Prime Broker Has No Duty To Hedge Fund Clients, UBS Judge Rules

Jul 30 2008 | 12:01pm ET

Hedge fund service providers do not automatically have a fiduciary responsibility to its clients’ investors, a New York judge has ruled.

In dismissing a lawsuit against UBS from investors in defunct hedge fund Wood River Partners, Judge Charles Ramos said, “these plaintiffs lack standing.”

“Plaintiffs merely assert that, by virtue of UBS’s position as prime broker, clearing broker and custodian for the fund, UBS assumed a fiduciary duty to the plaintiffs, as limited partners. These allegations, without more, are not sufficient to establish the existence of a fiduciary relationship.”

Wood River founder John Whittier was sentenced to three years in prison for investing 85% of the fund’s capital in shares of California radio equipment maker Endwave Corp.—despite promising investors he wouldn’t invest more than 10% of the fund’s assets in any one security—as well as failing to make required filings with the Securities and Exchange Committee about its enormous Endwave holdings—Wood River owned 80% of the company.

According to the investors suing UBS, the Swiss bank failed to alert authorities or investors that Wood River had not made the required filings, or to withdraw as prime broker. Instead, the suit alleged that UBS manipulated the Endwave market “to suit its own ends,” causing “the value of the fund’s portfolio to decrease.”


In Depth

Fundraising for Mid-Sized PE Funds: Should You Use a Registered B/D?

Dec 6 2016 | 7:18pm ET

When does a fund sponsor need to use a registered broker/dealer when raising capital...

Lifestyle

Trump Attends 'Villains and Heroes' Costume Party Dressed As...Himself

Dec 5 2016 | 11:16pm ET

U.S. President-elect Donald Trump attended a "Villains and Heroes" costume party...

Guest Contributor

A Hard Look At Your ‘Soft’ Hedge Fund Marketing Information

Dec 8 2016 | 9:03pm ET

Conventional wisdom holds that due diligence examines quantitative as well as qualitative...

 

From the current issue of

Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information. 

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR