Free Declaration in Support - District Court of California - California

Case 3:07-cv-04975-WHA

Document 37

Filed 11/01/2007

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KEKER & V AN NEST, LLP MICHAEL D. CELIO - #197998

2 CLEMENT S. ROBERTS - #209203
JO F. WEINGARTEN - #246224
3 71 0 Sansome Street

San Francisco, CA 94111-1704
4 Telephone: (415) 391-5400
Facsimile: (415) 397-7188 5 Emai1: mcelio(?kvn.com

cro berts(?kvn. com

6 iweingarten(?kvn.com
7 Attorneys for Defendants

ALEXANDER JAMES TRABULSE,
8 FAHEY FUND, L.P., FAHEY FINANCIAL

GROUP, INe., INTERNATIONAL TRADE
9 & DATA, and ITD TRADING
10
11

UNITED STATES DISTRICT COURT
12

NORTHERN DISTRICT OF CALIFORNIA
13

SAN FRANCISCO DIVISION
14
15

SECURITIES AND EXCHANGE COMMISSION Case No. C-07-4975 WHA
16

Plaintiff,
17

v.
18

DECLARATION OF CLEMENT S. ROBERTS IN SUPPORT OF DEFENDANT ALEXANDER JAMES TRABULSE'S MOTION TO DISMISS
Date: December 6, 2007

ALEXANDER JAMES TRABULSE
19

Defendant,
20

Time: 8:00 a.m.
Courtroom: 9

and
21

Judge: Hon. William H. Alsup
Date Action Filed: September 26, 2007

FAHEY FUND, L.P., FAHEY FINANCIAL 22 GROUP, INC., INTERNATIONAL TRADE & DATA, and ITD TRADING,
23

Relief Defendants.
24
25

26
27
28
DECLARATION OF CLEMENT S. ROBERTS IN SUPPORT OF DEFENDANT ALEXANDER JAMES TRABULSE'S MOTION TO DISMISS CASE NO. C-07-4975 WHA

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1 I, CLEMENT S. ROBERTS, declare and state that:
2
1.

I am an attorney licensed to practice law in the State of California and am an
Keker & Van Nest LLP, located at 710 Sansome Street, San

3 associate at the law firm of

4 Francisco, California 94111, counsel for Defendant Alexander James Trabulse in the above5 captioned action. I am duly admitted to practice law before this Court. Except where expressly
6 stated, I have knowledge of

the facts set forth herein, and if called to testify as a witness thereto,

7 could do so competently under oath.

8

2.

Attached hereto as Exhibit 1 is a true and correct copy of

the Fahey Fund

9 (Limited) Partnership Agreement, dated January2002.

10

3.

Attached hereto as Exhibit 2 is a true and correct copy of

the newspaper article

11 by Kathleen Pender, Net Worth: Hedge Funds Need a Careful Look, S.F. Chron., Sept. 27, 2007,

12 at C1.
13

4.

Attached hereto as Exhibit 3 is a true and correct copy of a letter from Mr.

14 Trabulse's counsel Michael D. Celio to the SEC, dated July 17, 2007.
15

5.

Attached hereto as Exhibit 4 is a true and correct copy of the Dow Jones

16 Industrial Average annual returns report for the years 1983-2006, as provided by the website
17 http://www.diindexes.com.

18
19 Dated: November 1, 2007

KEKER & VAN NEST, LLP

20
21

By:
22
23

24
25

CLEMENT S. ROBERTS Attorneys for Defendants ALEXANDER JAMES TRABULSE, FAHEY FUND, L.P., FAHEY FINANCIAL GROUP, INC., INTERNATIONAL TRADE & DATA, and ITD TRADING

aAf ~

26
27
28
1

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DECLARATION OF CLEMENT S: ROBERTS IN SUPPORT OF DEFENDANT ALEXANDER JAMES TRABULSE'S MOTION TO DISMISS CASE NO. C-07-4975 WHA

