Daniel Zwirn was on top of the world. It was the summer of 2006, and Zwirn, just 35, was hedge fund royalty. In five short years he had built D.B. Zwirn & Co., a New York–based firm specializing in making loans to small and midsize companies, from nothing into a $5 billion empire with 260 employees spread among 16 offices from San Francisco to Singapore. The secret: good, consistent, noncorrelated low-double-digit annual returns — and even better connections.
Life was grand for the fast-rising manager. Through DBZ’s management company Zwirn had purchased a $17.5 million Gulfstream 400 jet the previous year, and he and his wife, Monica Keany, were buying a $15 million apartment at the Ritz-Carlton Hotel, just a short walk from DBZ’s Fifth Avenue headquarters. He had joined the leadership council of Robin Hood, the hedge fund–heavy charity founded by Tudor Investment Corp. head Paul Tudor Jones II to fight poverty in New York, and was weighing in on economic policy issues with former Treasury secretary Robert Rubin as a member of the Hamilton Project Advisory Council at the Brookings Institution in Washington.
They were heady times for Zwirn, the product of a middle-class neighborhood outside blue-collar Pittsburgh. Fresh from his 1998 graduation from Harvard Business School, he had earned a reputation as a savvy investor, first at hedge fund Davidson Kempner Partners and then at MSD Capital, the private investment firm of computer pioneer Michael Dell. It was at MSD that he had gotten his big break, when he caught the eye of Glenn Dubin, co-founder of multistrategy giant Highbridge Capital Management, which agreed to stake him in 2001 with $150 million.
Thanks to the imprimatur of Highbridge, Zwirn attracted a glittering roster of influential investors, such as Duquesne Capital Management founder Stanley Druckenmiller and billionaire money manager Jeffrey Epstein. He did deals alongside hedge fund heavyweights like Fortress Investment Group co-president Peter Briger, formed more than 70 joint ventures with outside funds and started seeding other managers. So keen was his ambition that by 2006 — only two years after spinning off from Highbridge — Zwirn had begun discussions with investment bankers about doing an initial public offering, which could have made him a billionaire.
Then his world began to unravel.
In October 2006, Zwirn told investors that accounting irregularities had been discovered at the firm and that DBZ’s chief financial officer had left. A year earlier DBZ had borrowed $3.8 million from one of its funds and a managed account to cover the deposit on the Gulfstream jet. Zwirn hired an independent law firm and forensic auditors to do a companywide review, which uncovered more accounting issues, including unauthorized transfers between funds and instances where the management company had overcharged the funds for operational expenses. He also notified the Securities and Exchange Commission, which began its own investigation. The use of customer funds to cover personal expenses could have been in violation of Section 206 — the antifraud provision — of the Investment Advisers Act of 1940.
Zwirn, whose firm at its height had been bringing in more than $100 million a month in new capital, stopped taking money from investors in January 2007, as he waited for the review to be completed and the accountants to sign off on the books. But as the audit dragged on into the fall of 2007, investors grew impatient and redemption notices began to pile up. At the start of this year, with the audit finally completed and the review behind him, Zwirn still had hopes of keeping his firm together. In February, however, when a reporter acquired a confidential letter from DBZ’s auditors and planned to go public with the story, Zwirn decided to embrace the inevitable; he announced that he was closing his flagship, $4 billion D.B. Zwirn Special Opportunities Fund.
Talk about bad timing. Zwirn found himself a forced seller of loans in a rapidly worsening credit crisis. It could take four years or more to wind down his fund. And the onetime wunderkind is now fighting to have any future in the hedge fund industry at all.
“At 37, I would prefer not to retire,” says Zwirn.
Well, good luck. The SEC is still investigating DBZ. One focus appears to be the plane and what Zwirn knew about the money transfers, according to ex–DBZ employees. And with more than 500 largely illiquid investments in 20 countries, no new cash coming in and little ability to hedge, what Zwirn calls “the orderly dissolution” of his firm — returning as much money as possible to investors — won’t be easy.
