Joseph B. Galbraith, former principal of Florida hedge fund Galbraith Capital Investment Management Corp., has made the rogue’s list, subsequent to his apparent refusal to return $1.483 million mistakenly deposited in one of his firm’s accounts by an arguably incompetent Credit Suisse Securities (USA) LLC. The aggregate $1.483 million consisted of three wire-transfers made to an offshore bank account belonging to another Galbraith owned entity, Galbraith Global Investment Management L.P., in the Bahamas.

Credit Suisse filed a complaint on April Fools’ Day, 2014, in the Supreme Court of the State of New York, after exhaustive in-house efforts, ongoing since the error was discovered on January 27, 2014. The transfers occurred on January 13, 2014. In short, the Credit Suisse books were out of balance for 2 full weeks—and by a rather significant sum.

It Gets Better

In the complaint, Credit Suisse argues that Galbraith was well aware that the account in question had a very nearly zero balance. Naturally, Credit Suisse had the same information and was equally aware of the near zero balance in Galbraith’s account, but, inexplicably, wired funds to Galbraith’s offshore account not once, but three times. It appears from the language of the complaint that Galbraith’s instructions were to transfer the remaining funds and no specific dollar amount was cited.

Galbraith, charged with seven counts ranging from unjust enrichment to fraud, subsequently lost the court action because he failed to appear. His whereabouts remain a mystery and he remains in possession of Credit Suisse’s $1.483 million.

Two Wrongs Do Not Make a Right

It is unfortunate that Galbraith chose to ignore the Credit Suisse complaint. Any competent attorney would have enjoyed defending him. After all, the proximate cause of the entire debacle was the mistakes made by Credit Suisse. How any institution can be short such a sum and, fail to notice it for two full weeks, is a head-scratcher to say the least.

Galbraith, of course, has no claim to the monies and no one believes that he should benefit from this ill-gotten gain.

However, there is another victim in all this—the hedge fund industry.

Public Perception

Hardly a week passes absent a headline featuring this hedge fund manager or that hedge fund office embroiled in scandal … unethical conduct, criminal behavior, or both. As a result, the public’s perception of the hedge fund industry and those working in it is on a par with congress and used-car salesmen. Their place in the queue is well known and some believe—well deserved.

However, the small percentage of rotten apples in the enormous barrel that is the hedge fund industry has a disproportionate role in shaping public perception. Even the casual observer must acknowledge that the majority of headlines on this matter included “hedge fund “and focused almost entirely on Galbraith’s role.

Public Relations Fail

Hedge funds spend time and money to grow assets under management. Hedge fund managers are attempting to grow the burgeoning retail market made possible when the Jobs Act’s passage lifted the ban on general solicitation. Start-up hedge funds are hard at work gaining investor confidence, while established funds are busy quelling the myriad concerns of anxious investors.

Then along comes a story like Galbraith’s and a parade of others, far uglier, on a weekly basis; all of them setting these efforts back several paces. The Galbraith story will not be the wake-up call the industry requires. It is too amusing, too absurd! What will be required? Hedge funds must recognize the need to address these perceptions – for the better of the industry as a whole.

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