Operational Risk War Stories

1
Operational Risk War Stories

• Robert Krause
• Chief Risk Officer
• Event Capital Markets, LLC
• www.HedgeFundDueDiligence.com

2
War Stories

• Introduction
• Poof
• Where Do You Draw the Line?
• What Could Be Next

3
Robert Krause

• Managing Partner, Chief Risk Officer of
  HedgeFundDueDiligence.com
• Senior Vice President at Zurich Capital Markets
• Executive Vice President, Alternative Investments
  at Mitsui
• Vice President, Institutional Equity Derivatives
  at Morgan Stanley
• Registered Commodity Trading Advisor
• Manager, Option Products Marketing, and Director,
  GLOBEX Marketing at Chicago Mercantile Exchange
  (CME)
• Wrote the Volatility Handbook
• Wrote the CME Futures and Options Strategy
  Guide
• Patent pending on the Volatility Contract TM
• Created the G-STEWS Ratio
• Degree in Economics, University of Illinois at
  Chicago
• Series 3, 7, and 63 registrations
• Arbitrator for the National Futures Association
• Board member of CISDM

4
Poof

• Embezzlement
• Forgery
• Concentration Risk
• Pyramid Schemes
• Mismarking Portfolio
• Market Manipulation
• Improper Allocation

5
Where Do You Draw the Line?

• Lying
• Arson
• Education Verification
• Regulatory Violations
• DUI
• Personal Bankruptcy
• Lavish Lifestyle

• Signature Authority
• Risk Controls
• Lock
• Gate
• Atypical Expenses
• Kin Relationships
• Liquidity

6
What Could Be Next

• Outright Fraud
• Unethical Pricing / Trading
• Operational Controls Lacking
• Internal Administration
• Internal Auditing
• Fund Invests In Another Internal Fund
• Fund Invests In External Fund

7
Preventative Measures
I don't try to describe the future. I try to
prevent it. - Ray Bradbury

• Preventing Negative Expected Returns
• Preventing Internal Accounting Fraud
• Preventing Fraud from Principals
• Preventing Fraud from Staff
• Preventing Fraud at Administrator
• Preventing Principal Transactions
• Preventing Mispricing
• Preventing Mis-marking
• Preventing Market Manipulation
• Preventing Breeches of Investment Limits

8
Event Capital Markets

• Robert KrauseManaging Partner Chief Risk
  Officer
• www.HedgeFundDueDiligence.com
• 1-908-226-1230