Have you exercised appropriate due diligence?

This may go down as the catch-phrase of the year: "exercised appropriate due diligence." As in "have you exercised appropriate due diligence?" This comes from a Bloomberg article on the Madoff scandal by Katherine Burton entitled "Tremont Invested More Than Half Its Assets With Bernard Madoff":

"We believe Tremont exercised appropriate due diligence in connection with the Madoff investments," the firm said today in a statement. Tremont parent OppenheimerFunds is a unit of Springfield, Massachusetts-based Massachusetts Mutual Life Insurance Co.

So, here we have an investment firm (Tremont) which was responsible for vetting customer investments in another investment firm (Madoff.) It would seem that they should be on the hook for poor vetting, but maybe they can escape because of some strange or obscure definition as to how much vetting is "appropriate."

At a minimum, this provides plenty of fodder for reform. Hedge funds as we know them need to go.

Nonetheless, we all need to be on guard and challenge our own assumptions as to whether we have "exercised appropriate due diligence."

-- Jack Krupansky