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Belstar Fund Swings the Ax

It fires two executives after their spotty past is highlighted here.

A New York money-management start-up fired two executives Wednesday after their checkered histories were highlighted in an article on this Web site.

Belstar Group, which is trying to raise money for a low-fee fund of funds, said it terminated the employment of Ryan Goldberg and Michael Grady after seeing

a story on their involvement with the mutual fund trading scandal Tuesday on


"There has been misrepresentations made by both Michael and Ryan," said managing partner Daniel Yun. "This business is based on trust."

Goldberg had been director of development for the Belstar Group, while Grady was its chief operating officer. As detailed in Tuesday's article, Goldberg and Grady are former employees of Brean Murray, a small New York brokerage that paid $150,000 last year to settle allegations that two of its brokers helped hedge funds pursue potentially unethical strategies like market timing and late trading.

Goldberg and Grady were never charged with any wrongdoing in the probe. Still, documents in Brean's settlement with the

Securities and Exchange Commission

indicate they were investigated for allegedly helping hedge funds negotiate up to $1.8 billion of market-timing volume with several mutual fund companies.

Yun said that prior to the article, he wasn't aware of the extent of Goldberg and Grady's involvement in the mutual fund probe.

Interviewed yesterday in a conference call with Yun, Goldberg described himself and Grady as "very small fish" in the market timing scandal. At the time, Yun said his lawyers performed background checks on Grady and Goldberg and that their past employment with Brean Murray had been established.

On Wednesday, Yun said: "We looked specifically at the charges. There were no charges. There were no fines. Some allegations were made, but it was unclear." Asked if he believed that his lawyers did a poor background check, Yun said Wednesday: "I am appreciative of your article and I will address these issues. I think I was very trusting."

Ken Orr, Belstar's chief investment officer, said Yun made the decision to fire Goldberg and Grady based on misstatements made to the press, to Yun and to the firm's press agent.

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Yun was previously a vice president in charge of structured products at

Lehman Brothers


. Prior to that, he was an associate in the fixed-income division at

Goldman Sachs

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Reached on his cell phone, Goldberg declined to comment, other than saying, "I'm just disappointed that that's the piece you got to write." Grady declined to comment.

The Belstar Multi-Advisor Hedge Fund is a fund of funds, meaning it amalgamates money from investors and parcels it out to different hedge funds in an effort to diversify returns. Its marketing hook is the elimination of the traditional "double-layer" of fund-of-fund fees.

Belstar has rounded up 10 hedge funds to invest with and negotiated with an additional group of four that it aims to enroll by March 1. Orr is also a managing partner of Glocap Partners, a marketing firm that will distribute the fund.

As a marketing firm, Glocap raises funds for hedge fund managers. As a result, it has several hedge fund clients. One caveat of the Belstar vehicle is that it will invest in some funds that are also Glocap clients.

"There is definitely a conflict of interest. But there is a conflict in anything that anyone does in the hedge fund industry," says Orr. As of today, two of Belstar's underlying managers are also Glocap clients, he adds.

Orr justifies the potential conflict as part of an investment decision.

"The two managers that Glocap represents are, in my opinion, two of the best managers -- not only in the portfolio but also are among the best managers in the industry," Orr says. He says investors who are uncomfortable with the arrangement are given an option to have their funds kept out of the Glocap-represented funds.

Belstar has been trading since October on Yun's money. Orr said the amount is between $6 million and $8 million. It will open to outside investors at launch on Feb. 1. The firm targets institutional investors like pensions and endowments.