Zwirn apparently assumes little blame for the series of events that caused his fund’s demise and seems quick to point fingers: at the former CFO, Perry Gruss, whose actions, in Zwirn’s mind, started the troubles. At former COO Harold Kahn, who Zwirn feels failed to act as a proper check. At the disgruntled insiders who may have been the source of the leak to the press of the firm’s problems. At the firm’s longtime auditor, PricewaterhouseCoopers, which didn’t sign off on the books until nine months after the independent review was completed. And, finally, at the credit crisis and the global recession, which have made a tough situation almost impossible.
“This business is something I love very much. Having it suddenly damaged for no reason is sad,” laments Zwirn, who says the toll the situation has taken on him is both mental and monetary.
Some who know him, however, believe that the hedge fund manager shares in the blame. To begin with, they say, Zwirn reached too far, too fast. He grew his firm from $900 million in January 2004 to $5 billion by the start of 2006. In the rush to do deals, they say, Zwirn would sign off on investments before he knew whether DBZ had the funds readily available to pay for them. He was also in a hurry to expand. By 2006, Zwirn had ten offices in Europe and Asia, putting even more pressure on DBZ’s already overextended back-office and operational support.
“From the first minute I got there, it was, ‘Where are the deals? Where is the business? More, more, more,’” recalls one former DBZ investment professional. “Nothing was ever going to be big enough for Dan. We had to have growth. We were going to be a $10 billion fund.”
Many former DBZ employees describe Zwirn as a demanding and difficult boss. He wanted things done, and he wanted them done quickly. At the same time, they say, he insisted on signing off on every deal and every detail, down to the exact furnishings of DBZ’s Mayfair offices in London. Those who have worked with Zwirn remark on how, faced with adversity, even if it’s just a question he does not like, he typically shuts down and stares blankly into space.
To his credit, Zwirn acted quickly when the accounting problems surfaced. In addition to commissioning the independent review and contacting the SEC, he appointed former New Hampshire senator Warren Rudman to DBZ’s international advisory board, giving him a large role in the review and repair process, which included remunerating investors for any money that had been improperly used. And Zwirn overhauled DBZ’s back office, replacing 115 people. He believes he responded the best way he knew how under difficult circumstances.
“We self-detected, self-reported and self-remediated everything that the investigation found,” he says. “You have to act swiftly and aggressively, and over the top, when it comes to issues of integrity.”
To be sure, Zwirn’s problems had little to do with investment performance. The Special Opportunities Fund was up 7.09 percent last year and had an average annual return of more than 10 percent from its May 2002 inception through December 2007. The fund, whose main strategy of lending to smaller companies benefited from the easy-credit environment earlier this decade, delivered positive returns for an impressive 58 straight months before its streak was broken in August 2007.
Winding down has been slow and costly. DBZ’s entire investment team is gone. Under the leadership of Lawrence Cutler, who was promoted from chief compliance officer to chief operating officer in January 2007, DBZ has closed offices in Beijing, Milan, Seoul, Taipei, Tel Aviv and Tokyo and downsized its operation in New Delhi. The 120 people left at DBZ’s New York headquarters largely handle portfolio management, accounting, operations and other middle- and back-office functions, reporting to recently promoted DBZ president David Lee. Most of the money for the wind-down is coming from the 2 percent management fee that DBZ charges. Given the firm’s $3.5 billion in assets, that comes to about $70 million a year — but the number is shrinking as DBZ returns capital to investors. Just this month investors agreed to allow Zwirn to use $19.5 million in 2004 investment fees, which had been withheld offshore and reinvested in the fund, to help cover next year’s expenses.
“We have massive fixed costs managing this business,” Zwirn says. “We certainly are not profiting from this.”
