Who Is Alphonse Fletcher?
July 11, 2015 6:29 PM Subscribe
Henry Louis Gates is the Alphonse Fletcher University Professor at Harvard University. But who is Alphonse Fletcher?
Well, he's been in the news lately because he is married to Ellen Pao. You might also have heard of him because his brother, Geoffrey Fletcher, was the screenwriter for Precious. But before all of that, he was probably best-known for his lawsuit against Kidder Peabody for racial discrimination (Fletcher is black), which resulted in a $1 million award (the arbitrator found that Fletcher had been undercompensated, though it is important to note that the arbitrator rejected Fletcher's allegation of racial motivation). (He has also sued the Dakota for racial discrimination. The suit is ongoing.) Professionally, he is notable for running a hedge fund that reported no down months from June 1997 through December 2007—an accomplishment that is almost impossible to believe. His wealth has allowed him to endow the Fletcher Foundation, part of his $50 million pledge to support work toward improving race relations. Recipients of the Fletcher Fellowship include Elizabeth Alexander, who read a poem at Barack Obama's inauguration in 2009, and many other people notable in their fields. These accomplishments would be remarkable for anyone, all the more so for someone who grew up black and gay in the United States. (Fletcher identified as a homosexual until he met Pao.) And it is heartening to see someone give back so much after becoming rich. There is, however, one little problem, almost not worth mentioning...
Remember how I said Fletcher's reported returns were almost impossible to believe? It might have been prudent for his investors, mostly public pension funds, to consider whether they should believe them, particularly when his salesman told them that the promised 12% return was "so hot the board would have to make a decision that day."
Now Fletcher's companies are in bankruptcy and his investors, including the retirement fund for the Massachusetts Bay Transit Authority, which invested $25 million, are suing him (see previous link). If you want to read the gory details, you can check out the trustee's report filed in the U.S. Bankruptcy Court for the Southern District of New York (PDF).
Fletcher claims that he is "not the black Madoff," and this is true in a sense. Fletcher really did invest the money (though he allegedly invested it in assets that were not contractually permitted, such as financing his brother's movie—not Precious, but a much less financially successful film). But he is alleged to have massively inflated the reported value of his investments, which had the results of (A) keeping his investors from redeeming their shares and (B) inflating his compensation (which is calculated as a percentage of assets under management plus a percentage of investment returns). Since he didn't actually have any returns—the bankruptcy trustee estimates that his last profitable investment was in August 2007 at the latest—any compensation that he earned had to come out of the principal amount of his investors' money. Essentially he told his investors that their shares were worth $x, and compensated himself based on $x, when really the shares represented investments worth $y, where y is a small fraction of x. In some ways it would have been better for Fletcher's investors if he had been the black Madoff, because Madoff didn't squander money on unprofitable investments. He just let it sit in a bank.
My favorite detail in this story is that Fletcher was sitting pretty until he sued the co-op board of the Dakota. For those of you who don't know, co-op boards in New York City are notoriously powerful. And this co-op board was no exception. After reviewing his finances, it turned him down for an additional unit in the building. When he alleged race discrimination, the board replied, in essence: we're not denying your application because you're black, we're denying your application because your business is unprofitable and your finances are a mess. The pension funds got wind of this, and asked for part of their money back. Fletcher couldn't give them anything—remember, his investments were all vastly less profitable than he had reported—and so they asked for all their money. That was the end of the road for Fletcher.
Never mess with a New York City co-op board.
Well, he's been in the news lately because he is married to Ellen Pao. You might also have heard of him because his brother, Geoffrey Fletcher, was the screenwriter for Precious. But before all of that, he was probably best-known for his lawsuit against Kidder Peabody for racial discrimination (Fletcher is black), which resulted in a $1 million award (the arbitrator found that Fletcher had been undercompensated, though it is important to note that the arbitrator rejected Fletcher's allegation of racial motivation). (He has also sued the Dakota for racial discrimination. The suit is ongoing.) Professionally, he is notable for running a hedge fund that reported no down months from June 1997 through December 2007—an accomplishment that is almost impossible to believe. His wealth has allowed him to endow the Fletcher Foundation, part of his $50 million pledge to support work toward improving race relations. Recipients of the Fletcher Fellowship include Elizabeth Alexander, who read a poem at Barack Obama's inauguration in 2009, and many other people notable in their fields. These accomplishments would be remarkable for anyone, all the more so for someone who grew up black and gay in the United States. (Fletcher identified as a homosexual until he met Pao.) And it is heartening to see someone give back so much after becoming rich. There is, however, one little problem, almost not worth mentioning...
Remember how I said Fletcher's reported returns were almost impossible to believe? It might have been prudent for his investors, mostly public pension funds, to consider whether they should believe them, particularly when his salesman told them that the promised 12% return was "so hot the board would have to make a decision that day."
Now Fletcher's companies are in bankruptcy and his investors, including the retirement fund for the Massachusetts Bay Transit Authority, which invested $25 million, are suing him (see previous link). If you want to read the gory details, you can check out the trustee's report filed in the U.S. Bankruptcy Court for the Southern District of New York (PDF).
Fletcher claims that he is "not the black Madoff," and this is true in a sense. Fletcher really did invest the money (though he allegedly invested it in assets that were not contractually permitted, such as financing his brother's movie—not Precious, but a much less financially successful film). But he is alleged to have massively inflated the reported value of his investments, which had the results of (A) keeping his investors from redeeming their shares and (B) inflating his compensation (which is calculated as a percentage of assets under management plus a percentage of investment returns). Since he didn't actually have any returns—the bankruptcy trustee estimates that his last profitable investment was in August 2007 at the latest—any compensation that he earned had to come out of the principal amount of his investors' money. Essentially he told his investors that their shares were worth $x, and compensated himself based on $x, when really the shares represented investments worth $y, where y is a small fraction of x. In some ways it would have been better for Fletcher's investors if he had been the black Madoff, because Madoff didn't squander money on unprofitable investments. He just let it sit in a bank.
My favorite detail in this story is that Fletcher was sitting pretty until he sued the co-op board of the Dakota. For those of you who don't know, co-op boards in New York City are notoriously powerful. And this co-op board was no exception. After reviewing his finances, it turned him down for an additional unit in the building. When he alleged race discrimination, the board replied, in essence: we're not denying your application because you're black, we're denying your application because your business is unprofitable and your finances are a mess. The pension funds got wind of this, and asked for part of their money back. Fletcher couldn't give them anything—remember, his investments were all vastly less profitable than he had reported—and so they asked for all their money. That was the end of the road for Fletcher.
Never mess with a New York City co-op board.
This post was deleted for the following reason: Heya, as written this is too much of a sort of bloggy, personal-voice editorial narrative of to really work on the front page. A more neutral "here are the pertinent issues and links" presentation would probably be okay. -- cortex
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