Regulators require hedge funds to give investors proof that their assets exist, either by contracting an outside firm to conduct a surprise audit or by having an independent accountant send them audited financial statements. Statim does neither.

Custody of Assets

Asked why in a July 12 phone interview, Munshi said the firm mistakenly believed it didn’t have possession, or “custody,” of the assets. In a later interview, he said the firm indeed had custody but thought it could sidestep the rules because of “the method and the way that we had custody through required custodians.”

Sitting in his modest office, Meyer hardly comes across as a hedge-fund highflier. A graduate of Duke University in Durham, North Carolina, with a business degree from the University of North Carolina at Chapel Hill, he said he started his career as a consultant and analyst, first at First Union Corp. and later Andersen Consulting. He says he started Statim in 1993 to manage money for relatives. Looking to expand, he opened Arjun in 2007.

Meyer says his secret sauce is the proprietary program running on his computer that automatically sends orders to Arjun’s prime broker. He says he tweaks his program every 16 months or so.

“All it does is look at the last trade and calculate trades that would be equivalent of, ‘What if this security increases 50 percent in value in the next three seconds,”’ Meyer says of his program.

Jeans and Beer

Jeff Roberts, who runs a real-estate appraisal company in Asheville, North Carolina, says he met Meyer in 1989, while the two were at First Union. They became friends after Meyer, wearing jeans and a T-shirt, turned up one day in a Ford pickup to give Roberts a lift. A 12-pack of Budweiser rested on the front seat. Roberts says he’s invested several hundred thousand dollars and Meyer has been great.

“How many hedge-fund managers can you get to call you back? The guy that’s actually the investment officer or, you know, chairing the fund? It just doesn’t happen," Roberts says.

Roberts and Recknagel say they’ve also enjoyed a Statim perk: Meyer extends inexpensive short-term loans against their investments. Recknagel says he’s used the money to invest even more with Meyer. He says he also has a Statim corporate American Express card.