4/10/03
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Leading the News: Richard M. Scrushy, the ousted former chairman and chief executive of HealthSouth Corp., repeatedly invoked his Fifth Amendment right to silence as he made his first public appearance since a $2.5 billion accounting scandal engulfed the health-care company he founded. During a daylong court hearing to determine if Mr. Scrushy can regain access to his bank accounts and a large collection of real estate, luxury boats, aircraft and other financial assets, Mr. Scrushy was grilled for more than an hour by attorneys for the Securities and Exchange Commission, mostly regarding the status of his assets and his knowledge of alleged fraud at the company. The SEC accused Mr. Scrushy of accounting fraud and insider trading last month, and HealthSouth subsequently fired Mr. Scrushy and asked him to resign from its board. There was no ruling on the freeze yesterday. Mr. Scrushy's attorneys have asked that he be provided $20 million for legal fees, $10 million to pay for forensic accounting and $10 million for living expenses, according to a person familiar with a motion filed just before the hearing. Mr. Scrushy has also asked the court for $33 million to pay taxes and $600,000 a month for the operations of his non-HealthSouth businesses, the person said. At one point, defense attorney Thomas Sjoblom stopped Mr. Scrushy from answering when SEC attorney William P. Hicks asked why Mr. Scrushy needed $60 million. Only when Mr. Hicks asked if Mr. Scrushy would have fired an accounting employee for falsifying financial records did the former CEO answer for himself, replying, "Yes." On the stand, Mr. Scrushy appeared weary, and U.S. District Judge Inge Johnson at one point had to ask him to speak up. Testimony by a Federal Bureau of Investigation agent at the hearing also revealed that the government has a recorded conversation with Mr. Scrushy. The agent testified that on March 18, senior finance executive William T. Owens, the HealthSouth executive who by then was secretly cooperating with federal investigators, wore a taping device provided by the FBI and was sent to meet with Mr. Scrushy. That meeting ended at 6 p.m. that night. Just a short while later, the FBI arrived at HealthSouth headquarters to conduct a search. The tape was about to be played during the hearing when Judge Johnson sided with defense objections and set a hearing for today to determine whether the recording could be played in court. Since late last month, a total of nine HealthSouth executives have agreed to plead guilty to criminal charges related to the alleged $2.5 billion fraud. SEC lawyers also called to testify Michael Vines, a former HealthSouth accounting employee who hadn't been previously implicated in the scandal. Mr. Vines, who worked at HealthSouth for five years before leaving in May 2002 and reported to an accounting executive who pleaded guilty to fraud charges last week, testified he knew of several instances in which false documents were used by finance executives at the company to hide fraudulent accounting entries from outside auditor Ernst & Young. Mr. Scrushy's appearance in court coincides with the launch of an aggressive legal counterattack by his new defense team. Led by Birmingham, Ala., defense attorney Donald V. Watkins, defense lawyers are decrying the government's prosecution in court filings and are using the SEC case to seek documents and depositions from current HealthSouth officials as well as the former executives who have pleaded guilty and are cooperating in the government's criminal case. In Mr. Watkins, Mr. Scrushy has hired a politically active, media-savvy lawyer and businessman who relishes a fight with the federal government. Mr. Watkins has quickly become the public face of Mr. Scrushy's 15-member defense team. Mr. Watkins, 54 years old, is known in Alabama for his representation of Richard Arrington Jr., Birmingham's first black mayor, who was the subject of a federal fraud probe in the 1990s but was never charged with any crime. Mr. Watkins's most vitriolic defense of Mr. Scrushy came in a nine-page court filing earlier this week seeking to lift the government's freeze on Mr. Scrushy's assets, which the attorney said is an effort to deny Mr. Scrushy access to the money he needs to defend himself. He insists that Mr. Scrushy will be "completely cleared," but declined to give Mr. Scrushy's explanation for the alleged accounting irregularities. He said he will exploit "strategic mistakes" resulting from the federal investigators' strategy of swift prosecution. "I'm going to draw those out in the courtroom," he said. Meanwhile, he said, Mr. Scrushy continues to work at his office, adjacent to his home in Birmingham. "Mr. Scrushy has not abandoned plans to get HealthSouth back," he says. "Richard Scrushy loves HealthSouth."
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Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.