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EXHIBIT 1

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,~FaheyFund ~I.
Profiting from Fundamental and Technical Imbalances in World Markets
268 Bush Street, Suite 4232 . San FrancÙco, CA 94104 . 800- 880-6003

Fahey Fund (Limited) Partnership Agreement
Rev Jan 2002

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Dedication and Acknoivledg¡nent

The Fahey Fund is so named as an outward sign of respect anu affection for the memory of Fr. Denis Fahey, C. S. Sp., (1883-1954). Father Fahey, was born in Kilmore, Golden in County Tipperary, Irelanu. He was perhaps the first person in the early 20th cenrury to

investigate and comprehend both the effects of modern central banking and the gold
standard, and to e1uCluate their tlaws and dangers. His humble sounding bor)k, The Church and Farming, is. a classic documen t on how both inorganic fertilizers uriderrnine productivity and health, and how speculative farming ;ind forestry has leel to the wholesale
and rapid destrction of the soil and the world's forests. :\ full professor of Philosophy

and Church History, he was tluent in German, French, Italian, as well as Celtic and of course, Latin and Greek. The Fund hopes to be guided by such an order of wisdom and Insight as Fr. Fahey.

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FAHEY FUND
PARTNERSHIP I\GREEMENT
1\ California Limitcd Partership

This Partnership ;\grecment made on /\pril I, 1997, and rcvised Apr 1, 2002 by Alexander James Trabulsc, replacing prior

agrccments undcr this name and made with any futurc signatory that iS hereaftcr admitted to the partcrship pursuant to the terms

of this :\greement, hereinafter referred to as "parters_"

RECITALS
l, i'OlSderation of the mutua! ,-ovenants contained in this Ìl1fII1///tit, ¡he pmtnen agree to jo,71 a limited partflerhip (herinafter rrfmed to as .

"partnerhip") pUlmant to the Calirnia Limited Partnmhip Ad, for the pmpojtj and under the terms, pwiÙions and conditions jet jOlth beloii'.

IT IS THEREFORE AGREED:
ARTICLE i. NAME AND PLACE OF BUSINESS
Section 1.01 Name of Business. The partnership and activities shall be conducted under the name of "The Faht:y Fund"

in the State of California and under variations of this name which may be necessar to comply with the Jaws of other states in which

the partnership trnsacts business and makes investments. PLEf\SE NOTE THAT IN THE REMAINDER OF THIS
1\GREEivIENT, the phrase(s) "limited partnership," or "partnership" Will be referred to as "the Fund," except where technical lega
language is required.

Section 1.02. Place of Business. The Fund's principal place of business shall be located at 268 Bush Street, Suite 4232,
San Francisco, C1\ 94104 or at such other place as may be determined from time to time by the General Parer or by the giving of
written notice to each limited parner at least ten (10) days before such a change.

ARTICLE II FUND PURPOSES
Section 2.01. Primary Purpose_ The Fund's primary purpose shall be to use publicly listed opportnities, natural
resources, and any other investment of a unique long-term character, to gain consistent compound rates of return. The Fund will

utilize both its proprietary technical trading system (the "RED/GREEN System") along with classical Fundamental economic
analysis to identify and time these opportnities.
Section 2.02. Secondary Purpose. The Fund's secondary purpose shall be to provide a vehicle whereby qualified
trstees may invest into the Fund utilizing their Self Directed IRA or Keogh, 401

(k), Family and other Trusts, etc., intending to

defer capital gains and consequent ta.x exposure in protÎtable yeas. As of Januar 01, 2000, all parters must be ta.x deferred,
Trusts, non- or not for- profit entities, or chartable organizations which incur no annual ta.x liability, except in certin cases. The
General Partner in unusual cases may temporarily waive this requirement.

ARTICLE III. FUND TERM
Section 3.01 Fund Continuation. The Fund shall be in operation until Dec. 31, 2010. \X1en this term expires, tÎnal
results may be distrbuted to the parers, along with the option to renew their respective investments, at, above, or below original

levels. If the Fund is in fact renewed, it will be for the purposes as stated in Artcle II, with relevant modifications as needed. Such
renewals shall then be year-to-year.