He estimates that resolving the situation has cost him personally $70 million in legal and accounting fees alone — “the vast majority of my net worth.” Meanwhile, he is trying to raise new capital. As recently as October, DBZ held discussions about a potential deal. But Zwirn will likely have a hard time replicating the incredibly good fortune he originally had with Highbridge. Dan Zwirn doesn’t talk a lot about his childhood. The Pennsylvania native grew up in a middle-class neighborhood in a small suburb of Pittsburgh. (His father was a hospital accountant.) An only child, Zwirn was the kind of kid who always had his head in a book. He excelled in school, especially at science, and in 1988 was one of 50 high school students chosen to attend the Pennsylvania Governor’s School for Business at the Wharton School of the University of Pennsylvania, a free five-week summer program designed to train future leaders. When it came time for college, Zwirn chose UPenn, graduating cum laude in 1993 with a BAS in computer science from its Moore School of Electrical Engineering and a BS in economics from Wharton.
Before college, Zwirn says, he had wanted to be CEO of a technology company, but by the time he graduated, his interest had shifted to Wall Street. His knowledge of finance impressed David Lee, then an analyst and vice president at investment bank Lazard Frères & Co. “What stood out was his intelligence,” recalls Lee, who offered Zwirn a spot in Lazard’s analyst training program in New York. Zwirn joined the media and communications banking team and, according to one managing director with the firm at the time, was quickly viewed as having partner potential.
Anthony Gellert, a fellow trainee and a longtime friend, says no one worked harder than Zwirn. He remembers how his colleague sent the entire contents of his desk and filing cabinet, via Federal Express, to London in advance of a short trip there so he would have whatever he might need.
At the end of the two-year program, Zwirn left Lazard to join private equity firm Madison Dearborn Partners in Chicago. (“Chicago felt like a big Pittsburgh,” he says.) A year later he moved back east to enroll in Harvard Business School. During his first year there, he cold-called every event-driven hedge fund he could find, looking for a summer job. Thomas Kempner, co-founder of Davidson Kempner Partners in New York, offered him a position.
In 1998, after getting his MBA, Zwirn took a full-time job with Davidson Kempner, eventually setting up the firm’s corporate loan business and starting its London office. In April 2000 he left for Dell’s MSD Capital, where he put together a 12-person special opportunities team, which provided bridge loans, mezzanine financing, structured letters of credit and other forms of lending to small- and middle-market companies.
Zwirn met Dubin through Joseph Kusan, a former colleague of Zwirn’s at MSD who had joined Highbridge’s merger arbitrage group. In mid-2001, Kusan knew that Highbridge, which had been founded by Dubin and Henry Swieca in 1992, was looking to create a specialized credit opportunities business. Dubin and Swieca brought in Zwirn as a managing director and senior portfolio manager, setting him up with his own firm, Highbridge/Zwirn Capital Management, which initially operated out of Highbridge’s posh 57th Street offices overlooking Central Park. (Dubin and Swieca shared in Zwirn’s revenue.)
From the start, Zwirn’s management approach was anything but warm and fuzzy. Employees were hired, given a phone and told to go out and find deals. Zwirn’s main strategy was lending to small and midsize businesses, the types of companies that larger banks often overlook. Deals typically fell into one of two camps: traditional corporate loans, to everything from casino companies to small independent radio station operators, and asset-backed lending, which also ran the gamut (in one transaction a company put up antique watches as collateral). The firm even had a film-financing group. If assets gave off a steady revenue stream, DBZ would consider lending against it. DBZ also invested in real estate. By 2005 the ever-reaching Zwirn had begun to diversify into still more strategies, including asset-backed securities and commodities trading.
Zwirn didn’t like to be told no, according to former employees. But if you produced, you got paid well. “Working for Dan, especially early on, when we worked every single day, including weekends, you could never really complain, because Dan was working harder than everybody else,” recalls one former DBZ managing director.
