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Integral Investment Management - cash equivalents and index options (fraudulent)

2001

Count of distinct funds: 1
Capital base: ?
Loss: ?

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This narrative contributed by Ann Logue.

In 2001, trustees at the Art Institute of Chicago reported that Integral Investment Management, a hedge fund, lost $39 million of the then-$667 million endowment that supports the museum and its college of art. Reportedly, 3% budget cuts were ordered after the debacle; in the fiscal year ending June 30, 2001, the Art Institute reported an operating loss of $2.6 million on revenues of $191.3 million, something it has rarely done since its founding in 1866. The investment had been approved by the Art Institute's board of directors, which included many prominent Chicago business people and financiers. They were told that the fund followed a relatively low-risk strategy of investing in cash equivalents and index options. Instead, the fund's manager, Conrad Philip Seghers, invested money in such things as a friend's Internet start up. The National Futures Association charged that Integral made "failed to observe high standards of commercial honor and just and equitable principles of trade and failed to cooperate with NFA in an NFA audit and investigation," in part by making performance claims with no substantiation. Both the firm and Seghers had their NFA memberships withdrawn permanently in March of 2002.

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.