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ARTICLE IV. MEMBERS OF THE FUND
Section 4.01. General Partner. The Gencral Partner shall be !\Iexander Janies Trabulse, 268 Bush Street, Suite 4232,
San Francisco, CA 94104_

Section 4.02. Limited General Parter. The Iírnited General Panner shall be: Easter Trahulse, 268 Bush Street, Suite
4232, San Francisco, Ci\ 9-1104.

Section 4.03. Limited Partners.
Section 4.04 Admission of Additional Partners. Subject to any other provision of this .Agreement, after the initial

formation of this Fund, other persons, partnerships, or business cntities may be admitted as limited partners only with the consent
of the General Partner, notto exceed ninety-nine (99) total members.

ARTICLE V. CONTRIBUTIONS TO THE PARTNERSHIP
Section 5.01. Initial Contributions. The General Parner agrees to provide all resources for trading of this type: I) the

RED/GREEN technical system; 2) his expertse and experience with listed markets; and, 3) all record keeping, brokerage,
computation and notitìcation of partners. The General Partner willI) use his best efforts to both make protìts; 2) cease trading if
capital declines to under 70°'0 of the original capltal or the January 1 capital account and notifv partners of this condltion, giving
parners the option to continue in the Fund; and, 3) promote the Fund, to derive both income and new capitaL.

Section 5.02. Initial Contribution of limited General Partner. The Iímited General Partner will provide services to

the Fund in management of the business, and especially in case of wind -down or closing the Fund.

Section 5.03. Initial Contribution of limited Partners_ The minimum initial contribuuon of Limited Partners shall be
$100,000. Increments will be calculated on units of $10,000. New Limited Parers may, upon the judgment of the General

Partner contribute less than the initial amount. This will be evaluated on a case-by-case basis, subject to limitations.

The Fund reserves the right to waive minimum requirements for frends and family and chantable orgaizations. The
Fund must be closed, by law, non-exempt parers (including partnerships as parters) reaches 99_

Section 5.04. Additional Permitted Capital Contributions. In addition to his initial contnbutions each limited
parter or the General Parter may voluntarily make additional contributions to the capital of the Fund subject to approval by the
General Partner. Such additional contrbutions, whether the resultof direct cash payments or from accumulations of profits at the

time of normal distributions, shall result in the profit-loss share of the limited parters being recomputed on a pro rata basis for
each limited parter's new total capital contrbution_ In no event shall the profit-loss share of the General Parer be affected by

the contribution of additional capital by a limited parer.

Section 5.05. limitations and Additional Capital Contrbutions. No limited partner will be required to contribute to
the capital of the Fund or to its creditors any additional money or property. The liabilities of the limited parers are limited to the

amount of their initial capital contrbution as set fort in this ageement and any additional volunta contributions which may be

made.

Section 5.06. Interest on Capital Contributions. No parer shall receive any interest on his contrbutions to the Fund
capita, unless such interest is earned in the nature of the varous business activities. However, all noii-utilized capita will normally

draw interest, which shall be used to defry Fund expenses. This may be waived by the General Partner.
Section 5.07. Contributions Secured. All parers grant to the General Parer liens on their interests in the Fund to

secure the payment of contributions and the performance of obligations required under this ageement.

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Section 5.08. Withdrawal and The Return of Capital. No parter may wIthdraw any portion of the capital of the Fund
and no partner, general or limIted, shall be entitled to the rerum of his LOntnbution except as specitìed hereinafter. Such a

wIthdrawal \ViII be made only after wntten notice to the General P:inner. Ninety days (90) after receipt of such notIce by the
General Partner, the Fund shall pay such wIthdrawing limited partncr an amount equal to said partner's capital account plus or

minus all accrued protìts or losses attrbutable to s,ud partncr as of thc date of distrbution. In emergencies the funds mav be
rcturned as soon as possible to a partner. If, in the General Partner's absolute discretion the withdrawal of any limited parner or
partners would cause the Fund to be left with inadequate capItal, the General Parter may e1cct to return the capital contributions

plus or minus all accrued profits or losses to ;i the limited partners and declare the partnership terminated. In the event of the
withdrawal of any limited partner, the portion of the future Fund protìts and losses in open positions, if any, shall become the
property of the General Parter.

