Asbury Park Press from Asbury Park, New Jersey • Page 54

MAY 28, 2000 ShOu(D17 ON THE SCENE Bob Cullinane boldly takes the stage with the Improv Jam. 6 SIEVE BHEEH'S VIEW Holiday weekend sun bathers (left) working on their tans may find something's obscuring Old Sol. 2 BOOKS opinion PLUS Editorials Two new looks at presidential history shed fresh light on life in the White House. 4 Police who trade in old guns to cut the cost of new ones make a mistake. 3 David S.

Broder George F. Will ASBURY PARK PRESS TEETERING ON THE CAMPAIGN TRAIL HEDGE Bush, Gore far apart on gun control Hedge funds, which often yield big payoffs for well-heeled investors, can carry great risk, even when managed properly. But for those who invested with John C. Natale ofHolmdel, who faces up to 10 years in prison for fraud, risk has turned to ruin and $40 million is gone. A hedge fund primer Assets under management Here's how hedge funds stack up against other institutions: 0.5 HedgeFund.Net Aggregate Index Insurance 4.0 0 1 if! i(0 3.0 This is the fourth in a series of weekly stories on major issues in the presidential campaign.

By DENNIS CAMIRE GANNETT NEWS SERVICE WHEN IT COMES TO GUN control, Vice President Al Gore and Texas Gov. George W. Bush are far apart. Gore, the Democrat, wants more gun control; Bush, the Republican, basically does not. Gore's agenda includes licensing and registering handgun owners and allowing up to three days for background checks on purchases.

"I believe in pushing for mandatory child-safety trigger locks and restoring the three-day waiting period under the Brady law," Gore said in a speech to reporters and editors this month in New York. "I propose a photo-license ID for the purchase of a new handgun." Bush's record as governor shows he backs expanding gun owners' liberties and protecting firearms manufacturers from lawsuits. Instead of stricter gun laws, Bush wants tougher enforcement of existing ones. "I believe we ought to have gun laws that are reasonable, such as 5.0 companies State and local retirement funds Private pension funds Mutual funds Commercial banks J6.1- 14.4 6 2 3 4 5 Trillions of dollars Average percentage Increase In hedge funds and common stock indexes, 1989-1999 Z3 16-45 17.72 Dow Jones Industrial Average 500 Index NASDAQ Composite Index HedgeFund.Net Aggregate Index rrrp ISSUES 19.47 i 25 30 10 15 20 Percent change instant checks or trigger locks for guns," said Bush when asked about the pro-gun control Million Photos by MICHAEL J. TREOLA, Staff Photographer From the offices of Regency Capital L.L.C.

in Weehawken, which afford a view of the lower Manhattan skyline across the Hudson River, Robert J. Langley (left) and Roger Dietch, hedge fund manager, handle millions of dollars in investments for their well-heeled clients. and percentage change year by year 100 neogeruna.iNet. Aggregate inaex w'A NASDAQ Composite Index 500 Index 80 2 000 Dow Jones Industrial Average By JAMES W. PRADO ROBERTS STAFF WRITER If Roger Dietch is worried about the millions of dollars he has invested for his 36 well-to-do partners, it doesn't show on his face.

7 -20 1 It's 11 a.m., and his hedge funds, worth close to $10 million, have already lost tens of thousands of dollars for the day. A bank of computer monitors lining his office workbench displays the downward trend of the day's stock movements, and Dietch's diminishing funds. As the stocks in Dietch's Hawk Fund and Seahawk Fund begin to drop, the stock symbols on the screens turn from green to red. Dietch can't help but notice the cherry-red glow coming from the machines. But putting his faith in a number of indicators he created to exploit the daily and long-term roller-coaster ride of the stock market, Dietch senses his fortunes are about to change.

From his office on a Weehawken pier overlooking the Hudson River, Dietch decides to move his investors' money around. "I think we should be buying some things," the 54-year-old Dietch says to his trader, Paul Wakefield, who wields a telephone wired to a broker's office 3,000 miles away in San Francisco. "Where's Motorola? $134? Buy 1,000 (shares) of Motorola. We bought 1,000 of Merrill Lynch before, right?" For Dietch, this is just another day at work as one small part of the fast-growing area of high-income, unregulated, high-risk investing. Almost unheard of 10 years ago, hedge funds so called because they promise investors protection against sudden market downturns are almost exclusively for rich investors.

And investors, flush from a rich economy and a booming stock market, are pouring billions into hedge funds. But in recent months, some investors have lost nearly all their money not because of a topsy-turvy market, but because of criminal greed. This year, four hedge fund managers, including one from New Jersey, have been prosecuted on charges of stealing almost half a billion dollars from their clients. Holmdel resident John C. Natale, a hedge fund manager who worked out of Red Bank, admitted in March to hiding from investors $40 million in loses over eight years.

Free on bail, Natale has not responded to requests for comment. He faces up to 10 years in prison. Big money, few rules Although there are a dozen or more ways hedge fund managers invest their clients' money, traditionally the funds bet against the market and serve as a hedge against long-term investments. If stocks are going up, the funds will bet that they will later go down. If that happens, the fund makes money.

