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16 February, 2018 Education

Flex Fund - Safety and Security


Could it be a fraud?

The strong returns for the Flex Fund in 2017 and since its inception 8 years ago make it one of the best performing hedge funds in the world. It naturally raises the question as to whether this could be some sort of fraud. It’s a good question for all investors to ask and the answer, of course, is no…there is no fraud. I’m obviously going to give this answer, especially if I were attempting to commit a fraud, but here is a reminder of the safeguards in place and how you can be confident in my answer.

Service Providers – their roles and protections provided

The Fund has multiple service providers that, among other things, each help protect you in different ways from the risk of fraud. Here are those service providers and generally how they help provide protection.

NAV Consulting, Inc.

1 Trans Am Plaza Drive, Suite 400
Oakbrook Terrace, IL 60181
(630) 954-1919
www.NAVConsulting.net

NAV Consulting, a top 10 global hedge fund administrator, serves as the Flex Fund’s fund administrator. In this role NAV is responsible for all of the Fund’s accounting including production and distribution monthly statements to all investors. Patton is not involved in any way in this process and, therefore, has no way to report fraudulent results to investors. NAV has direct access to the Fund’s investment account at Interactive Brokers (see below). It is a combination of the investment account information as well as information received directly from investors (new investments or requests for withdrawals) that is used to prepare the accounting and monthly investor statements.

The second role of NAV is serving as the Fund’s transfer agent. In this role they are involved in the movement of all money into and out of the Fund. The money for all investments into the Fund go to BMH Harris Bank. Per the Flex Fund’s Subscription Booklet, we provide instructions for investors to send money directly to NAV and BMO. Once the money is at BMO, it cannot be moved without proper documentation from the investor and approval from NAV as the transfer agent. Therefore, Patton has no way to fraudulently move investors’ money.

BMO Harris Bank

111 West Monroe Street
Chicago, IL 60690
(877) 895-3278
www.BMOHarris.com

BMO Harris is the bank for the Flex Fund. As mentioned above, all money invested in the Fund must first go to BMO Harris. Once money is there, it cannot be moved without proper documentation from the investor and approval from NAV Consulting.

Interactive Brokers, LLC

8 Greenwich Office Park, Suite 200
Greenwich, CT 06831
(877) 442-2757
www.InteractiveBrokers.com

Interactive Brokers, a top tier broker dealer, is the custodian for the Flex Fund’s investment account. When an investment is made in the Fund, it first goes to BMO Harris Bank as previously discussed. Around the first of the month money is then moved from BMO to Interactive Brokers from the Fund’s bank account to the Fund’s investment account. It is in the Interactive Brokers account where all of the stocks are bought, sold, and held.

Both NAV Consulting and Cohen & Company (see below) have direct access to the Fund’s Interactive Brokers account. This allows them to access every detail about the Fund’s investments including the value of the holdings at any time. This prevents Patton from being able to fraudulently impact the valuation of the Fund and the results reported to investors.

Cohen & Company (formerly Arthur Bell CPAs)

201 International Circle, Suite 400
Hunt Valley, MD 21030
(410) 771-0001
www.CohenCPA.com

Securities and Exchange Commission (“SEC”) regulations require that an annual audit be done and distributed to all Fund investors. Cohen & Company, one of the larger auditors of hedge funds in the country, provides this service to the Flex Fund. As mentioned above, Cohen has direct access to the Flex Fund’s investment account at Interactive Brokers as well as direct access to NAV Consulting for information from them. Therefore, Patton has no way to fraudulently impact the audit process.

Money Movement

The risk of fraud is highest when money is motion. As mentioned above and as every investor has experience, every investment into the Flex Fund goes directly to BMO Harris Bank per the instructions in the Fund Subscription Booklet. Once the money is at BMO, it is being monitored by NAV Consulting and cannot be moved without their permission.

When an investor makes a withdrawal from the Fund, documentation must be provided to NAV Consulting. Money to satisfy any withdrawal is first moved from the Fund’s investment account at Interactive Brokers to the Fund’s bank account at BMO Harris. Once NAV verifies the investor’s withdrawal request, NAV makes the request for the wire to the investors. Only NAV can make these requests which are then only approved by Patton. Again, this process prevents Patton from being able to fraudulently move money from the Fund.

Conclusion

There are multiple safeguards in place via the multiple service providers to protect investors in our Fund from fraud. Our goal is to provide the greatest protection, utilize world-class service providers to do so, and to be as transparent as possible about the Fund’s operations. Your confidence in the safety and security of your investment in the Flex Fund is extremely important to me. Please let me know anytime you have questions or feel free to reach out directly to our service providers for confirmation from them.

Returns – too good to be true?

On the topic of the Fund’s returns and any question about whether or not they may be too good to be true, I’ll address this in a later blog. Returns have been strong and I believe long-term returns will continue to be strong but there is nothing too good to be true!

Thanks!

I appreciate the trust and confidence every investor has placed in me and my company to be of service.

Contact Mark A. Patton :