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When to Be Wary of Hedge Funds

Posted: Sep 22, 2015 | Posted in:

Traditionally only available to high-net-worth individuals, hedge funds are complex investment vehicles that can take a number of different forms. Due to their complexity, lack of uniformity and lack of government regulation, hedge funds are considered to be risky investments that should only be undertaken by sophisticated investors who understand the ins and outs of what they are getting into.

With these considerations in mind, we always caution casual investors to be extremely wary of any hedge fund “opportunities” that come their way. There are unscrupulous hedge fund managers out there who – until they get caught – make their money by siphoning off funds from their unsuspecting victims. The FBI reports that the number of hedge funds is on the rise, and this is making it easier for some hedge fund scam artists to fly under the radar. If you suspect that you may be a victim of a hedge fund scam, we encourage you to contact our attorneys right away.

Signs That a Hedge Fund Might be a Fraud

Unfortunately, many investors fall victim to hedge fund frauds because they get caught up in a hard sell or become blinded by the promise of significant returns. However, if you are considering an investment in a hedge fund – or if you already have money in a hedge fund and are questioning its validity – some warning signs of possible scams include:

• Complaints from other investors who have been unable to cash out their investments
• Lack of access to electronic statements and detailed information about the fund’s holdings
• Use of affiliated brokers instead of independent dealers
• Claims that your investments are making unusually strong returns or consistently “beating the market”
• The hedge fund changes names frequently

The SEC provides additional information and recommendations for individuals contemplating investments in hedge funds.

Legitimate hedge funds should be transparent about their investment activities and provide their clients with easy access to their account information and fund administrators. If you are finding it difficult to obtain necessary information or to get access to the funds in your account, these may be signs of fraudulent activity.

Recent Examples of Hedge Fund Frauds

In 2015, we have seen several examples of egregious hedge fund frauds. For example:

• In February, the Securities and Exchange Commission (SEC) brought charges against a man who claimed to be operating a hedge fund with $100 million in assets under management. However, in reality, he was using the money he solicited from investors – over $840,000 in total – to bankroll a lavish personal lifestyle. The scam artist changed the name of the fund multiple times, and even went so far as to create profiles of fake employees to make his operation appear more legitimate. The scam got the government’s attention after investors were unsuccessful in redeeming their investments despite repeated demands.

• In June, the SEC was joined by the U.S. Department of Justice in bringing charges against a New Jersey man who allegedly defrauded investors out of $5 million. While he “masqueraded as a sophisticated hedge fund manager,” in reality, the alleged con artist was simply spending his investors’ money on expensive homes, vehicles, sports tickets and jewelry. He was able to obtain millions from unsuspecting investors due to false claims of having more than $800 million under management and achieving 18 percent returns over a seven-year period.

Zamansky LLC | Aggressive Securities Fraud Attorneys Helping You Fight Hedge Fund Fraud

If you suspect that you or someone you know is a victim of hedge fund fraud or any other form of securities fraud, the attorneys at Zamansky LLC can help you protect your assets and enforce your legal rights. To schedule a free, confidential consultation, call (212) 742-1414 or contact us online today.