Zwirn, who was both CIO and CEO, says he left the back-office operations to his CFO, Gruss, who had joined in July 2002, and his COO, Kahn, who had come over in 2005 from Westport, Connecticut–based Pequot Capital Management. Gruss, who was popular among employees, dealt with the people side of the business — from negotiating partnership contracts to listening to complaints — which did not come easily to Zwirn. Gruss spent much of his time securing financing for Zwirn’s vast array of investments. When Zwirn decided it was time to move out of the Highbridge offices, he had Gruss pound the pavement looking for real estate. As COO, Kahn had oversight responsibility for Gruss.
According to former DBZ employees, Dubin played an important role in the early fundraising for Zwirn, introducing him to key investors and sitting in on some marketing meetings. They say it was Dubin who introduced him to Epstein, the wealthy money manager who achieved national notice through his friendship with president Bill Clinton, and to Druckenmiller. Both would become investors (Zwirn managed a separate account for Druckenmiller’s Pittsburgh-based Duquesne). The Highbridge connection also helped Zwirn attract institutional investors like Private Advisors, a $4 billion, Richmond, Virginia–based alternative-investment firm.
“We met with Dan because Highbridge was backing him,” explains Timothy Berry, the partner in charge of hedge fund investments for Private Advisors. “We know Highbridge, and they are a well-respected firm.” Berry met with Zwirn in 2002; by the following year Private Advisors was an investor in the fund.
Institutional investors liked the investment profile of Zwirn’s firm. Because borrowers had to pay back their loans on a regular, predetermined schedule, it generated very consistent returns, typically about 1 percent a month. The strategy was neither very levered nor volatile.
Another important figure in Zwirn’s early success was Fortress co-president Briger, one of the pioneers of direct lending. Briger, 44, is the manager of the Drawbridge Special Opportunities Fund, a credit fund that follows a strategy similar to DBZ’s. Before joining Fortress in March 2002, Briger headed up a direct-lending business at Goldman, Sachs & Co., where he worked for 15 years, serving as co-head of the fixed-income principal investments group and the Asian distressed-debt business.
Briger and Zwirn met through business; their funds worked on deals together. In the early years it was Fortress that typically found the investments and invited Zwirn’s firm to participate, according to former DBZ employees. In 2004, Fortress brought Zwirn in on a deal it was doing with German retail real estate company Gagfah Group. Fortress and DBZ also provided $230 million in financing to Horizon Technology Finance Management, a Farmington, Connecticut–based business that provides venture capital to development-stage life science and technology companies.
Zwirn, according to people close to him at the time, thought he and Briger were friends. Those who know Briger say the Drawbridge manager saw his fund and Cerberus’ direct-lending vehicle, Ableco Finance, as leading the field and Zwirn as riding in their wake.
In early 2004, with $900 million in assets, including $400 million from Highbridge, Zwirn and his then 30-person team moved into their own offices, just a few blocks away. In an April 2004 investor letter detailing the spin-off, Zwirn presented the development as an exciting part of the continued growth of the renamed D.B. Zwirn & Co. But in fact, according to people working at DBZ at the time, Zwirn was falling out with Highbridge and, in particular, with Dubin. That year, when Dubin asked that some of the capital DBZ was managing for Highbridge be returned, Zwirn used the request as an opportunity to renegotiate the terms of his deal. (Dubin and Swieca’s then–39 percent revenue share was cut back significantly and would reduce over time.) By October 2004, a month after New York’s JPMorgan Chase & Co. agreed to pay a reported $1.2 billion for a majority stake in Highbridge, the Highbridge/Zwirn Special Opportunities Fund had become simply the D.B. Zwirn Special Opportunities Fund.
Dubin declines to comment on his relationship with Zwirn and DBZ. For his part, Zwirn says that he admires the way Dubin and Swieca built Highbridge. Indeed, Zwirn has tried to duplicate the Highbridge/DBZ seeding relationship a number of times, with mixed success. Zwirn has seeded a handful of firms, among them a merger arbitrage fund founded in 2004 by Kusan. Kusan’s firm, New York–based JCK Partners, was forced to close this year after Zwirn pulled his assets, partly as a result of his own fund’s wind-down.
