Hedge Fund Fraud
The recent surge in the popularity of hedge funds has given rise to an increase in the amount of litigation among and between funds, their investors, and government regulators. Hedge funds may be loosely defined as private investment funds open to a limited range of investors. They are often viewed as risky investment vehicles which can produce high rates of return. The most common investment practices used by hedge funds include Short-selling, derivative contracts, and the use of leverage. Short selling investors usually expect a decline in the price of a financial investment. They often buy stocks “on margin” and later return them to the lender at a lower price. Some observers have alleged that short-selling hedge funds are largely responsible for the recent decline in the US markets.
Short-selling in itself is a common investment strategy and is not a crime, however if short sellers attempt to drive down the share price of a given stock through activities such as spreading false rumors or acting on material non-public information (Insider Trading), such activity becomes illegal. Experience hedge fund attorneys know the difference and can help you to mount an aggressive legal defense.
Any public investment company in the US is required to be registered with the SEC (US Securities and Exchange Commission), and investment companies are subject to strict regulations on using short selling and leverage. Although hedge funds fall within the definition of an investment company, the Investment Company Act (1940) exempts hedge funds from the registration requirements if a hedge fund is invested by 100 or fewer investors and all investors are qualified purchasers who individually own assets of over $5,000,000. Hedge funds are sold in compliance with Regulation D under the Securities Act (1933) so that the funds cannot be offered or advertised to the general public, but can only be offered to accredited investors. In December, 2004, the SEC changed the rule of registration to required investment firms with more than $25,000,000 and over 15 investors to register, but this rule was short lived, since it was overturned by the decision of Goldstein v. SEC in June, 2006. In February, 2007, the President's Working Group on Financial Markets rejected further regulation of hedge funds.
Since there is no registration requirement for many hedge funds, they are often criticized for their lack of transparency, and allegations of fraud and Insider Trading have become common in the hedge fund world. The recent attention due to the shocking Madoff case has led to increased scrutiny of hedge funds, and fueled speculation that the government is likely to change the way hedge funds are regulated.
Many of the allegations relating to hedge fund violations can be subjective. For example, investors who have lost value due to legitimate market conditions can file lawsuits alleging impropriety. If you, or your company, are facing criminal or civil charges stemming from the operations of a hedge fund, you will need a dedicated team of hedge fund attorneys with the experience and expertise necessary to defend against any and all allegations. At the Blanch Law Firm, we know that in the investment business, reputations are extremely important, and we seek not only to win our cases, but to vindicate our clients.Contact Us