SEC Closes Hedge Fund Fraud Loophole

Jul 11 2007 | 2:42pm ET

Closing a loophole opened by a federal court decision, the Securities and Exchange Commission today banned hedge funds from misleading investors. But Bulldog Investor’s Phillip Goldstein says more rules are not the answer to fraud. 

Phil GoldsteinPhil GoldsteinThe new rule, which unlike the controversial hedge fund registration rule, enjoyed unanimous support on the five-member commission, and allows the SEC to sue hedge funds for lying about investment strategies, performance, a manager’s experience or risk. The SEC’s authority to do so was called into question by the Goldstein decision, when the Court of Appeals in Washington tossed the agency’s registration rule.

“This rule will give the commission an important tool to help us police this market to deter misconduct,” SEC Chairman Christopher Cox said.

While Goldstein lauds the SEC intentions, he thinks the Commission needs to do more than just come up with new legislation.

“It’s like if there are a lot of bank robberies in the neighborhood, then you don’t need more laws against bank robberies; you just have to go out and arrest the robbers” Goldstein told FINalternatives.

“If managers lied to investors, they can get sued anyway so what’s the difference? They should spend more of their resources going after the fraudsters than adopting new rules. Unfortunately, they’re very slow about acting in a lot of cases.”   


In Depth

Q&A: Jeff Eaton Talks Capital Raising, CalPERS And The Secondaries Market

Oct 14 2014 | 10:16am ET

Global placement agent Eaton Partners has raised close to $60 billion for some of...

Lifestyle

MacDonald-Korth Offers Insights Into Paintings Bought, Sold By Hedgies

Oct 7 2014 | 9:00am ET

Definitive and complete ratings require an in-person examination of an artwork,...

Guest Contributor

PAAMCO: European Equity Exposure - Challenging Year, But All is Not Lost

Oct 16 2014 | 4:12am ET

European equity hedge fund managers have had a tough time so far this year. The...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.