The relationship between Briger and Zwirn also cooled. Briger, who through a spokesperson declined to comment for this story, is said to have been put off by the way Zwirn ran his business. In the market, DBZ had a reputation for hiring young, hungry deal makers; Fortress was known for bringing in older, more experienced professionals and giving them the operational support they needed.
For Dan Zwirn, being a successful hedge fund manager was about more than money. It was also, some ex–DBZ employees say, about the power and prestige that accompanied the job. In addition to joining the leadership council of Robin Hood, Zwirn became a trustee of New York’s Public Theater, alongside Warren Spector (co-president of the Bear Stearns Cos. until his dismissal in August 2007) and MTV founder Robert Pittman, another DBZ investor.
Around the time of the 2004 presidential election, Zwirn appeared to acquire an interest in politics. The names of such prominent politicians as former vice president Al Gore started to appear on his calendar. In March 2006, Zwirn appointed Samuel Berger, former national security adviser to Clinton, as chairman of DBZ’s newly formed international advisory board, which also includes ex-Senator Rudman and former Mexican president Ernesto Zedillo.
“Just like Cerberus had former vice president Dan Quayle on its advisory board,” Zwirn notes, “DBZ has Warren Rudman, Ernesto Zedillo and other significant political leaders who have helped the firm internationally.”
Like many hedge fund managers of his day, Zwirn summered in the Hamptons and had his own personal driver. He traveled to more-far-flung locales in his own jet, purchased in 2005 to help the DBZ CEO oversee his growing empire. Still, Zwirn insists he isn’t avaricious (“I was raised better than that,” he asserts). Some investors say they liked the fact that Zwirn was motivated by doing deals and making money.
By January 2006, DBZ had grown to nearly 200 employees, $5 billion in assets and some 600 positions. Despite this, Zwirn was signing off on all the deals himself. Investors say they were impressed with how well he knew all the positions in the portfolio, but Zwirn was spread thin. According to ex-employees, he refused to hire a CIO or appoint an investment committee to share the burden. Zwirn did later create investment review committees divided by region, which he says were meant to evolve into more-formal investment committees.
In the first week of October 2006, Zwirn informed employees, via a group meeting and conference call, that some irregularities had been uncovered in the firm’s accounting by an internal controller at DBZ. There were three issues at the time: a wire transfer from the limited partnership to cover the down payment on the plane while DBZ waited for a loan to cover the cost; instances where fees had been taken from the fund after they had been earned but before they were supposed to be distributed; and the unauthorized transfer of assets between the onshore and offshore funds.
On October 9, Zwirn announced that Gruss and the firm had parted ways. In fact, Gruss had left on September 30, after the hedge fund had brought in its outside counsel, New York law firm Schulte Roth & Zabel, to review the situation. (Gruss had okayed the wiring of funds for the down payment on the plane but did not originate the transaction.)
Zwirn spent the weekend of October 28 on the phone with investors, explaining what had happened. He made almost 200 calls. Zwirn, an avid reader of Wall Street history, says he did not want to repeat the mistake John Meriwether and John Gutfreund made in 1991, as chronicled by Martin Mayer in Nightmare on Wall Street: Salomon Brothers and the Corruption of the Marketplace. Meriwether and Gutfreund, vice chairman and chairman, respectively, of Salomon, failed to adequately report illegal trading activities by one of their bond traders in the Treasury market, leading to sanctions against both men by the SEC.
Zwirn retained a second law firm, Gibson, Dunn & Crutcher, to conduct an independent review of the fund’s operations. (Gibson Dunn hired accounting firm Deloitte & Touche to assist it.) Zwirn also reported its findings to the SEC, which opened its own investigation. And DBZ, which at its peak managed $6 billion in capital, soon stopped raising outside money.