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Did Ernst Miss DECEIVED, OUTRAGED and blameless. That is how Ernst & Young LLP portrays itself when asked how HealthSouth Corp.'s massive accounting fraud could have happened on the accounting firm's watch. "When individuals are determined to commit a crime, as was the case with certain executives at HealthSouth, a financial audit cannot be expected to detect that crime," Ernst & Young said in a March 20 statement, shortly after the first of nine former HealthSouth executives agreed to plead guilty to fraud charges. Still, the auditing standards in place at the time of Ernst's most recent audit report on HealthSouth did require auditors to "specifically assess the risk of material misstatement due to fraud" whenever conducting an audit. To be sure, auditing standards say even a properly performed audit may not detect ongoing fraud. But auditors do have a responsibility to look for it. The auditing standards make no exceptions for criminal fraud. Furthermore, a look back at an earlier Justice Department fraud lawsuit against HealthSouth suggests that Ernst should have had its guard up long before HealthSouth executives began lining up to strike plea bargains, some independent auditing specialists say. In December 2001, the Justice Department intervened, in federal court in San Antonio, in a series of private litigants' civil lawsuits under the federal False Claims Act. The move allowed the government to pursue on its own behalf the plaintiffs' allegations that HealthSouth for years had fraudulently overbilled the government's Medicare program. HealthSouth has denied the allegations, and its latest quarterly report said its practices "were consistent . . . with existing Medicare regulations." But coming just three months before Ernst was scheduled to complete its audit of HealthSouth's 2001 financial statements, the Justice Department's intervention should have triggered alarms for auditors in Ernst's Birmingham, Ala., office, the independent auditing specialists say. By themselves, Medicare-fraud allegations don't necessarily mean that a company's books are cooked. However, they do raise broader fundamental questions about the integrity of a company's management. "It raises a question about whether you can even audit the company," says Dan Guy, a Santa Fe, N.M., author of several auditing textbooks. An Ernst spokesman yesterday said the firm won't discuss specifics of its audits because of continuing federal investigations into HealthSouth, with which Ernst is cooperating. Ernst is under mounting pressure. The House Energy and Commerce Committee is expected as soon as this week to request a slew of HealthSouth-related documents from Ernst. "We are trying to determine what, if anything, Ernst & Young knew about the accounting shenanigans at HealthSouth," committee spokesman Ken Johnson says. Securities and Exchange Commission investigators also will be scrutinizing Ernst's audit work, officials familiar with the SEC's HealthSouth investigation say. An SEC spokesman declined to comment. Ernst says it received subpoenas for its audit work papers but that "neither the SEC nor the Justice Department has informed Ernst & Young that the firm or any of its people are the subject or target of any investigation." Among the allegations in the Medicare matter, the plaintiffs' lawsuits accused HealthSouth of billing Medicare for physical-therapy services it never performed and submitting falsified documents to Medicare to justify those claims. Under prevailing auditing standards, the Justice Department's intervention in the Medicare lawsuits at a minimum should have prompted Ernst's auditors to take extra measures to thoroughly scrutinize HealthSouth's books, says Mr. Guy, the auditing specialist. In particular, they should have scoured the kinds of accounting entries where executives had wide discretion to make estimates that had an impact on reported revenue, earnings and assets, he says. Largely by manipulating such estimates, HealthSouth by mid-2002 had inflated its assets by $1.5 billion. It even overstated its cash by more than $300 million, prosecutors say. Nor was Justice's intervention the first time that HealthSouth had come under the department's scrutiny. Without admitting wrongdoing, HealthSouth in May 2001 agreed to pay $8.2 million to settle a separate Justice Department civil lawsuit that accused the company of fraudulently overbilling Medicare. Until last week, when it fired Ernst, HealthSouth had been the largest audit client of the accounting firm's Birmingham office, measured by HealthSouth's annual revenue and audit fees. For 2001, HealthSouth paid Ernst $3.7 million, including $1.2 million for its financial-statement audit and $2.5 million for other services. As Ernst has noted, the SEC's civil-fraud complaint against HealthSouth and its ousted chairman and chief executive, Richard Scrushy, did cite some instances in which HealthSouth executives tried to deceive the firm's auditors, in some cases creating false documents to support fraudulent journal entries. In a court hearing yesterday, a former HealthSouth employee testified he knew of at least three occasions where company executives prepared false documents specifically to conceal fraud from Ernst. "The level of fraud and financial deception that took place at HealthSouth is a blatant violation of