Section 5.09. Profits and Losses. The limited partners shall not be liable or subject to any obligations, losses, debts, or
liabilities of the Fund in excess of the amount in each of their capital accounts. Any losses of the Fund in excess of such amount
shall be borne by the General Partner only, and not by the limited General Partner. However, any capital the Fund shall be deemed to be pro rata capital

losses that are suffered by

losses to each Iirnitecl parer and charged toe rheir accounts respectively.

Section 5.10 Method of Tax Accounting for Tax Purposes. The partership shall be kept on a cash basis with the
tiscal year concurrent with the calendar year.
Section 5.11. Loans to Fund. No parmer may loan or advance money to the Fund without thc unanimous written
consent of the parters. Any loan by a partner to the Fund shall he separately entered in the Fund books as a loan to the Fund,

shall bear interest at a rate ageed upon by the General Parmer, and shall be evidenced by a promissory note delivered to the
lending parer and executed in the name of the Fund by the remaining parners.

Section 5.12. Books of Account. The parership shall comply witl1 all Federal, State and local regulatory and reportng
requirements. All filings are contìdential.

Section 5.13 Capital Accoums. Each partner shall have a separate capital account maintained. Initially, the capital

account of each limited partner shall have a balance cqual to the amount of his capital contribution to the partnership. If protìts
are generated by the partnership, or net losses suffered, allocation will be as set forth below.

Section 5.14. Division and Distribution of Profits and Losses. All Fund protits and losses will be determined at the
completion of each trading campaign. These profits will be allocated as to the ratio of each parner's capital account to the Fund's
total capitaL. Thereafter, 25% of the net profit of each limited parer shall be payable and distributable to the General Parer.
P-imers with under $50,000 shall pay a 20% distrbution. Losses shall be charged aganst the General Parter up to his share of
the profits from the beginning of the three fiscal year before the parers losses are calculated. Thereafter, losses shall be charged

to each parer on apro rata basis to their capital accounts. See Art V, Sect. 5:01

Section 5.15. Tax statements. The books of the Fund shall be closed and balanced at the end of each calendar year.
Statements will be delivered to each parer within fort-five (45) days after the expiration of said fiscal year. Each parer's share
of profits and/or losses, if reportable, will be issued a Federal IRS 1065 K-l. Quarerly statements will be issued to each parmer,
within ~O (thirt) days following the end of the Quarter, showing changes in each account. Even though accounts are normally tax
deferred, no K-l is necessar, unless the account has a mandatory distrbution requirement, e.g., an IRA. at age 59 'I.

Section 5.16 Definition Of Profits and Losses. The terms "net profits" and "net losses" used in these Arcles mean the
net profits and net losses of the Fund as determined by generally accepted accounting principles for each accounting period

provided for in these artcles.

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Section 5.17. Bank Accounts. All Fund funds not otherwise invested shall bc deposited in accounts II the name of the
Fund at such a bank(s) as selccted by the General Partner. AJJ withdrawals from any such accounts(s) may be made (Jnly by check or

other written instrment, wire, or electronic transfer ;ind signed by the Gencral Partner. In the absence, incapaciry or death of the.
General Partner, the lunited General Partner shall have the Jut)" to issue withdrawal$, or on the written exten$ion of authority by
the General Partner to the limited General Partner, beyond the proscrbed duties of Article V i.