“I found Dan Zwirn totally mortified by what had happened,” says former senator Rudman, who joined the firm at the end of 2006. “Because one, there is no doubt in my mind Dan is an honest, ethical individual. And two, it was going to take a lot of money to straighten out what had happened, and that money would be his.”
For the next year auditors and lawyers camped out in the DBZ offices. Numerous firm employees, and former employees, were interviewed by attorneys and auditors. Each of the deals on DBZ’s books was reviewed. Some investment professionals felt betrayed by the back office.
“There was this sense that we did our jobs,” explains one senior professional. “We were the hunters. We went out and sourced and originated and executed transactions like we were supposed to. And we got back to find that the villagers had burnt down the town.”
As DBZ was struggling, Fortress was showing how rich one could get running a hedge fund. On February 9, 2007, Fortress became the first U.S. hedge fund firm to go public, raising $634 million in an IPO on the New York Stock Exchange, which valued the entire firm at more than $12 billion. Overnight Briger had achieved an estimated net worth of $2 billion. Although Fortress’s share price has since taken a beating because of the credit crisis and the global market meltdown (its total capitalization has shrunk to $1 billion), watching Fortress’s initial success had to be difficult for Zwirn. DBZ had been in talks with Lehman Brothers in 2006 about going public.
Gibson Dunn completed its review of DBZ in March 2007. The news was as good as Zwirn could have been hoping for. The firm found that most of the accounting errors had already been disclosed, none had been large in monetary terms and every possible step had been taken to make investors whole.
“The bottom line is, DBZ did not have a valuation problem,” notes Rudman.
The extent of DBZ’s operational problems was apparent in the account of the review DBZ gave its investors in a letter on March 26, 2007. In addition to the earlier accounting issues, Gibson Dunn discovered instances when investor money had been taken to cover capital calls for “an investment partnership owned personally by three [unidentified] senior professionals associated with the firm,” according to the letter. (The lawyers found no evidence the senior professionals knew fund assets had been used.) It also discovered that the management company had overcharged the funds by more than $11 million for expenses, as well as an instance in 2006 where $3.5 million in expenses was shifted between the onshore and offshore funds.
The audit dragged on for almost a year, in part because PricewaterhouseCoopers couldn’t fully start its work until Gibson Dunn had completed its review. According to ex–DBZ employees, it didn’t help that PWC had to go through all the details of every deal and every transaction, some of which were difficult to get. By the time PWC signed off on the 2006 audit, on December 24, 2007, many DBZ investors had filed redemption requests. Although the auditors uncovered nothing new, the damage had been done.
“What wrecked Dan Zwirn’s business was not what happened with the accounting,” says one investor. “It was that he could not get his K-1s out to people.” The Internal Revenue Service requires partnerships and trusts to provide K-1 reports to investors, detailing profits and losses. Without them, investors could not close their own books; therefore they put in for redemptions.
“We would still have been very much in business if the audit had been done in a timely fashion,” Zwirn insists.
Going into the crisis, Zwirn had been in negotiations with Gruss; Christopher Suan, who was responsible for non-U.S. investments; and Vasan Kesavan, head of direct lending. Zwirn had decided to make Gruss and Kesavan partners (Suan already was one), but hashing out the exact terms had been difficult. Ex–DBZ employees say Zwirn seemed to view the management company as his own: In 2006 he took a $6.5 million distribution for the deposit on the Ritz-Carlton apartment. (Zwirn and his wife never moved into the apartment; he sold it a year later, along with the plane.)
By early February 2007, Kahn had resigned from DBZ and been replaced by Cutler as COO. Later that month Zwirn got word that a reporter had obtained a confidential letter from PWC outlining the findings of the audit and intended to write a story on the troubles at DBZ. There was speculation at DBZ that Suan might have leaked the story. But Michael Tein, a Coconut Grove, Florida–based attorney representing Suan, says any suggestion that Suan would disclose confidential information to a third party is “absolutely, 100 percent false. Chris would never do something like that.”
