|Jan. 4, 2019
$900 Million Hedge Fund Firm Has Roots in Ponzi, Ties to Kushner Family, But No One Seems to Mind
Lakewood NJ-based Crawford Lake Capital Management's assets under management have risen at an astonishing rate since early 2016, from $80 million to over $900mm today. (Update: Over $1 B) The recent addition of (Steven) Dov Lando as General Counsel and Chief Compliance Officer promises to drive even more capital to the relatively obscure hedge fund operated by Isaac Markowitz and Jacob Herzka. (Link) I don't understand how investors can get comfortable with Crawford Lake given certain facts.
The press release announcing the addition of Dov Lando fails to mention that Mr. Lando currently serves as co-president of the board of trustees at the Joseph Kushner Hebrew Academy (JKHA) and Rae Kushner Yeshiva High School, schools named in honor of Jared Kushner's grandparents. Records show Lando has been a trustee no less than five years. Considering that Jared's father, real estate developer (and convicted felon) Charles Kushner has called building JKHA his "greatest professional achievement", it seems reasonable to assume that Kushner and Lando know each other. (Link) (Link) (Link)
Special note: At the time of publication, no profiles found for Dov Lando described both his roles at the Kushner Schools and Crawford Lake Capital Management. (See screen shot below)
Undisclosed ties to the polarizing first in-laws should be a concern for anyone thinking about handing money over to Crawford Lake, but there's an even bigger elephant here. Routine examination of SEC filings related to Crawford Lake reveal connections to a large known fraud, specifically, Wextrust Capital. Wextrust was described as a real estate-focused, "Ponzi-type" investment scheme operated by Steven Byers and Joseph Shereshevsky when it was shut down by the SEC in Aug 2008. The complaint alleged Wextrust raised "approximately $255 million from about 1,200 investors, targeting members of the Orthodox Jewish community." Shereshevsky had been previously convicted of felony bank fraud in 2003. (Link) (Link) (Link)
A few clicks on the SEC website connect Wextrust to Crawford Lake, the only skills required are knowing where to look and actually reading a document that should be discovered in the course of normal due diligence on Crawford Lake. (Link) You will find two names in the middle of the second page: Eliyohu Levovitz of Lakewood, NJ and Elka Shereshevsky of Norfolk, VA. Elka is/was Joseph Shereshevsky's wife. In Jul 2011, Joseph was sentenced to almost 22 years in prison for his involvement in Wextrust. Elka was named only as a relief defendant, despite the SEC's declaration that Joseph owned his stake in Wextrust "through a partnership interest held in the name of his wife."
The final page of the Reg D filing signed by Levovitz shows an investment of $9.9million (note page 4 is missing). I can't be certain that the $9.9mm used to start the fund presently known as Crawford Lake Onshore Partners LP rightfully belongs to Wextrust victims, but I found no evidence that the Shereshevsky connection to the fund was noticed by the Department of Justice, the Wextrust receiver or the media. The paper filing was scanned as an image and is not discoverable via a text search at the SEC website. (Google finds it in a New York microsecond)
Even if you don't discover (or don't care about) the connections to Kushner and Shereshevsky, there are fundamental issues with the Crawford Lake narrative that should set off alarm bells. The firm repeatedly claims to have been founded in 2006, (Link) (Link) (Link) (Link) but this simply isn't true, and it's not what they're telling the SEC. The firm's SEC-filed brochure states "Crawford Lake Capital Management, LLC (“Advisor,” “we,” “us” or “our”) is a New Jersey limited liability company that was formed in February 2013. (Link)
The timeline gets even more convoluted. Markowitz and Herzka began filing as an exempt reporting advisor (ERA) with the SEC under an entity called Cambridge Asset Partners LLC in Nov 2013 (CRD# 169797). In these filings, Markowitz and Herzka identify Mar 2008 as the date they acquired control. (Link) This entity (aka Crawford Asset Partners LLC) last filed with the SEC in Feb 2015. Feb 2015 was also when Markowitz and Herzka began filing as an ERA under the entity Crawford Lake Capital Management (CRD# 175132). This entity became an SEC registered investment advisor (RIA) in Dec 2015, and as discussed above, identifies Feb 2013 as the date Crawford Lake was formed.
Some entities related to Crawford Lake Capital Management today have existed since 2001, but have gone through a series of name, status and ownership changes too confusing to describe here. The Form D filings of the fund now known as Crawford Lake Onshore Partners LP provide a glimpse into this erratic history. (Link) The first filing was the 2002 Eliyohu Levovitz/Elka Shereshevsky document already discussed. The Fund was called Crawford Asset Management LP originally. The next filing did not occur until May 2012 (10 months after Joseph Shereshevsky's sentencing). The 2012 filing identifies Isaac Markowitz and Jacob Herzka as executive officers, indicates that it is NOT a new offering, but states the the fund's first sale occurred in Sep 2007.
SEC guidelines require a Form D notice to be filed “within 15 days after the first sale of securities in the offering,” with amendments filed “annually, on or before the first anniversary of the most recent previously filed notice, if the offering is continuing at that time.” Crawford Lake's filings have gaps of 10+ years, 20 months and 14 months (see above).
It's a tangled tale, to put it kindly.
Could there be satisfactory explanations for everything I've shown you? Possibly, but I believe those explanations would require the management of Crawford Lake to issue several mea culpas. This brings me back to my original point: How can investors be comfortable with this? How much faith would you put in Crawford Lake's reported performance record?
I can only conclude that Crawford Lake's investors are largely unaware of these issues. In October 2018, Crawford Lake reported to the SEC that about 80% of its regulatory assets under management (RAUM) are attributable to clients who are non-United States persons. In other words, people who probably don't know how to perform basic due diligence checks on a US asset manager. I can't emphasize enough that these are easily discovered issues, a "deep dive" isn't required.
The biggest mistake private fund investors can make is assuming that the SEC is paying attention. SEC chairman Jay Clayton has stated repeatedly that he wants the agency focused on "Main Street" investors. Those qualified to invest in hedge funds (accredited investors, institutions and pensions) are expected to be sophisticated enough to identify and avoid problems. It's hard to disagree with that mentality when the cost of a pre-investment investigation into a private fund is usually less than 0.5% of the minimum investment. To scale that down to terms everyone can understand: You'd probably be wise to spend $5 on a tip sheet before you bet $1,000 on a horse race.
It will be interesting to see if Crawford Lake continues to attract new capital at the blistering pace set in the last three years.
I guess we'll find out.
As mentioned above, no profiles found for Dov Lando as of January 3, 2016, describe both his roles at the Kushner Schools and Crawford Lake Capital Management.
If you would like to learn more about the Wextrust case, please see the articles from The Virginian-Pilot and Vos Iz Neias.