investor trust, and Ernst & Young is as outraged as the investing public," the accounting firm said in its March 20 statement. Still, the Justice Department's Medicare-fraud lawsuits are just some of the fraud-risk indicators, identifiable through publicly available information, that Ernst's auditors would have been required to consider and document before approving HealthSouth's 2001 financial statements, under the auditing standards in place at the time. For starters, the American Institute of Certified Public Accountants auditing standard on considering financial-statement fraud risk cautions auditors to watch for "domination of management by a single person or small group without compensating controls such as effective oversight by the board of directors or audit committee." Mr. Scrushy, who co-founded HealthSouth in 1984, was well known inside and outside the company for his domineering management style. At the same time, some HealthSouth directors, including a member of the board's audit committee, had significant business dealings with the company. Such "related-party transactions" also are classified as a fraud-risk indicator under the AICPA standard. Another fraud-risk indicator: "new accounting, statutory or regulatory requirements that could impair the financial stability or profitability of the entity." Last August, HealthSouth warned its profits would be hurt by reduced Medicare reimbursements for outpatient physical-therapy services. Prosecutors say HealthSouth inflated its revenue by manipulating "contractual allowances" that represented the difference between the company's gross revenue and net revenue. Those allowances, the size of which is open to wide management discretion, were set up on HealthSouth's balance sheet to reflect the difference between the amounts that HealthSouth would bill insurers for its services and the smaller amounts it actually expected to collect. By arbitrarily shrinking the allowance -- often through journal-entry adjustments after the end of a quarter -- HealthSouth artificially inflated its net revenue. HealthSouth executives also made corresponding journal entries that inflated the company's assets. "There were observable fraud-risk indicators that should have directed their attention to contractual allowances," says Douglas Carmichael, an accounting professor at Baruch College in New York. "It's a significant accounting estimate that's susceptible to management's override of controls." Other fraud-risk indicators include "unusually rapid growth or profitability, especially compared with that of other companies in the same industry." That fits HealthSouth, which grew rapidly through acquisitions. Itzhak Sharav, an accounting professor at Columbia University in New York, notes that HealthSouth's 2000 pretax earnings more than doubled to $559 million, though its sales grew only 3%. Pretax earnings for 2001 were nearly twice 1999 levels, although sales rose just 8%. Spotting such seeming contradictions required "no more than a calculator," Mr. Sharav says, and "should have triggered a very extensive audit." Equally puzzling to many outsiders is how Ernst could have missed HealthSouth's cash overstatements, when standardized forms are widely used by auditors to verify bank balances with financial institutions. "I'm shocked that cash is manipulated and overstated, because the darn stuff is so easy to count," Mr. Guy says.
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Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.
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The Economy -- Capital: SUCCESSFULLY REBUILDING Iraq after a month of war, a decade of sanctions and 35 years of dictatorship means more than reconstructing water pipes and hospitals. Restoring prosperity requires building political and economic institutions. Making an economy work well takes more than capital, labor and technology. It takes, among other things, clearly understood rules that protect property rights and contracts, courts and legislators willing to enforce those rules without graft, checks on the power of the top politician and regulators that set boundaries for markets and thwart crooks and connivers. Institutions really matter. If Cameroon could somehow build political institutions as good as those in the average country, its per capita income would rise by nearly fivefold from $600 to $2,760, International Monetary Fund economists led by Maitland MacFarlan estimated this week. "The quality of institutions trumps everything else," argues Harvard economist Dani Rodrik, a partisan in a continuing debate with those who emphasize the primacy of geography and history in economic development. In a sense, we are rediscovering an old truth. For 300 years, economists have recognized that "good institutions are conducive to good economics," as Mr. Rodrik puts it. Adam Smith, so often cited for his praise of unfettered markets, wrote in 1776: "Commerce and manufactures . . . can seldom flourish in any state in which there is not a certain degree of confidence in the justice of government." Douglass North won a Nobel Prize in 1993 for elaborating on that point. THE ECONOMIC RIDDLES of the past decade are reviving interest in the role of institutions. Why did Poland and Latvia do so much better than Russia in the transition to capitalism? Why did the embrace of textbook macroeconomic policies