Fraud – Will Hedge Funds Produce The Following Really Big One?

July 26, 2012 · Posted in Education 

Making an investment in hedge funds is also great decision but you want to ask your investment fraud attorney .

For thousands of years investment advisors have been asking financiers to give them cash so they could invest it for them. Even after Charles Ponzi in the 1920′s, backers have continued to give investment counsels cash to invest. The retirement fund industry has been the biggest vehicle, but is very regulated and has produced few frauds. Uncontrolled investment schemes, such as PONZI schemes and its brother, ponzi operations, have been the most fertile kinds of investment fund frauds. Hedge funds could be the next significant auto. Hedge funds have gained in recognition to a stupefying investment amount of over $2 trillion, according to the SEC. Over 2,400 investment counsellors have registered 11,500 hedge funds with the SEC this year.

So why would hedge funds produce the next extremely big crime? According to the Association of Authorized Crime Examiners and Financial Accounts Standards Board, the environment for crime includes 3 factors, “incentives/pressures, opportunities, and disposition/rationalization.” The hedge fund chief certainly has the pressure from his backers to supply results. He has also got an uncontrolled environment to work in manufacturing the break. Additionally the high-risk/high reward attitude of the manager makes him likelier to take the danger of scamming his stockholders.

A quick review of the SEC legal proceedings releases in the past year shows increased activity against hedge funds, including: altering audited fiscal reports, hiding losses, creating a fictitious auditor, insider trading, market timing (funds), misappropriation, misrepresentation to stockholders, non-disclosure to the SEC, and stock manipulation. These crimes were not limited to small or offshore funds, but included funds with hundreds of millions of bucks operating throughout the US. Are these all the frauds occurring? No, but these are simply the ones that the SEC has litigated against. No one knows in this unregulated environment how many frauds are occurring today.

Since hedge funds remain a popular investment vehicle, how can a backer defend against these frauds? Like any investment, the financier must do due diligence before investing in a fund. The financier should review the funds offering materials, investment goals, checked finance reports, background of investment advisors and other documentation provided by the fund. He should confirm the dimensions of the portfolio with the fund’s custodian. He should check the background of the personnel of the investment advisor working on the fund. He should check for regulatory action against the investment advisor and its staff. He should evaluate the ability of the outside auditor. He should decide who prepares the periodic finance statements provided investors and whether there is third-party oversight. He should define if the fund has registered with the SEC. He should check with others in the industry that have knowledge about the fund.

After the investment is made the investor’s required groundwork shouldn't stop. Lots of the documented hedge fund frauds have not started at the beginning of the fund, but after the financiers became comfy. The investment advisors continue being forced to supply results or lose their investors. The investor should continue to review the reports sent to him by the fund. He should confirm the scale of the portfolio with the custodian on a periodic basis. He should watch for changes in auditors and other 3rd parties. He should be alert for any regulator action against the fund or its counsellors. He should not let the early withdrawal penalties stop him from withdrawing at the first sign of difficulty. In most of the documented cases, there's not much left, after discovery of the fraud and the litigation to recover from the conmen and 3rd parties.

The answer's that some hedge funds are defrauding their investors while they aren't closer regulated. With the increasing recognition and size of a few of these uncontrolled funds, one of these may become the next very big fraud. Don't be the financier caught in it!

Mr. Cuthill’s practice is restricted to court-appointed positions in enormous fraud cases. His work has produced the return of millions of bucks of backers ‘ funds.

The article above is all about the finra arbitration and finra attorney . The writer is Wilma Sebastiano.


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