By Kirby Wilson The Tampa Bay Times

With U.S. Rep. Alan Grayson looking increasingly likely to run for U.S. Senate, he can expect to face questions about his Cayman Island hedge funds.

For starters: Why would a populist Democrat critical of the tax breaks for the rich and offshore tax havens set up investment funds in the Cayman Islands, the notorious offshore tax refuge?

And who are his investors?

The Florida Congressman drew attention last month for lambasting The Times’ Adam Smith for asking him about possible offshore investments, but his colorful tirade did little to settle an issue sure to be used to cast him as a hypocrite if he runs for Marco Rubio’s senate seat.

Grayson set up the funds in 2011, after losing his congressional reelection campaign to Republican Dan Webster. He made his former congressional press secretary, Todd Jurkowski, his vice president of investor relations, and his scheduler, Carla Coleman, a fund administrator.

Jurkowski told the hedge fund newsletter FINalternaties at the time that Grayson’s fund would focus on emerging markets and long positions, and that Grayson’s experience in Washington and as a former economist would set him apart.

“Alan has a story unlike any other emerging manager,” Jurkowski told the newsletter. “He knows the markets, he knows the Fed, he’s been to more than 190 countries, and in addition he has traded over $200 million from his own accounts.”

Grayson, who went on to win another, newly drawn congressional seat in 2012, stressed to the Tampa Bay Times that he was not trying to dodge taxes and that there were no investors and no money in the offshore funds he set up.

Why then do SEC filings for the Grayson Master Fund (Cayman) LP show the fund had two investors and over $13 million in reported sales as of November 2014? Grayson maintained the investors listed in those filings were actually investors in the domestic entity, the Delaware-based Grayson Fund, LP.

“The lawyers advise that investments in the domestic entity be disclosed to the SEC in the filings of any entity related by common ownership, including the Cayman entity,” Grayson said. “That does not mean that there were any investors in the Cayman entity.”

The filings for the domestic entity show that fund has the same amount of money invested as the Cayman fund. However, the domestic fund has three listed investors, while the Cayman fund has just two.

Philip Nichols, an associate professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School, said despite this discrepancy, the paperwork could corroborate Grayson’s claims, even if the structure the Congressman describes is “odd.”

“It is a bit unusual that the U.S. feeder would also manage investments, but it is not outside of the realm of what happens,” he said.

But something else struck Nichols as strange. Why would Grayson set up a Cayman Island fund with no investors, no investments and no future plans to acquire any investors?

“That would be an odd cost to incur,” Nichols said. “It is a strange puzzle. I am not sure that any of the pieces themselves are fishy, and I am not even sure that the whole is fishy, but it does seem odd.”

Grayson, a Harvard-educated lawyer, said he set up the funds because of the advice of his attorney, who structured the funds.

“The investment fund was set up on advice of counsel who specializes in setting up such funds. They are meticulous, and they ‘cover all the bases.’ A segregated international account for entities who are not taxed in the U.S. is one of those bases,” he said. “I had no reason (and I have no reason) to question their legal advice.”

Grayson said his attorneys work for a “major national law firm, which has offices in Florida.” He declined to give the name of his counsel, citing attorney-client privilege.

He also won’t name his investors. “That’s confidential information,” he said in an email, “and I am not supposed to disclose that. It is extremely misleading to suggest or imply that there has been, is, or would ever be any tax evasion based upon this arrangement, which is universal among investment funds like this.”

Would he continue running an asset management firm as a U.S. Senator? Rep. Grayson gave a short, simple reply.

“Yes,” he said.

For more on this story go to: http://www.tampabay.com/blogs/the-buzz-florida-politics/probable-senate-candidate-alan-grayson-faces-hedge-fund-questions/2233248

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