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Bucking the trend, this week’s WC is a deep dive into one topic.
- Is Hedonova finally going down?
- How did they do it?
- How can you protect yourself from scammers?
Let’s go.
Is Hedonova finally going down?
Before we begin:
If you’ve been scammed by Hedonova or someone else and want to share your story — or you need help getting your money back — please reply to this note.
Several years ago, an alternatives fund called Hedonova came knocking on our door asking if we’d do a write-up on them.
As we were looking to launch a similar offering, Stefan and I jumped at the chance to see how an established player was doing it.
We dove in, wrote it up, and mostly forgot about it.
Then the CEO said he wanted to invest millions into our fund, and obviously, we were delighted.
But taking on an LP requires a lot more due diligence than a quickly written fund overview, and that’s when Hedonova’s story began to fall apart. Our journey in brief:
- Hedonova was going to invest in our ALTS 1 Fund, but they didn’t pass the standard KYC (Know Your Customer) check, so we didn’t accept their investment. It’s unlikely there was ever an investment to be had.
- We have reason to believe that the founder of Hedonova, Neel Aryan Birla, was misrepresenting himself online.
- Specifically, we found out the photo he used is not actually a photo of himself but a stock photo.
- Yieldtalk has revisited its review of Hedonova.
- Pedro from HelpMeChoose did some research into Hedonova.
While we were possibly one of the first to realize Hedonova wasn’t legit, the (alleged) fraud became an open secret within the alts community. A lot was written about it.
As the stories piled up, the fund became litigious, hiring a real-life (we think) general counsel to spray and pray cease and desist orders.
That worked, more or less, but possibly the damage was done.
The SEC charged the fund in July. In summary, they allege Hedonova committed the following offenses:
- Misleading Statements: Hedonova allegedly made false claims about its investment activities, portfolio performance, and relationships with reputable financial institutions and service providers to solicit investors. These claims allegedly falsely represented the involvement of a Big Four accounting firm and several financial firms.
- Fraudulent Investment Scheme: From November 2021 to the present, Hedonova is accused of running a fraudulent scheme to raise funds from investors based on misrepresentations, including the identities of its auditor, administrator, custodian of funds, and bankers.
- False Information on SEC Filings: Hedonova Advisors LLC, the investment adviser to Hedonova Fund, filed a Form ADV containing materially false statements about itself and Hedonova Fund.
- Continuing Misconduct: The fraudulent activities continue, as Hedonova’s operations and website remain active, with continuous receipt of investments.
- Failure to Provide Proof: When the SEC subpoenaed Hedonova, it allegedly failed to produce audited financial statements or other documentation to substantiate its claims.
The complaint names several possibly fake people:
Alexander Cavendish, Munish Kumar, and Suman Bannerjee
We dug into everyone associated with the company in 2022, and they were all fictitious, as far as we could tell. (more on this below)
)
The list of alleged Hedonova offenses is long and distinguished, but perhaps my favorite is when they pretended to invest $16 million into a pretend company in Estonia.
It’s all a bit hilarious if you haven’t invested incinerated money with the (allegedly) bogus company.
But real people have lost a lot of real money.
So how did they do it?
Hedonova used social proof to build up a tremendous amount of credibility with potential investors.
What is social proof?
Social proof is the psychological concept that others influence people’s decision-making, compelling them to act within societal norms or expectations. In marketing, social proof provides evidence of a brand’s popularity or usability among consumers to influence the purchase decisions of prospective and returning customers.
Hedonova used various channels to build up a reputation as a legitimate company.
Free media
Journalists are busier than ever, and Hedonova exploited that.
“Their modus operandi is exploiting journalists’ present-day pressure to get stuff done quickly. Combined with services like press wires and a lot of new SEO-focused media plays that have even less time for fact checking, or who have not employed dedicated journalists, they seem to have created a ‘PR front end’, and, at first sight, a legit reputation.
Straight out of Ryan Holiday’s playbook in ‘Trust Me I’m Lying’, except that no one bothered to make it realistic or future proof enough. The inconsistencies are obvious and hilarious, yet somehow they are getting published.”
We fell victim to the press release tactic ourselves. They announced their investment in Alts 1 before we began the KYC process, and now that the release is out there, it’s impossible to get it taken down.
Hedonova released at least twenty press releases from 2022 to 2023 over ten months.
The press releases reassured investors in the early days before more legitimate journalists took notice.
