Groups of investors form hedge funds by combining their money into a one lump sum, which is the hedge fund. Before they can start the fund, these investors must first meet accredited investor requirements set forth by the Securities Exchange Commission (SEC). Once a hedge fund is formed, it is subjected to very few regulation requirements in comparison to other types of financial investments. Since the fund is not traded on exchanges, it typically does 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 their potential involvement with 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. This lack of required disclosure makes it easy for managers to violate their fiduciary duty to the investors by managing funds in a manner that best-suited their interests, rather than the interests of the investors.

However, the SEC does require all hedge fund managers who manage funds in excess of $150 million to register as investment advisers in accordance with the Dodd-Frank Act of 2010. Also under the Dodd-Frank Act, all managers who managed less than $100 million are subject to state regulation instead of regulation under the SEC.

What Should I Do If I Have Been a Victim of Securities Fraud?

The first thing you will want to do is file a complaint against the manager with the SEC or other appropriate authority. You may also want to consult a securities 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.