I have always maintained a cordial relationship. Mister Bodner’s brother, Moses, is a good friend and David himself invited me once to his home about twenty years ago, to hear me lay out my vision for what Orthodox Jewry could accomplish in our time.
So everyone here is my friend, and I am not trying to put any distance between myself and any player in this drama. I like and admire them all for their different virtues, and if they have any vices, they have practiced them outside my eyeshot and earshot.
Now to the story. Mister Huberfeld was arrested this month on federal corruption charges, accused of delivering a cash gift of thousands to Norman Seabrook, who then invested several million dollars of union money in Platinum Properties. I have no reason to believe Huberfeld is guilty, and the fact that the Feds say so impresses me little.
Securing a conviction will be difficult if the union was not hurt by the investment. As long as the money made above-market returns, a Federal jury will likely not be too bothered by these transactions. Thus the Observer story becomes critical to the case, because it suggests that Platinum Properties may not be succeeding as advertised.
Most stories of this type are leaked by prosecutors, with the intention of contaminating the jury pool. This tactic also embarrasses the defendant, keeping him off balance, and alienating him from his friends and supporters. Defendants, by contrast, are warned by their attorneys not to speak to the press, so they endure scads of public vilification without recourse.
Kurson produces a letter from an attorney representing both Abraham Fruchthandler and the Yeshiva Rabbi Chaim Berlin Fund. The letter explains that these two depositors had tried to redeem their investments in Platinum Properties. They were only given 90 percent of the withdrawal amount, with 10 percent held back pending an audit of the fund’s returns over that period. The fund did not complete its audit by the legal deadline of June 30, and as such had not delivered the balance. The letter demands prompt payment of the balance and threatens to file a complaint with the Securities and Exchange Commission’s Division of Enforcement and Investment Management.
The article sees two significant elements in this revelation. Number one, it suggests that Platinum Properties may be short on cash to pay its redemptions to depositors. Number two, Fruchthandler and the Yeshiva were so panicky that they threatened to lodge a complaint with the government, which would make them “informers” against fellow Jews.
The Jewish community to which Huberfeld and all the players in this drama belong reserves special contempt for Jews who turn in other Jews. A moser — a collaborator or informer — is the worst thing a Jew can be. The Oxford Dictionary of the Jewish Religion defines informing as, “The most heinous crime in the Jewish community and the informer its most despicable character. Every step against him, even taking his life, was permitted in order to safeguard the interests of the community.” In fact, the central prayer of every Jewish worship service — the Amidah, said by observant Jews three times every day — includes a prayer against informers: “But for the informers, let there be no hope.”
The word on the street has Jews in shock over the behavior of Fruchthandler and the Yeshiva, trafficking the general impression conveyed by Kurson’s piece. With respect, that leaves me the job of “informer” to better inform readers.
Here is the correct way to understand all this. Any mutual fund that offers instant withdrawals is forced to do a juggling act. People hand money over to a Warren Buffett or a Carl Icahn or a George Soros precisely because they are not impulsive and they have the discipline to hold stocks through low ebbs and emerge triumphant on the other side.
The problem is that investors want liquidity, in case the money is needed suddenly. But that very “advantage” works against them, because on bad market days like Friday’s Brexit reaction, their bad impulses overtake them. They wind up making the same stupid mistake they signed up to avoid, pulling their money at the worst possible time.
So fund managers have to build in strategies to prevent the investors from throwing off their trading rhythm. For example, how does the famous buy-and-hold investor, Warren Buffett, accept your money into his fund if you are a buy-but-afraid-to-hold guy? He has to keep enough of the fund in cash so when you freak out and grab your money he does not have to sell his stocks at a loss.
A similar problem occurs with end-of-year redemptions. Even a fund that does not offer instant liquidity must schedule times of cash availability, say every quarter or every year. However, there is no way to assure that those junctures will be good selling times for stocks. In fact, these windows for withdrawals cause dips in the markets themselves, because funds are unloading stocks and driving down prices. Still, they try to sell as little as possible.
When the year ends, the fund still holds many securities and commodities with shifting values. Because much of the fund is in negotiable instruments, a complex audit is required to assign a value to that snapshot in time.
Fund managers sometimes skirt disaster by keeping investors at bay with what the lawyer calls “dilatory practices.” They stall around while they scramble to find cash without selling stock prematurely.
What Huberfeld and Platinum did to Fruchthandler and the Yeshiva was not in itself egregious behavior. They delivered 90 percent of the assigned value of the investment immediately. The other 10 percent is really an inexact number. Until the audit is complete, they do not know the true value of the account redeemed.
Remember one more thing. Platinum has been averaging a 17 percent return. That means that when they sent Fruchthandler and the Yeshiva 90 percent of the year-end projected share value, they were already returning the entire original investment plus some profit. Even in the worst case scenario, if Platinum were to default, they had still done better than in the bank.
We can dismiss the first suspicion raised in the article. There is no reason to believe that Platinum was broke and had lost its depositors’ money. On the contrary, they returned every penny of principal. They were just buying time before delivering additional profit.
The type of posturing in that lawyer’s letter is fairly typical of this sort of circumstance. Savvy investors like Fruchthandler know the challenges of the fund manager. Still, they want what they want when they want it and they are wont to stamp their feet a little to get it. There is no fire here, just a bunch of smoke.
This is not a sign of Platinum having financial problems, nor of Platinum scamming anybody. At best, or at worst, we have a lack of “best practices” fiduciary behavior. As the lawyer termed it, “dilatory” practices. Delay tactics. In Talmudic terminology, ishtamuti ka mishtamet — slipping away from a creditor for a short while until things stabilize.
We turn to Kurson’s second charge against Fruchthandler and the Yeshiva for turning “informant” on a fellow Jew, with all the opprobrium that invites.
The Jewish legal concept of “moser/informant” does not apply here for several reasons. Informing was regarded so severely in Jewish law because of danger to life for both the individual involved and for the larger community. If someone tattled on a Jew to the tyrannical authorities they lived under, that Jew might well be killed, even over a fairly minor infraction. That killing might branch out into a riot or pogrom endangering other Jews.
That is why a potential informant was sometimes killed as an act of communal self-defense. None of that applies under current conditions.
Even when no physical danger exists, it is against Jewish law to inform on a Jew to the authorities. Still, that applies only for victimless crimes like tax evasion. If a Jew is being robbed or assaulted by another Jew, he or she can certainly seek the protection of the duly constituted authorities. And if the victim may do it to save themselves, then a third party may do it to save the victim.
Furthermore, a complaint to a financial oversight arm of the government, asking for assistance in recovering one’s own property, is not informing on someone to get them into trouble. The lawyer is not threatening to report Platinum to some police body for charges or sanctions. He is turning to the enforcement arm of the securities industry to ensure compliance with existing agreements and obligations.
Now, if Kurson had a letter from Fruchthandler’s lawyer telling Huberfeld he better pay up or Fruchthandler will spill the beans about Seabrook and the union money, that would be a case of “informing” in the sense of that Oxford entry. What actually occurred does not fit remotely into that category.
In summation, we like the Observer and the Kursons and Huberfeld and Bodner and Fruchthandler and the Yeshiva. They are all fine people and fine professionals and fine institutions. Whether Huberfeld is guilty of the corruption charge I leave to the courts, but that does not pertain to this discussion.
And that, as I promised at the outset, is What’s What among the Who’s Who.