What Are Hedge Funds?
Groups of investors form hedge funds by combining their money into a one lump sum. These investors must first meet the requirements of the Securities Exchange Commission before they can start the fund. Hedge funds have been known for their relatively small regulation requirements. The funds are not traded on exchanges, and so they do not need to be registered with the SEC. What Kind of Regulation Is There for Hedge Funds?Hedge funds used to be a topic that only a few sophisticated investors really knew anything about. However, more investors have taken an interest in hedge funds due to the funds growing exposure to the general public as well as their potential for high-yield returns. Part of the popularity of hedge funds is due to some of their negative aspects, i.e. investment fraud. Traditionally, hedge funds have had very loose regulation by the federal government when compared to other securities. Managers of the funds are not required to disclose in detail how the funds are being managed. The lack of disclosure requirements in hedge funds has occasionally resulted in fraud perpetrated by the fund managers. Fraud occurs when managers use money provided by the investors not in the best interest of those investors but for other private interests of the manager. To counter this and other types of fraud, the SEC has proposed new regulations on disclosure of information similar to those types of disclosures that are already required for other types of securities. Fund managers would have to register with the SEC and open their books for the SEC to review. Information such as balance sheets, budgets, and other financial information on how the fund is managed will have to be made available to the SEC, which will in turn make it available to the public. If I Have Been the Victim of Securities Fraud from Investing in a Hedge Fund, What Should I Do?The first thing you will want to do is file a complaint against the manager with the SEC. You may also want to consult a securities law attorney. Your lawyer will be able to advise you of your rights and let you know if you may be entitled to money damages in a lawsuit against the fund managers. |