ARTICLE Vi. RIGHTS, POWERS, DUTIES AND RESTRICTIONS OF PARTNERS
Section 6.01. General Parecs Exclusive Right to Manage. 11ie General Partner shall ha\'e full and exclusive charge
and control of management, conduct, and operation of the Fund in all respects and in all matters. Duties dclcg.itcd to the limited
General Partner shall be subject to alteration, elimination or redetinition by the General Partner and be appended to these artcles in

writing at such time as necessary.
Section 6.02. Devotion of

Time to Fund. The General Partner shall devote such time to the Fund as shall be necessar

in his absolute discretion to conduct the business of the Fund in an efticient manner.
Section 6.03. Restriction on the General Partner. E"cept as otherwise expressly pronded in this !\greement, the

General Partner shall have all the rights and powers of a partner in a Fund without limited partners and shall be subject to the
restrction imposed on the General Partners by the California Revised Limited Fund Act, or imposed on a partner in a Fund

without limited partners.
Section 6.04. Limited General Partner Duties and Limits. The limited General Panner shall in no way manage, decide,
or have control in the decision-making of the Fund, except in an executive capacity directed by the General Partner. The limited

General Partner shall be able to issue checks in payment for Fund expenses agnst a valid bill, Invoice, or for other legitimate Fund
expenses; he shall be responsible for maintaiing the accounting documents of the Fund. In the case of the Incapacity, injury,
insanity, debilitation or death of the General Partner, the limIted General Parner shall assume the duties of the General Parer to

dissolve or to suspend operation of the Fund, to distrbute assets and/or liabilities to the limited parters; and take a management

position of the General Parter's account until the General Parner resumes his duties. Notification of the limited parters will be
done by the limited Generai Parer that a suspension or dissolution and distributJon will be effected by a given date by which time

all financial documents, assets, records, etc., will be available to all parters for tinal review. No notice of suspension or dissolution,
however, will allow the limited General Partner the right to manage the Fund's business, except to facilitate liquidation.

Section 6.05. Non-Participation in the Management by Limited Partner. The limited parners shall contribute no
services and shall take no part in, or interfere with, the management or control of Fund business. They shall have no right or
authority to act or bind the Fund. In the event that a limited parer has the ability to provide services, such services shall be

accepted only in the context of employment. The iimited parter shall have no access to records of the Fund unless by special
permission of the General Parer.
Section 6.06. Salaries. No parter shall be entitled to any salar, but the General Partner shall receive the right to draw

expenses consistent with prudent and sound management of the trading activities, such expenses being charged aginst his share.

Section 6.07. Voting Rights of Limited Parters. Notwithstanding any other provision in this agreement, the limited
parners are hereby given the right to vote on, or can a meeting of the parers. Each partner general and limited, shall have one (1)

vote for every $100,000 of capital attbuted to their account, based on an accounting taken for the previous quarter in which the
vote is called. A majority of the partners representing a majority of the Fund interest must aftirmatively agree on any proposal on

the table, excepting the replacement of the General Parter, which shall require a t\vo-thirds (2/3) vote.

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SeclÌon 6.08. Fund Acti\"Íties Not Exclusive. Except as otherwise provided in till agreement, any of thc partners,
general or limited, may eng,ige in or possess Iltercsts II other business vcntures of every narure and description, indepcndently or

wIth others. NeIther this Fund, nor the partners, shall have any rights by virte of this agreement in and to such independent
. ventures or to the income or profits denved theretrom. Without limiting the generality of the foregoing, the General Partner iS

enntled to make independent investments with his own tunds.

Section 6.09. Risk. It is understood by all limited partners that the business purpose of this Fund is to undertake the
utilization of a trading system in a speculative environment, which could create a risk of capital loss. It is further understood that
risk implies potential

loss ot capitaL. It is further understood that the General Partner is under no obligation to meet the standard

of reasonable and prudent investment as it he were a trustee or other fiduciary. The General Partner is empowered to make any

investment in derivative instruments, such as, but not constrained to, futures, precious metals, financial instruments, indexcs,

options, as well as listed stocks and their options and indexes, or any such like. Furthermore, if in the opinion of the General
Partner, capital may be invested in other businesses or other trading systems. It is expressly understood that all the limited

partners waive any claims aginst the General Partner for adopting any p;iicularly high-risk investment strategy so long as the
General Partner is not guilty of fraud or intentional misconduct.

