Hedge Fund Fraud Attorneys Representing Clients Nationwide
Hedge funds have become increasingly popular in the world of investments. Despite their popularity, some hedge funds were involved in high-profile investment frauds and scandals. These cases were caused by the questionable business practices of investment firms, which undermine the safety of hedge funds. If you want to invest in hedge funds and plan to use the services of brokers or other investment specialists, proceed with caution. It is important to contact an experienced and trusted hedge fund fraud attorney to explore the specifics of your investment opportunity. At Weltz Law, our hedge fund fraud lawyers are committed to protecting the interests and rights of investors nationwide. We can help investors who have been misled as a result of fraud.
Understanding Hedge Funds
Hedge funds pool money from accredited investors and then invest the money. These funds, however, are not subject to regulations that are designed to protect investors. In addition, hedge funds lend themselves to riskier and more flexible investments strategies, e.g., derivatives, short-selling, leverage, and other speculative investments. It is important to note that certain federal and state laws – concerning mutual funds – do not apply to hedge funds. For example, the SEC (U.S. Securities and Exchange Commission) states that hedge funds do not need to provide the same level of disclosure as mutual funds do. Without these disclosures, it is significantly more difficult than before to accurately evaluate the terms of a hedge fund investment or verify representations you will receive from it.
Common Examples of Hedge Fund Fraud
The main types of hedge fund fraud include insider trading, Ponzi schemes, misappropriation of investor funds, and material misrepresentations to investors. These funds are liable for insider trading violations when securities are bought and sold in breach of a fiduciary duty, trust, or confidence. In addition, one can commit hedge fund fraud while selling or buying with nonpublic information about the security.
Misappropriation refers to the illegal use of funds of another person for personal and unauthorized purposes. The SEC defines Ponzi schemes as paying purported returns to existing investors with fund contributions from new investors. Ponzi scheme perpetrators typically solicit new investors by enticing them with high returns with little or no risk.
Issues with Hedge Funds – Lack of Oversight
Because hedge funds do not need to register with the SEC, fraudulent brokers can solicit significant initial investment sums from investors and take advantage of them through over-optimistic claims. Not all hedge funds, however, are investment scams. In fact, most of these funds are legitimate investment vehicles designed for risk-tolerant and sophisticated investors.