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Florida Rep. Alan Grayson's double life: Congressman and hedge fund manager

 
Rep. Alan Grayson stands on the steps of the Capitol building in Washington on Feb. 4. Grayson's highly unusual dual role - a sitting House lawmaker running a hedge fund, which until recently had operations in the Cayman Islands - led to an investigation by the House Committee on Ethics. [Zach Gibson | New York Times]
Rep. Alan Grayson stands on the steps of the Capitol building in Washington on Feb. 4. Grayson's highly unusual dual role - a sitting House lawmaker running a hedge fund, which until recently had operations in the Cayman Islands - led to an investigation by the House Committee on Ethics. [Zach Gibson | New York Times]
Published Feb. 11, 2016

WASHINGTON — The hedge fund manager boasted that he had traveled to "every country" in the world, studying overseas stock markets as he fine-tuned an investment strategy to capitalize on global companies' suffering because of economic or political turmoil.

But the fund manager had an even more distinctive credential to showcase in his marketing material in June 2013: He was a "U.S. congressman," Rep. Alan Grayson, D-Orlando, a member of the House Foreign Affairs Committee. Now he is also among the leading Democratic candidates for one of Florida's U.S. Senate seats.

This highly unusual dual role — a sitting House lawmaker running a hedge fund, which until recently had operations in the Cayman Islands — has led to an investigation of Grayson by the House Committee on Ethics .

The inquiry has become public, but emails and marketing documents obtained by the New York Times show the extent to which Grayson's roles as a hedge fund manager and a member of Congress were intertwined, and how he promoted his international travels, some with congressional delegations, to solicit business.

Interviews and the documents show that Grayson told potential investors in his hedge fund that they should contribute money to the fund to capitalize on the unrest he observed around the world, and to take particular advantage when there was "blood in the streets."

PREVIOUS COVERAGE:Documents raise more questions about Rep. Alan Grayson's offshore hedge fund

The emails also show how Grayson's work for the hedge fund, which had $16.4 million in assets as of October, at times interfered with his other duties. In August 2015, after Grayson introduced legislation calling for larger annual increases in Social Security benefits, he signed off on a plan to highlight the proposal at an event in Tampa, emails obtained by the New York Times show. But the plan was scuttled, two former aides said, when economic turmoil in China sent stock markets tumbling globally and Grayson had to turn his attention to the fund.

Ken Scudder, a spokesman for Grayson, disputed that account. "There has never been any time when Rep. Grayson's investment activities have disrupted any of his work, whether official or campaign-related," he said.

Grayson says he has done nothing wrong.

"Here is something that is not true: that I somehow traded on my membership as a U.S. congressman to get clients for this fund," Grayson said in an interview. He added that in the last year he had refunded the full original investments put in by his two outside investors in a fund that had faced steep losses — leaving only Grayson and a family trust invested in the fund.

Grayson has closed the Cayman Islands branches of the hedge fund, and in September, after the ethics complaint was filed, he changed the name of the fund from the Grayson Fund to the Sibylline Fund, LP. He did so, he said, to try to assuage critics who said he was violating congressional ethics rules by naming a professional business after himself. Although Grayson said he did not agree that the name was a violation, "there was no point in arguing about it any longer."

But Grayson's activities have long concerned his campaign aides. In private emails in June, Grayson's aides pleaded with him to close the hedge fund, convinced that its focus on investing in nations hit by political or economic strife, and its ties to the Cayman Islands, a notorious tax haven, sharply conflicted with his image as a scold of Wall Street — even if he had not done anything wrong.

"This is going to be the drip, drip, drip story that never goes away," Doug Dodson, Grayson's Senate campaign manager until the end of 2015, wrote in a June email to Grayson, saying his political opponents would "try to make you look like a hypocrite and a fraud and not the populist you claim to be."

Grayson rejected the advice, the emails show. "I still think that it would be taken, wrongly, as an admission of guilt," he wrote back.

Sometimes Grayson deployed his aides to work for the fund and his political activity at the same time. Todd Jurkowski, a former spokesman in Grayson's House office, served as the vice president of investor relations when the fund was started while also serving as treasurer for Grayson's campaign in 2012.

More recently, David Keith, finance director for Grayson's Senate campaign, was being paid about $1,000 a month, in part to help Grayson in a search for new investors in his hedge fund, Keith said in an interview. He worked for Grayson from early 2014 to late 2015, he said.

Grayson first won a seat in Congress representing the Orlando area in 2008 but failed to win re-election in 2010. In 2011, he started the Grayson Fund, which he said would specialize in investments in developing countries in Asia and Latin America. Grayson was elected again to the House in 2012, but he kept the fund open.