ARTICLE VII. RESTRICTIONS ON TRANSFER

Section 7.01 Transfer of Interest. Except as other wise noted in this agreement, no partner may sell, assign,
hypothecate, enciimbcr or otherwise transfer thcir Fund interest without the prior written consent the General Partner, and'shall
not pass title to any Fund intercst in the absence of siich consent. .\ny transfer prohibited under this section shall be void, and any

attempt by a partner to dispose of a parership interest in violation of this section shall constitute a material default under this

agreement.

SeclÌon 7.02. Assumption of Interest. Any transferee who is a recipient of a parership interest in accordance with the

terms of this agreement agrees to be hound by all the terms and conditions of this agreement. No assignee or other transferee

shall take title to a partnership intcrcst without a wntten agrecment to accept and assume the terms and conditions of this
agreement. No assignce will be accepted if to do so would create more than 99 limited parters.

ARTICLE VII. TERMINA TION OF THE FUND
Section 8.01. Termination by General Partner. TIie General Partner may withdraw from the partnership at any time he
deems such a decision appropriate.

SeclÌon 8.02. TermÎnaùon by a Limited General Partner. The limited General P;iner will be free to withdraw from
the partership upon the giving of ninety (90) days written notice to the General Parer.

Section 8.03. Termination by a Limited Partner. Each limited parter shall be free to withdraw from the parership
upon the giving of ninety (90) days written notice to the General Parter. If such termination is a legitimate emergency, withdrawals

may be granted, provided such haste will not seriously injure the Fund capita position. The General Parer may terminate any
limited partner at any time and liquidate the account as of the most recent reporting period. All funds will be sent immediately,

unless the provisions of S.5:08 are invoked by the General Parer. This notification may be verbal or electronic, followed by a

written notice.

Section 8.04. Termnation by Mutual Consent. :\t any time during the term of this agreement, the Fund may be
terminated by the mutual written consent of an partes subject to such conditions as may be imposed by such written consent.

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Section 8.05. Death or Bankrptcy of Limited Partner. Should a limIted partner dic or be adjudgcd bankrupt by any

court of compctent junsdiction, the remainirg parters shall have an option to purchase the partncrship Ilterest ot thc limIted
parner by paying to the per:on Icgaly entiled thereto within ninety (90) days atter the date of such death or adjudication, the thenpresent book value of such IIterest ;L" it appcars on the partnership books on the date of such death or adjuuication. If morc than
one (I) partncr remains, each partner shall have the right to purchase such proportonate share of dcceasc:d or b¡uikrupt limited
partner's interest 11 the partnership as such remaining partner's intcrcst in the profits of thc parership bears to the total interest in

such protits of aU other rcmaining general and limited parers, provided, howcver if any such remaining profits or losses are
suffered by the parership shall be deemed to be PIV rata capital

loss to each general and limited parer.

Section 8.06. Death, Insanity or Insolvency of General Partner. Upon the death, insanity or insolvency of the
General Partner, the partnership shall be immediately be dissolved. Partnership assets shall be distributed as ;¡pecitìed lielow. In this

event, , the limited General Parter shall act as the Agent of the Partnership for the purpose of winding up the partnership affairs.

Such agency shall under no circumstances increase the liability of any limited parters or of the limited General Partner beyond the

amount previously invested by said limited, or limited General Parters in the partnership. Furthermore, the assets and the capital
account of the General Partner shall revert to the Parership until such time as the General Partner shall revert to competency.

Section 8.07. Winding up of the Fund Business. Upon termination of the Fund, for any reason, the Gener;il Partner

shall wind up the affairs of the Fund, liquidate the Fund assets, and pay the debts of the Fund in the following order: (a) to
creditors, including partners who are creditors, to the extent permItted, in satisfaction of the Iiahilities ot the Fund other than

liabilities for distribution to partners; (b) except as provided in this agreement, thc partners and former parrners in saristaction of
liabilities for distribution: and (c) the partners in accordance with any other rights which they have under this agreement. Thereafter,
the General Parter shall tìle a Certfìcate of Dissolution of Limited Fund with the California Secretar of State's oftìce.