fail to deliver prosperity in so much of Latin America? Why did East Asia stumble? Why do some African countries continue to do so much better than others? A big part of the answer is the inadequacy of legal systems (Russia), the persistence of corruption (Africa and South America) and the shortcomings of financial regulation (East Asia). All those lessons are important today in Iraq. It is difficult to separate institutions from geography and history. One group of scholars emphasizes the legacy of European colonization in earlier centuries. In places where the climate was hospitable, such as the U.S. and Australia, Europeans established well-populated settlements. The colonizers created institutions to ensure property rights, enforce the rule of the law and encourage broad participation in political life. Elsewhere -- often in places with unfriendly climates or disease, such as parts of South America and Africa -- Europeans primarily sought to extract natural resources. In those places, the colonizers relied on local elites for control and built fewer of the institutions now seen as vital to 21st-century prosperity. GEOGRAPHY IS important, but it isn't destiny. "If geographical factors were the only determining factor, it would be difficult to reconcile the strong economic performance of Botswana with severe difficulties in neighboring countries such as Angola and Zimbabwe," the IMF economists observe. One institution sometimes overlooked as an economic plus -- pardon if this sounds self-serving -- is a free and independent press. A band of London School of Economics researchers finds that those state governments in India that responded most effectively to droughts and flood from 1952 to 1992 are in states where local-language newspaper circulation is highest. Where the press is free and widely read, politicians who must face voters are more responsive -- and can't get away with as much. Stanley Fischer, a former top IMF official now at Citigroup, says Thailand wouldn't have been able to gamble so disastrously with its foreign-currency reserves in the late 1990s had it been forced to reveal more. "Transparency . . . puts constraints on what policy makers can do," he has written. None of this means the U.S. should impose its institutions on Iraq, any more than it should force Germany or China to mimic every aspect of U.S.-style capitalism. There isn't one right path to prosperity. "Successful developing countries" -- China, South Korea, Mauritius, among them -- "have almost always combined unorthodox elements with orthodox policies." Mr. Rodrik notes. After World War II, Germany's Ludwig Erhard moved much faster to free prices than the American occupiers thought wise, and helped produce Germany's "economic miracle." The U.S. occupiers of Iraq should keep that in mind. --- E-mail me at capital@wsj.com. See questions and answers Tuesday at WSJ.com/CapitalExchange.
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Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.
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Hedge Funds: Reward & Risk: [Third in a Series] JOHN KOONMEN WAS always a gambler. The Long Island, N.Y., native and MIT graduate was a fixture at New York's illicit backgammon-gambling clubs. His bachelor party, held in Las Vegas, featured Michael Konik, author of "The Man With the $100,000 Breasts and Other Gambling Stories." He gave up drinking for years, as part of a bet. Unfortunately, Mr. Koonmen was less successful in placing wagers when it came to running his hedge fund, the Eifuku Master Trust, a Japan-based portfolio with $300 million under management at its peak in 2001. Mr. Koonmen managed to lose nearly all his investors' money. The collapse came in just seven trading days earlier this year, a stunningly rapid loss all the more remarkable because it occurred amid calm market conditions. With hedge funds increasingly popular with investors, Mr. Koonmen's story is a cautionary tale of just how quickly some of these lightly regulated investment pools can implode. It also is a tale about just how easily such funds can attract money from even the most sophisticated investors, while a blemish on a manager's track record can remain well hidden from sight. Mr. Koonmen, for instance, had been pushed out of a trading job at Wall Street's Lehman Brothers several years earlier after posting volatile results, and Lehman later opted not to extend his fledgling Eifuku (pronounced "ay foo koo") a credit line. Yet, at Eifuku's peak, Mr. Koonmen's investors were an impressive group, including George Soros, the legendary hedge-fund manager who founded Soros Fund Management LLC; several wealthy Kuwaiti families, institutional investors such as a unit of UBS AG, and executives based in Tokyo at foreign investment banks. Few, if any, knew about Mr. Koonmen's Lehman experience when they entrusted their money to him. Mr. Koonmen declined requests seeking comment. Today, Eifuku's holdings total about $5 million, held in an account at its main securities broker, Goldman Sachs Group Inc. All is quiet on the 11th floor of the Kamiyacho MT Building in Tokyo, where Mr. Koonmen opened a plush, spacious office in 1999. The size itself was a luxury in a city where most offices are cramped and crowded. There was even enough space for one of Mr. Koonmen's most prized trophies: a pool table previously owned by the Tokyo