A detailed analysis to show a simple way for Hedge Funds to prove that they are not the next "Madoff"

1. Identifying Hedge Fund Fraud Lessons from “Madoff” Presented to Bank of New York Mellon Paul F. Dowding Daedalus Oversight of Putney Bridge Enterprises, LLC © 2009 Putney Bridge Enterprises, LLC September, 2009.

2. © 2009 Putney Bridge Enterprises, LLC Sources: September, 2009. EDHEC Business School Research Paper: "Madoff: A Riot of Red Flags" Authors : Greg N. Gregoriou Professor of Finance, SUNY Plattsburgh François-Serge Lhabitant Associate Professor of Finance at EDHEC Business School Capital Markets Risk Advisors (CMRA) - Risk Insights Financial Times Articles by Greg Farrell & Brook Masters PBS – Frontline On-line reporting

3. What is the succinct answer to the question from a Hedge Fund? © 2009 Putney Bridge Enterprises, LLC Challenge: “ How do I convince my investors that I am not the next ‘Madoff’? ” September, 2009.

6. © 2009 Putney Bridge Enterprises, LLC Split Strike Conversion - “ Shoulda-Woulda-Coulda ” September, 2009. Profit / Loss Analysis Profit Loss Call Strike Price It is relatively easy to generate profitable trades… … retroactively Background: Lower Price Higher Price

9. This all makes sense to industry participants… © 2009 Putney Bridge Enterprises, LLC Background … but it is hard to explain! September, 2009. Especially when it wasn’t caught! Summary:

10. A less technical review of Investment Management © 2009 Putney Bridge Enterprises, LLC Fundamentals: September, 2009 slightly ^

11. Consider a simplified model of the Investment/Brokerage Process vs. The Accounting Process © 2009 Putney Bridge Enterprises, LLC Fundamentals: September, 2009.

12. Financing: Prime Brokerage Perspective Equity LMV Margin Balance SMV Short Proceeds © 2009 Putney Bridge Enterprises, LLC September, 2009.

13. Financing: Investor Funds Accounting Perspective ASSETS LIABILITIES EQUITY Margin Balance LMV SMV (borrow) Short Proceeds (collateral) © 2009 Putney Bridge Enterprises, LLC September, 2009.

14. Can we link the Investment/Brokerage Process and the The Accounting Process and distance ourselves from Ponzi schemes? © 2009 Putney Bridge Enterprises, LLC Fundamentals: September, 2009.

16. Any “Ponzi” scheme, including Madoff, fails because it can not manage its Assets vs Liabilities… © 2009 Putney Bridge Enterprises, LLC Fundamentals: … and its cashflow September, 2009. This is true for any investment fund or company.

18. © 2009 Putney Bridge Enterprises, LLC Fundamentals: September, 2009. Linking Investment & Accounting Investor Fund Manager Contributions Withdrawals & Dividends Cash Securities Financing Execution Positions & Transactions Valuation Administrator Custodian Broker Statement of Cash Flows Balance Sheet Assets Liabilities Equity Retained Earnings Income Statement Partnership Accounting Reconciliation Control Reconciliation Control Reconciliation Control Reconciliation Control Reconciliation Control Reconciliation Control

20. Two summaries: Investment Management Challenges Investment Services Spectrum © 2009 Putney Bridge Enterprises, LLC Perspective: September, 2009.

22. Investor Services Spectrum (1) © 2008 Putney Bridge Enterprises, LLC (1) September, 2009.

23. Biography: Paul Dowding Paul has over 20 years experience in industry and the financial services. Paul graduated from Chase Manhattan Bank’s Operations Management Program, having previously worked as a manufacturing engineer for Ford Motor Co. Paul has worked in Global Custody, Securities Lending, Private Wealth Management, Prime Brokerage, Equity Finance and supported other trading and investment management businesses. His roles have spanned Operations, Client Service, Project and Product Management working for Chase Manhattan Bank, Morgan Stanley, Goldman Sachs and Bank of America. He has lived and worked in London, New York, Singapore and Sydney. Paul has successfully run his own “business-process” consulting and creative licensing company Putney Bridge Enterprises, LLC (PBE) since 2001. Daedalus Oversight is a Division of PBE. Paul Dowding is also affiliated with the broker, Meridian Equity Partners as Managing Director, Business Development and Prime Services. Paul holds a BSc. (Hons) Aeronautics & Astronautics, from the University of Southampton, UK and is an Associate Member of the Institute of Mechanical Engineers, UK. Paul holds his Series 7, 63 & 24. September, 2009.

24. Contact Details: Paul Dowding 203 770 6043 [email_address] Daedalus Oversight is a Division of Putney Bridge Enterprises, LLC September, 2009.