Zwirn had already been discussing shutting down the Special Opportunities Fund; the press leak forced his hand. On February 21, DBZ told its investors it was closing the fund. The very next day the Financial Times ran two articles detailing the high level of redemption requests and the closure. Suan subsequently left the firm. Zwirn will not comment on who he thinks leaked the information. Neither Zwirn nor Suan (or his attorney) will comment on the nature of the settlement later reached with Suan, which ex–DBZ employees say was favorable to the former partner.
Dan Zwirn says he misses investing. He has floated the idea by some of his current investors of launching a new firm, tentatively to be called ZLC Global, with Lee and Cutler, according to sources familiar with his plans. But Zwirn recognizes the need for patience, as the DBZ wind-down still has a long way to go. For now his days are spent overseeing the sale of assets and communicating with clients.
“It has been very stressful for him,” says his longtime friend Gellert, who runs market-neutral hedge fund Livingston Capital Partners in New York.
Throughout the summer Zwirn’s lieutenants insisted the wind-down was going well. “Unlike other funds, we are voluntarily winding down,” says Lee. “It is not because we lost all of our investors’ money overnight.” Still, the fund was down more than 20 percent this year through September, as DBZ had invested in some of the hardest-hit parts of the credit market.
In 2005 the firm extended approximately $110 million in loans to SunCal Cos., an Irving, California–based real estate developer. Last year SunCal defaulted on the loans and DBZ took over the land, which included a 1,300-acre commercial and residential development in Sparks, Nevada, and an apartment project in Orange County, California — both ground zero locations for the mortgage meltdown. DBZ completed a cash deal to sell the SunCal properties on September 17 for an undisclosed amount.
Zwirn also invested in mortgage-backed collateralized debt obligations through ZS Structured Credit Capital Management, a CDO business run by Kenneth Song in Stamford, Connecticut, that had been spun off from DBZ in 2006. At least three of the four ZS CDOs in which DBZ owns equity are now in default.
For Zwirn to repair his damaged reputation, he needs to do well by his current investors. To date, DBZ has returned 12 percent of capital to investors in its offshore fund, the larger of its two main vehicles.
Zwirn also still has the very real problem of the SEC investigation. In this environment regulators are keen to show that they are on the hedge fund beat. Over the past 18 months, the U.S. Congress, the SEC and other regulators have launched investigations into dozens of hedge funds. In DBZ’s case the SEC looks to be focusing on how much Zwirn knew about what happened and on how his fund communicated with its investors.
“I have been involved in a lot of major corporate investigations where serious issues flowed through to investors,” says former senator Rudman. “Here investors came through it pretty whole. Dan Zwirn and his management team took a terrible hit, and they are working hard to put it back together again, and hopefully they will.”
As recently as this fall, Deutsche Bank considered making an investment with Zwirn, but the talks with DBZ never went anywhere, according to sources. Zwirn declined to comment on what might be in the works. But if he had it to do all over again, he says, he would structure his business more like a private equity fund, with longer lockups, which also “would allow us to do some of the more liquid things that we do.”
These days, DBZ alumni hold regular reunions. Sometimes even Perry Gruss makes an appearance. They meet and trade gossip about their old firm. “It’s only been a little over two years,” says one investment professional, who was among the last to leave. “Honestly, it feels a lot longer. The last few months weren’t a lot of fun. There was frustration and disappointment. I’ll even admit to some anger.”
Once every couple of months, Zwirn holds his own reunion of sorts, meeting his friend Gellert at the Elephant & Castle restaurant in Manhattan’s West Village. Brunch (the Greenwich omelet, red peppers instead of tomatoes, and a double order of hash browns for Zwirn) is followed by a movie near Union Square — whatever film is starting next when they arrive at the theater. “Dan likes to play movie roulette,” explains Gellert.
For a onetime hedge fund king who has generally left little to chance, gambling on what movie to see may provide a kind of catharsis.