office of a far-better-known hedge fund, Long-Term Capital Management LP. The near-implosion of the huge LTCM fund in 1998 led to concerns of a financial-system meltdown. While Mr. Koonmen never had the prominence of many other managers in the international hedge-fund world, he cut a big figure in Tokyo's smaller circle of managers. He drove a metallic-blue Aston Martin Vantage sports car and lived near the top of a luxury tower in a posh Tokyo district. He first arrived in Tokyo in August 1993, hired by Lehman to trade in Japan's market with the firm's capital. The articulate Mr. Koonmen impressed colleagues with his mathematical bent and market intelligence. He assembled a team of software engineers and created his own trading software. At Lehman, Mr. Koonmen took large bets, particularly in Japanese bank stocks. He specialized in trading convertible bonds, which are difficult to price because of the embedded option to convert into equity. But precisely because it was difficult to price these securities, it was tough, if not impossible, to sell big positions quickly. That meant executives were on tenterhooks when he was ordered to close out those positions, they say. "He had several good years, made a lot of money, then had a bad year then was asked to leave," recalls Nick Demopoulos, who was a trader at Lehman in Tokyo with Mr. Koonmen and is now a trader in London with WestLB Panmure Ltd. That bad year was 1998, when Mr. Koonmen lost so much money that it affected bonuses for Lehman's entire Tokyo equities division, according to numerous Lehman executives. Mr. Koonmen stayed until April 1999, helping the firm extricate itself from positions so complicated that only he and his team could unwind them. Mr. Koonmen then joined John Bender, whom he had met on the professional backgammon-gambling circuit. Mr. Bender was running the Amber Arbitrage Fund. Registered in Dublin, Ireland, the fund both bought and bet against stocks from around the world, with more than $500 million under management at its peak in 2000. Mr. Bender's investors were eclectic, including professional poker and backgammon players as well as Mr. Soros's flagship Quantum fund. By 1999, Mr. Bender was looking for a way to get involved in the Japanese market and hired Mr. Koonmen as his trading manager for Japan. With him came several Lehman staffers and his software specialists. The collaboration was short-lived, though. In the spring of 2000, Mr. Bender had a stroke. As he gradually recovered during the following months, Mr. Bender says he became less enthusiastic about Japan's prospects and wanted to raise cash to lock in profits. Friends of Mr. Bender say Mr. Koonmen disagreed with this decision. They add that Mr. Koonmen had a bigger appetite for risk than Mr. Bender and that the fund's volatility, which is a way of measuring risk, increased in the months while Mr. Bender was recuperating. Mr. Bender declines to comment on these accounts, citing confidentiality agreements. As fall approached that year, Mr. Bender submitted his resignation and in October investors received checks reflecting the fund's stellar performance. Mr. Bender retired to a wildlife refuge he bought in Costa Rica. Mr. Koonmen created Eifuku and asked former Amber investors to cut checks for the new fund. Several investors say Mr. Koonmen took credit for Amber's strong performance. Since many trades involved, say, a long position in a U.S. stock market index and a bearish position on a Japanese index, it was difficult for investors to verify these claims. "How would anyone know?" asks Leon Meyers, a hedge-fund manager based in New York and former Amber investor who then gave money to Mr. Koonmen. Mr. Koonmen eventually signed up many of Amber's investors. Because they had backed into their Eifuku investment, most say they didn't do much by way of due diligence. "We were all overawed by his intensity and his focus and the technology," says one. The intensity was reinforced by Mr. Koonmen's fondness for appearing in black pants and a black shirt or turtleneck. New investors didn't investigate thoroughly either, some now concede. They took the word of other investors and relied on Mr. Koonmen's reputation for intelligence and market savvy. Few even traveled to Tokyo to meet the man to whom they were entrusting hundreds of thousands, or even millions, of dollars. The lapse is especially puzzling given the wide latitude and privileges that Mr. Koonmen sought. In addition to the 2%-of-assets management fee that is standard in the hedge-fund world, Mr. Koonmen set his performance fee at 25% of profits, well above the 20% most hedge-fund managers keep. The offer memo's investment philosophy left no doubt that Mr. Koonmen's style was high-risk, warning investors to expect substantial borrowing to leverage returns. Little did these investors also know that Lehman had just turned Mr. Koonmen down for the credit line. Mr. Koonmen told Lehman he had a strict policy of closing out positions when the loss exceeded 2% of the fund's capital and the maximum permissible leverage was a factor of four, according to internal Lehman documents. But he lacked financial statements vetted by an outside auditor, and Lehman would only approve a credit line on the basis of such audited statements, according to internal Lehman documents. Other firms did extend such credit, and Mr. Koonmen was up and running