Hedge fund managers say the darndest things

For the past month, I have been sitting in a federal courtroom in San Francisco watching as ex-Brocade CEO Gregory Reyes is tried for criminal securities fraud in the backdating of employee stock options grants. It has been a learning, if mostly boring, experience. But once every fourth day, or so, something amusing strikes. Like last week, when Reyes’ defense team called as a witness a 32-year-old hedge fund manager named Jason Gold.

Gold founded New York-based Aurarian Capital Management in 2003 after leaving Pequot Capital. (Gold noted that Aurarian means “a gold mine” in Latin.) Gold told the simple people on the jury that he doesn’t care about accounting for options grants because it doesn’t really impact operating income. But this was hardly the most interesting thing Gold said. Just before, Gold obliged a request from defense counsel to educate the jurors on how his complex business works. This is an imperfect transcript—because I was laughing so hard (silently of course) my hand shook, and tape recorders aren’t allowed in court—but this is the gist of what Gold said:

“I look at a company’s products, its revenue growth, its profit potential…typically we meet with management… we talk to customers in almost every instance. But the most important thing is to make sure that I’m looking at [the company] in the same way as everyone else, so that I’m looking at this as part of the pack if you will… so that I’m not standing alone by myself [but] evaluating and valuing the company the same way that everyone else is, again, so I’m not standing off by myself.” (Here Mr. Gold gestured with his extended arm and a clenched fist, as if holding out a staff, like a shepherd in a field… all-alone.)

According to an interview Gold gave HedgeWeek in May 2006, Aurarian had a total of $65 million under management. So this guy is earning at least $1.3 million in management fees a year and will get some ungodly amount in carried interest all for being “part of the pack?”

Now I’m no expert, but if I were one of the limited partners invested in Gold’s funds, I’d be concerned that my capital was being tended by a steward whose self-described strategy has no more sophistication than the survival skills of fury rodent best known for leaping off ice-formed cliffs without looking.

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