Rep. Alan Grayson claims he isn’t violating House ethics rules with his hedge funds because he has no “fiduciary duty” over the funds.
The Florida Democrat uses his name in the title of three funds, two in the Cayman Islands and one in Delaware. The practice of tying a congressman’s name to a business is frowned upon, as it could be considered a way for the representative to use their elected post for financial gain, a big no-no, reports Politico. While the Cayman Islands funds can dance out of the House Ethics Committee’s jurisdiction, the Delaware fund certainly cannot.
The Delaware-based Grayson Fund has more than $13 million in sales with active investors. Grayson claims his fund is structured so that investor information is confidential, and is listed on his congressional financial disclosure forms as assets, but not an income generator. The funds were started in 2011, after Grayson lost a reelection bid and before he won a seat again in 2012. Grayson says he has no “fiduciary duty” over the funds, because his investors are all “qualified investors.” Apparently if your investors are intelligent you have no fiduciary responsibility to them. Writes Politico:
Bernie Black, a professor with the Northwestern University School of Law and Kellogg School of Management, said Grayson’s rationale was “complete nonsense.” “You can’t avoid fiduciary duty by saying ‘my investors are smart,’” Black said.
Grayson, who is expected to run for a Senate seat, definitely used his Washington experience to market his funds when they launched. “Former Rep. Alan Grayson (D-Fla.) is taking his extensive experience with financial markets and the global economy and channeling it in a new business: asset management,” read a 2011 story announcing the firm in FINalternatives, an investment industry publication.
Grayson, who has widely bashed tax dodgers and large corporations, says he has not “taken any advantage” of the Cayman Islands tax system for his business.
Either way, it’s pretty unlikely Grayson can cut himself off from his funds just when he sees fit.
“Someone with that type of relationship would be considered to have a fiduciary duty to the hedge fund and the investors,” Steve Perfect, associate professor at the Florida State University College of Business, said. He said even if a specific agreement were in place releasing Grayson of fiduciary duty, one would still be in place between him and fund itself.
Better luck next time, Congressman.
Photo: Nicolas Raymond via Flickr.