with Goldman as his main broker. Eifuku's first full year in business wasn't a good one. The fund fell 35% in December 2001 alone, leaving performance for the year down 24%, largely due to a few concentrated, leveraged bets that hadn't paid off, according to that same January letter. One position alone cost Eifuku 12% of its net asset value in only eight days, the letter noted. Some investors who opted out say they waited months for all their money because it was so difficult to unwind trades. The following year, the fund was apparently up more than 70%, allowing Mr. Koonmen to collect his handsome performance fee. But the seeds of trouble had been planted: In December 2002, Mr. Koonmen began building up several huge positions. Mr. Koonmen went into the end of the year having bought $500 million in shares of Nippon Telegraph & Telephone Corp. and having sold $500 million of borrowed shares of its 63%-owned subsidiary, NTT DoCoMo Inc., according to a January 2003 letter he sent to investors and people familiar with his trading. Such trades pairing a parent company and its subsidiary are popular among hedge funds because the stocks typically trade within a relative range of each other. Mr. Koonmen also took a $150 million stake in videogame maker Sega Corp., the object "of panic selling and aggressive and large short sales," according to that same letter and the knowledgeable people. All told, relying heavily on money borrowed from Goldman Sachs, Mr. Koonmen had at least $1.4 billion in just a few positions at a time when the capital in his fund was down to $155 million, according to copies of monthly statements sent to investors. Given the size of Mr. Koonmen's few positions and that they were largely financed with borrowed money, when the market moved against Eifuku in early January, it did so with a vengeance. On Jan. 6 and 7, the fund lost about 15% of its capital. The following day, while trying to raise cash in some of the fund's positions, the fund lost an additional 15%. The end could be seen coming the next day, when Goldman, now having the ability to seize the shares and sell them, moved to protect its own interests. After several meetings with Mr. Koonmen, Goldman executives agreed to give Mr. Koonmen one day before dumping Eifuku's securities on the market. Mr. Koonmen's conversations were emotionless even as the fund he built from scratch was crumbling around him, people who dealt with him say. It was almost eerie how he and his chief financial officer acted as if the troubles were just another trade, the people say. Mr. Koonmen spent Thursday calling Eifuku investors and asking for an emergency infusion of cash, people familiar with the situation say. None came forward. The next day, Friday, Goldman executives fretted over timing: A huge sale of the NTT and Sega shares coming just before the coming three-day holiday weekend likely would spook investors; already aware of Eifuku's dire circumstances and willing to pay only fire-sale prices for its holdings, such investors might now also fear a piece of bad corporate news was imminent and thus demand even lower prices to compensate for damaged goods. The firm opted to wait until the following Tuesday to unload the large positions. A Goldman spokesman declined to comment. Investors are awaiting the 2002 audit of the fund by PricewaterhouseCoopers. If the losses were building up in 2002, Mr. Koonmen will have to return the performance fee he took out at the end of last year, under terms of Eifuku's offer memorandum to investors. Meanwhile, Mr. Koonmen is in Africa, photographing wildlife. --- Eifuku, or `Prosperity,' Unwound In December 2000, John Koonmen and his chief financial officer, Gareth Phillips, set up a new hedge fund called Eifuku, which means prosperity or good fortune in Japanese. At its peak, the fund was valued at $300 million. Now, it has been virtually liquidated. Here is the story of its unwinding. -- December 2000: John Koonmen and Gareth Phillips set up Eifuku under the laws of the Cayman Islands. -- December 2001: After a year in which the fund hit its peak asset value of $300 million, Eifuku loses 35% of its net asset value in December and is down for the year. -- January 2002: Eifuku begins the year valued at $149 million. Its investors include George Soros, wealthy Kuwaiti families and Tokyo-based executives at investment banks including Goldman Sachs and Deutsche Bank. -- December 2002: The fund loses 35% of its net asset value over the course of the month and is down for the year. Mr. Koonmen takes his 25% incentive fee after the fund finishes the year up. -- Jan. 6, 2003: Eifuku starts the year "aggressively positioned in three trade groups," according to a letter sent to investors. -- Jan. 6-Jan. 9: Eifuku loses almost half its capital and can't meet margin calls. Goldman Sachs, Eifuku's prime broker, decides to supervise trading and sales of Eifuku's positions. -- Jan. 10: By the end of the day, Eifuku has lost 58% of its capital. -- Jan. 14: Goldman sells Eifuku's $500 million bullish position in NTT in Tokyo. A $155 million bullish position in Sega is liquidated in London. -- Jan. 15: Eifuku is down to 2% of the capital with which it started the year. -- April 9: Eifuku has $5 million in capital. Investors await the audited financial statement from PricewaterhouseCoopers. 
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