by Diankj
I have been involved in a hedge fund which is now ready for payout, having sold all the assets. The manager is, however, requiring "surety" (security bond or security deposit) before releasing the payout which is, I believe, already in a client/partner segregated account.
There is a certain logic that I understand in principle .... but I would like to know if there is any reality to this arrangement, which is something like this:
1. Buyer deposits sales sum in an account (probably in escrow).
2. Seller deposits security/surety
3. Sales sum is released to seller.
4A. If the seller turns over proof of ownership of the shares, about five business days pass for "cooling off" and then the deposit is returned to the seller. End of story.
4B. If the seller does not turn over proof of ownership, the security deposit is forfeited. I think (but I'm not sure) that the surety is actually a form of insurance so that the seller recovers all or at least most of the sales sum. I guess the buyer is then prosecuted for defaulting on the agreement.
Is anyone familiar with this kind of arrangement as being legitimate? If it is legitimate, then I guess this isn't an advance fee fraud... but otherwise, I think it is.
As a passing observation: I have been told that banks like to hold surety deposits because it increases their capital reserves, allowing them to do more business.
The next question is about who (what institution) issues regulations for this kind of surety - including the percentage of the sales sum (payout) that has to be deposited. In this case, 50% of the sales sum is being required, which (according to the manager), approaches the requirements during the 2008-2009 crises. It rose from 25% at the end of 2016 to 50% early this year (2017) - and could go up further. Does anyone know anything about such regulations and the regulators?
(PS - forget about the lost draft ... I think this message is worded more clearly)
There is a certain logic that I understand in principle .... but I would like to know if there is any reality to this arrangement, which is something like this:
1. Buyer deposits sales sum in an account (probably in escrow).
2. Seller deposits security/surety
3. Sales sum is released to seller.
4A. If the seller turns over proof of ownership of the shares, about five business days pass for "cooling off" and then the deposit is returned to the seller. End of story.
4B. If the seller does not turn over proof of ownership, the security deposit is forfeited. I think (but I'm not sure) that the surety is actually a form of insurance so that the seller recovers all or at least most of the sales sum. I guess the buyer is then prosecuted for defaulting on the agreement.
Is anyone familiar with this kind of arrangement as being legitimate? If it is legitimate, then I guess this isn't an advance fee fraud... but otherwise, I think it is.
As a passing observation: I have been told that banks like to hold surety deposits because it increases their capital reserves, allowing them to do more business.
The next question is about who (what institution) issues regulations for this kind of surety - including the percentage of the sales sum (payout) that has to be deposited. In this case, 50% of the sales sum is being required, which (according to the manager), approaches the requirements during the 2008-2009 crises. It rose from 25% at the end of 2016 to 50% early this year (2017) - and could go up further. Does anyone know anything about such regulations and the regulators?
(PS - forget about the lost draft ... I think this message is worded more clearly)