Federal law bars most individuals from investing in a hedge fund unless they have at least $1 million in assets or a $200,000 annual salary. And hedge funds typically have high minimum investments, ranging from $100,000 to $1 million and more. Dietch, who manages the funds See Hedge funds, Page C5 Mom March on May 14. "But I hope the marchers also understand that we need to send chilling signals throughout our society that if you commit a crime with a gun, there's going to be a consequence." Following rallies across the na-'i tion stemming from shootings such as the one at Columbine High School last year, polls show that gun control remains among the top i issues as voters prepare to pick a I president and decide control of the House of Representatives where Republicans now hold a slim 11-seat majority. I Although Bush is not a member i of the National Rifle Association, I he enjoys the backing of the politi-1 cally and monetarily powerful orga-; nization, which has 3.6 million members.

On the other hand, the NRA vilifies Gore, who is sup-i ported by less potent pro-gun con-trol groups such as the Violence Policy Center and Handgun Control i Inc. il To put it another way, Bush is courting the votes of the nation's 80 million gun owners, and Gore has his eye on the majority of Americans that polls show favors more control over weapons. It is an odd twist for gun-control advocate Gore, because as a Southerner from Carthage, he grew up hunting and shooting and taught his children how to shoot. While he was a senator, he voted with the gun lobby 75 percent of the time from 1985 to 1990, according to NRA records released by Republicans. Doug Hattaway, spokesman for the Gore campaign, said that over the years, Gore went from representing a small, rural area to more urban areas and finally, the whole Country as vice president.

During that time, gun violence has become more serious in society, he said. "Like a lot of people, his views on the subject have evolved as gun violence has become more prevalent and the NRA's political views have become more extreme," Hattaway said. The NRA, which has declared all-! out opposition to Gore's election, See Gore, Page C5 Roger Dietch, hedge fund manager, offers the domestic Hawk Fund and the Cayman Islands-registered Seahawk Fund for taxpayers. Each requires a $100,000 minimum investment. 1989 90 '91 '92 '93 '94 '95 '96 '97 '98 99 Year Sources: Federal Reserve Board; Bloomberg News Service; HedgeFund.Net Aggregate Index, an average of all 1.404 hedge funds tracked by this Web-based hedge fund database.

How hedge funds got started: The hedge fund was born in 1949 when Alfred Winslow Jones wrote an article for Fortune magazine that defined the hedge fund as an investment fund geared toward borrowing money against itself to make more investments, and to making money primarily when stocks fall in price. Traditionally, hedge funds are places for wealthy individuals and institutional investors such as pension funds to put a portion of their savings to protect it in the event of a significant market downturn. How hedge funds work: Hedge funds are essentially unregulated by the federal government. They are not required to make quarterly or annual statements about their size, growth or investments to the government or to the public. They are allowed to make many kinds of investments that mutual funds are barred from, such as shorting a stock (making a profit when a stock falls in price) or borrowing large amounts of money against the fund and reinvesting it in an effort to produce more profit (leveraging).

There are a dozen styles of hedge fund investing. Styles include funds that short stocks most of the time, to funds that invest based on anticipated changes in foreign currencies. Hedge funds are generally limited to investors who have $1 million in assets or $200,000 in annual income ($300,000 for married couples). A minimum investment in a hedge fund can be as low as $100,000 or as high as $1 million or more. Hedge fund managers typically charge investors 20 percent of fund profits and a 1 percent fee to cover operating expenses.

What hedge funds aren't allowed to do: Hedge funds cant advertise or make public stock offerings. How hedge funds have grown: A 1968 survey by the U.S. Securities and Exchange Commission identified 140 operating funds. In 1990, fewer than 500 funds managed less than $20 billion in assets, according to KPMG Peat Marwick. By 1996, more than 2,500 funds managed $170 billion.

Tremont Advisers an investment advising company based in Rye, N.Y., estimates there are now at least 7,500 hedge funds managing $500 billion in assets. Sources: U.S. Securities and Exchange Commission; hedge fund analysts and managers Holmdel man cheated investors of millions By JAMES W. PRADO ROBERTS STAFF WRITER The biggest hedge fund fraud in New Jersey history saw investors lose $40 million, but it all began with a $20,000 loss. Rather than own up to a bad investment, Holmdel resident John C.

Natale opted to cover up the loss shortly after he started his first hedge fund in 1992. To continue the cover-up, he was forced to attract ever more investors to perpetuate what prosecutors would later term a pyramid scheme. And when defrauding new investors wasn't enough, Natale decided to throw himself at the mercy of New Jersey justice. In his guilty plea in March before a Superior Court judge in Essex County, Natale said he defrauded 180 investors of $40 million over eight years. He pleaded guilty to the fraud after state prosecutors promised they would recommend no more than 10 years in prison.

Although hedge funds are typically limited to wealthy investors, Natale's funds were different. He took investments from moderate-income clients, too. Among his victims: a Middletown couple who lost their entire $135,000 retirement account; a Texas man who lost $85,000, half of his retirement savings; an individual who sold his New York business and invested $1.25 million in the months before Natale admitted to the fraud; and another investor who See Holmdel man, Page CS Press file photo John C. Natale faces up to 10 years in prison for fraud, theft by deception and misapplication of property. i 1.