Eventually, Hedonova could secure dozens of breathless free (and paid) articles.
While the more reputable media outlets have largely stopped carrying Hedonova news, they’re still getting press.
These have all come out since the SEC complaint dropped.
Industry Awards
The only verifiably real member of Hedonova’s team has been well-feted this year.
The awards are legitimate, but they were likely paid for.
Blue chip logos on its site
Bogus affiliations are a crucial element of the SEC complaint against Hedonova, and while some are irrefutable, like paid media placements…
Others are easily debunked with a quick note to any of these organizations.
The site has taken down some logos, but according to the SEC complaint, Hedonova’s site lied about the
“Fund’s auditors, administrator, custodian of funds, and bankers, [and made] false statements about its investments. For example, the complaint alleges that a January 2021 private placement memorandum claimed a Big Four accounting firm as the Fund’s auditor, a Chicago-based financial services firm as its administrator, and an international bank as its bank. However, after searching their records at the request of the SEC, none of those institutions found any records relating to the Hedonova Fund.
Lots of other investors just like you
Hedonova’s fact sheet leads us to believe the fund is immensely popular.
But the $798 million AUM looks like a lie, overstating the figure by 10x.
Basic math makes this evident.
These figures imply $83 million AUM.
- (100/1.82)*1,518,407 = $83 million
- (100/.12)*100,114 = $83 million
- etc
Who knows if the numbers above are legit, but the numbers come nowhere near the stated AUM.
Lots and lots of “employees” on LinkedIn
An unbelievable number of people say they work for Hedonova.
Why does this feel bogus? A few reasons.
Bringing back junior high math, Hedonova has maybe $83 million under management and charges 1% fees.
That’s $830,000 to support 36 people plus legal fees, investor portals, annual K-1s, PR (which is extensive), their numerous offices, etc.
Speaking of their numerous offices. They are legion.
I didn’t bother looking into all these addresses, but the Deleware and Idaho offices are Registration agents.
Back to LinkedIn, Arti says it well.
Neel Aryan Birla’s name was on the company’s About page until it became toxically Googleable.
He’s nowhere to be found on the site now, but his Twitter account is still live, and he has referenced his position with Hedonova on it.
Of the three dozen employees on LinkedIn, some seem clearly fake.
But others seem legit.
Except she only exists in the Hedonova Universe.
In addition to the Google search of her name above, the image below is only on her LinkedIn and Hedonova pages.
Which isn’t normal. People usually use the same photo for lots of things. But more damning: search for an image of anyone, and you’ll get other pictures of the same person—no such luck with Jennifer.
So a cursory examination of the photo reveals…
I did the same thing with other execs and got the same result.
Our friend Suman
And his buddy Alex
So Neel (allegedly) used several social proof elements, plus an exceptionally slick website, to lure investors in. How can we defend against this sort of thing?
How can you protect yourself from scammers?
This is an exceptional story full of red flags that are obvious in hindsight, but there’s a lot you can do to protect yourself from (alleged) fraud. Obvious stuff like:
- Research Thoroughly: Always research the company and its management team. Look for reviews, news articles, and regulatory filings.
- Verify Credentials: Check if the firm and its advisers are registered with relevant regulatory bodies such as the SEC. Verify any claims about partnerships with reputable firms.
- Beware of High Returns: Be cautious if investment opportunities guarantee unrealistic or high returns with little risk.
- Check Contact Information: Verify the company’s contact details, including addresses and phone numbers. Be cautious if the company is unwilling to provide these details.
But AI has completely changed the game, and you’ve got to stay ahead of fraudsters because they will use every tool available to them.
You need to do stuff like:
- Educate Yourself on AI Techniques: Understand how AI can be used in scams, such as deepfake technology or automated phishing.
- Use AI Detection Tools: Leverage AI-driven tools that detect communications or transaction anomalies.
- Analyze Communication Patterns: Use AI to analyze and flag unusual patterns in emails or calls that could indicate fraud.
- Participate in Community Alerts: Engage in online forums and community alert systems where individuals share information about new scams.
But no matter how careful you are, there will always be risks. Diversify, be as cautious as possible, and develop in-person human relationships.
If you’ve been scammed by Hedonova or someone else and want to share your story — or get help getting your money back — please reply to this note.
That’s all for this week; I hope you enjoyed it.
Cheers,
Wyatt
Disclosures
- This issue was brought to you by our friends at Arta Finance