ARTICLE IX. COMPLIANCE WITH THE LA W
Section 9.01. Certificate of Limited Partnerhip. The General Partner shall execute acknowledge and file a Certiticate
of Limited Partnership with the California Sccretar of State's oftice.

Section 9.02 Power of Attorney. The limited parters hereby appoint the General Parter as their attorncy in fact, in
their place, name and stead, to make, execute, acknowledge and file any documents necessar as advantageous by the parership to
complete.

Section 9.03. Terms and Conditions. The standard terms and conditions, if any, are attached hereto and incorporated
herein by reference apply to the parership agreement.

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EXHIBIT 2

Net Worth: Hedge funds need a careful look

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SFGate.rom
Net Worth: Hedge funds need a careful

look

Kathleen Pender

Thursday, September 27,2007

Here's why you stiould never give money to a hedge fund - or anyone else for that matter - based solely on the recommendation of a friend or relative.

On Wednesday, the Securities and Exchange Commission charged Alexander James Trabulse of
Daly City with defrauding investors by falsifYng investor account statements to make it look like

his hedge fund was far more profitable than it really was. Investors, believing those returns, recruited their friends and colleagues into the fund.
Although Trabulse did invest some client money in securities, he also allegedly used it for personal expenditures including jewelry; rugs; a home theater; propert in California, France and Panama;
his daughter's honeymoon in Panama; and a Paris shopping spree for his now-ex-wife.

Trabu1se's hedge fund, which went by the names Fahey Fund and Fahey Financial Group, grew from 11 investors in 1998 to more than 100 at the end of 2006. All told, he collected at least $10 milion from investors, according to the civil case filed in U.S. District Court in Northern California.

One unidentified couple invested $2 milion in 2006 after they called existing investors who recommended the fund based on its falsified statements, the complaint says.
The Fahey Fund's address - 268 Bush St., Suite 4232 - is actually a mailbox at Mail Boxes, Etc. in San Francisco. The address for two other partnerships controlled by Trabulse - International Trade
& Data and ITD Trading - is a mobile home in San Leandro. Trabulse routinely transferred money

from the Fahey companies to the ITD companies, the SEC says.

At the end of 2006, Trabulse reported to investors that their collective assets were worth more than $45 milion when bank and brokerage records showed they were worth $13 milion, the SEC
alleges.

It's not clear where clients stand today.
"We have not alleged that they lost money," says Erin Schneider, an SEC staff attorney. "We have

alleged that profits and assets were dramatically overstated. We are seeking an accounting to see how much money everybody has left."
Trabulse, 60, was not available for comment.
A statement issued by his attorney, Michael Celio of Keker & Van Nest, says, "James Trabulse denies the SEe's allegations. Mr Trabulse's management of the Fahey Fund has produced

http:/ /www.sfgate.com/cgi-bin/article.cgi?fie=/c/a/2007 /09/27 /BUR4SEL67 .DTL&type=p... 11/1/2007

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Page 14 of 19 Page 2 of3

extraordinary returns for its investors, and Mr. Trabulse took as compensation only that to which

he was entitled. The SEC's charges are misguided, and we will vigorously fight them in court."

The Fahey Fund Web site ( wwwfaheyfund.com) is a curiosity. It prominently says the fund cosponsored the 2005 European tour of a band called Cat Scan featuring famed saxophonist Michael Brecker, among others. Brecker died in January.

His long-time manager, Darryl Pitt, says Brecker did five dates with the band because its leader,
Harald Haerter, approached him and "offered substantial compensation."

Pitt says he never heard of the Fahey Fund. "This is the very first I've heard of any affliation with a hedge fund. I can tell you Mike knew nothing about this," he says. Haerter, who lives in Switzerland, could not be reached.

The Trabulse case shows why investors - even professionals - should use extreme caution before investing in a hedge fund.
Hedge fund advisers do not have to register with the SEC unless they have more than 15 funds, although some do so voluntarily. If they register, they agree to comply with SEC regulations and submit to examinations. Trabulse did not register.
Hedge funds themselves do not have to be registered with the SEC.