In the interview, Grayson said that, since resuming public office in January 2013, he had not actively solicited new outside investors to the fund and that none had joined. But a filing with the Securities and Exchange Commission in October said the fund had four investors, up from three in a filing from late 2014. Scudder, Grayson's spokesman, called the discrepancy a typographical error.

As for the marketing materials that appeared to solicit outside business, in the interview Grayson questioned whether they had been publicly distributed.

House rules prohibit lawmakers from holding an outside job that generates more than $27,495, under the current limits. Grayson said he did not violate this rule because he had not reported any earned income from the fund, even though at least some of the investors, according to the fund rules, would have been paying management fees.

Some prominent Washington ethics lawyers who examined hedge fund documents obtained by the New York Times said he might have violated House ethics rules.

"On its face, what he has done here seems to be problematic," said Stanley M. Brand, a former House general counsel. "You can't use your official position to advance your business interests or create a personal gain."

Grayson accuses Democratic Party leaders of trying to undermine his campaign so the nomination will go to Rep. Patrick Murphy, a Democrat who they say has a better shot at helping the party win a Senate seat that is being vacated by Marco Rubio, a Republican who is running for president.

The focus, Grayson said, should be on the fact that he introduced more pieces of legislation during the last Congress — 96 bills or resolutions — than any other member of the House, and many more than Murphy.

Murphy declined through a spokesman to comment.

No stranger to conflict, Grayson, 57, is a Bronx-born, Harvard-educated multimillionaire and a former trial lawyer whose wealth is traced in part to his role in setting up and running IDT Corp., a telecommunications company. He built a national profile more than a decade ago when he filed dozens of whistleblower lawsuits against contractors he argued had defrauded the United States during the war in Iraq.

In Congress, he quickly became a hero among progressive Democrats for his confrontational statements. "If you get sick, America, the Republican health care plan is this: Die quickly," he said during the House debate over President Barack Obama's health care plan. He cemented this reputation when he compared the Tea Party to the Ku Klux Klan and called a onetime adviser to the Federal Reserve, who was also a lobbyist, a "K Street whore."

In the 2013 hedge fund marketing material, the Grayson Fund is described as an investment opportunity that will "capitalize on markets in turmoil due to economic, political or natural disasters." It says, "Alan Grayson specializes in discovering outstanding companies that are undervalued due to forces beyond their control."

Another hedge fund marketing document cited a quote attributed to an early member of the Rothschild banking family in advising that "the time to buy is when there's blood in the streets."

Grayson defended his approach. "What creates the opportunity is when people overreact to something bad happening," he said.

At least some of Grayson's global travel has been paid for by the U.S. government, congressional records show. Grayson has traveled in official congressional delegations to Finland, Iraq, Kuwait, Pakistan and Saudi Arabia, according to a tally of those records by LegiStorm, a website that assembles data on Congress. He has also traveled to Israel on an official trip paid for by a private group, according to LegiStorm.

But Grayson's spokesman said the congressman had not invested in any country that he had traveled to as part of an official delegation, or used any information gained in that travel to assist in his investment strategies.

Grayson said the marketing materials did not violate the rules in the House ethics manual that prohibit members of Congress from using their names for businesses that provide professional services because the manual says the ban applies only to companies that provide professional services "involving a fiduciary responsibility." Grayson said he intentionally set up his hedge fund so he did not have such a responsibility to its investors, an arrangement that is allowed under the law in Delaware, where the fund is based.

House ethics rules also require that lawmakers list the names of companies they invest in through any hedge fund in an annual financial disclosure report. Grayson's most recent report, covering 2014, is 36 pages long and written by hand and does not segregate transactions conducted on behalf of the hedge fund from other personal transactions.

The 2014 report includes more than 800 trades involving companies like Companhia Energética de Minas Gerais and Petrobras, two struggling Brazilian energy companies, among dozens of other energy and commodities companies, industries that have suffered major losses in recent years.

Documents obtained by The Times show that the hedge fund lost about 17 percent of its value in its first 18 months of operation. Even so, the fund rules called for investors to pay a 2 percent annual management fee.

At least one of Grayson's former outside investors, Bob Poe, a prominent Florida businessman and campaign contributor to Grayson and other Democrats, said he reached out to the congressman in 2014 after he became concerned over the fund's losses.

"This fund is taking a beating," Poe recalled telling Grayson. "It just doesn't fit my investment temperament."

Poe, who is running for the House in a neighboring Florida district, said he was pleased when Grayson called him last year and notified him he would pay him back in full.

"I have never had anyone come back and do that," said Poe of a money-losing investment. "It was Alan's decision to do it."

Grayson said he felt that paying Poe back in full was the right thing to do, given that he is running what he called a "friends and family" hedge fund.

"Honestly, it's very frustrating to me," Grayson said. "This whole insinuation that I have done something improper."