Excessive Risk Taking

Excessive Risk Taking. In 2005, The Wall Street Journal reported that two founders of Amerindo Investment Advisors Inc., a money-management firm that makes outsized bets in technology stocks, were charged with stealing millions of dollars from investors to make charitable donations and buy thoroughbred racehorses. Alberto Vilar and Gary Tanaka were charged with fraud and arrested by U.S. Postal inspectors. Vilar and Tanaka made names for themselves by betting big on biotechnology and technology stocks. Their fund was an early investor in Web portal Yahoo Inc. and generated huge returns for its early investors, including many institutions and high net-worth individuals. The duo later created a mutual fund, which in 1999 reported a 249% return to investors.
After amassing a huge fortune in the late 1990s, Vilar pledged hundreds of millions of dollars to charities, including New York's Metropolitan Opera, Washington's Kennedy Center and New York University. Hurt by the bursting of the technology bubble and an exodus of investors, the firm's assets under management dropped from $8 billion in March 2000 to about $1.5 billion in 2005.
A. As a potential investor, what aspects of Amerindo's corporate governance system would you scrutinize to assure yourself that the firm's risk-seeking behavior was appropriate?
B. Explain why both Amerindo's insiders and outside investors might both share blame for this fiasco.

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