By comparison, mutual funds and mutual fund advisers both must be registered with the SEC. Mutual funds must follow rules that hedge funds don't. For example, mutual funds must be diversified, can't invest more than a small amount in iliquid securities and must limit their use of leverage or borrowed money.
Mutual funds must value their assets daily and let investors withdraw their money once a day, except under extraordinary circumstances.
By contrast, hedge funds do not have to provide daily pricing or liquidity. Many limit withdrawals to once a month, quarter or year.

The fee structure is also different, and more generous, for hedge fund managers.
Before investing in a hedge fund, investors should "thoroughly read the prospectus or offering memorandum," Schneider says.

They "should have a clear understanding what (assets) the fund will invest in and how the manager will value them. What discretion does the manager have to change investments? Does the fund have an auditor? Ask questions about how the manager is compensated."

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Net Worth: Hedge funds need a careful

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Joyce Linker, a principal with Think Wealth Management who evaluates money managers for clients, says it's imperative to get financial statements audited by a well-known firm.
Years ago, she recalls, "I was considering a hedge fund that had been recommended to me by

another client. When the manager came to San Francisco, one of the first things I said to him was
I'd like to see the audited financial statements. He said, 'üh, we just audit them ourselves.' I said
that's an interesting idea. We avoided that manager. Fast forward, his was one of

the hedge funds

that blew up. When he came to a meeting (with investors) to explain himself, he left a tape recorder with a recorded message."

She says investors should make sure their hedge fund agreements were drawn up "by a reputable attorney with a blue-chip reputation" and ask where their assets will be held in custody.

Investors should intervew the managers in person but should not be unduly impressed with a fancy offce and busy staff. "It could be a huge Ponzi scheme, where the first 10 people make a lot of money," and everyone else loses, she says.
"Hedge funds are not appropriate for inexperienced investors," Linker says. "You need to be
sophisticated to invest in them and investigate them."

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at
kpender(fsfchronicle .com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007 /09/27 /BUR4SEL67. DTL
This article appeared on page C - 1 of the San Francisco Chronicle

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Page 16 of 19

EXHIBIT 3

Case 3:07-cv-04975-WHA

Document 37

Filed 11/01/2007

Page 17 of 19

LAW OFFICES

REKER & VAN NEST
LLP
710 SANSOME STREET SAN FRANcISCO, CA 94111-1704 TELEPHONE (415) 391-5400 FAX (415) 397.7188 WWW.KVN.COM
MICHAEL D. CELIO
MCELlOGi'KVN .COM

July 17,2007

VIA FACSIMILE AND U.S. MAIL
Erin E. Schneider Office of Enforcement Securities & Exchange Commission 44 Montgomery Street, Suite 2600 San Francisco, CA 94104-4613
Re: In the Matter of Fahey

Fund, L.P. (SF-3211)

Dear Erin:

During our meeting yesterday, you suggested that you had not seen the Fahey Fund's
revised, 2002 partnership agreement. That document was produced to the S.E.C. on
February 14, 2007. Copies of

it can be found at (at least) Bates FAHEY-SEC 949 through 956

and F ABEY -SEC 957 through 964. A copy is attached hereto for your convenience.

that document makes plain that the Fahey Fund is permitted to invest in a the agreement permits the Fahey Fund to invest in any wide range of assets. Section 2.01 of
A review of

asset "ofa unique long-term character." Under Section 6.01, the General Partner (Mr. Trabulse)

has virtually unlimited discretion to invest in any maner that is consistent with Section 2.01. Specifically, section 6.02 provides the General Partner "full and exclusive charge and control of the Fund in all respects and all matters." management, conduct and operation of
We therefore believe that any argument that the Fund was not permitted to make the investment decisions it did would be unfounded.

sinceWl M
MICHAEL D. CELIO
MDC'wik

:199288.01

Case 3:07-cv-04975-WHA

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EXHIBIT 4

Case 3:07-cv-04975-WHA

Document 37

Filed 11/01/2007

Page 19 of 19

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