Hedge Fund Losses Caused by Fraud or Negligence

A hedge fund is an actively managed alternative investment that uses pooled funds from many investors. It can employ different strategies in order to generate returns for investors. They are generally illiquid and only suitable for accredited investors who possess at least $1M net worth or whose yearly income was greater than $200K over the last two years (or $300K, if joint income).

These types of investments are typically suitable for high-net-worth individual investors and institutional investors. Like other alternative investments, they should not be recommended to retail investors and other conservative or inexperienced investors, such as most retirees and seniors.

Hedge funds are minimally regulated by the Financial Industry Regulatory Authority (FINRA), and they owe limited disclosure and reporting duties to investors. Many hedge funds present a fair amount of risk and tend to charge a yearly 2% fee plus 20% of the profits.

For those investors for whom these alternative investments are suitable and with the right risk tolerance level, there is the opportunity to get involved in a vehicle that can invest in derivatives, real estate, currency, land, and other alternative assets. Using borrowed money or leverage, hedge funds are able to amplify their returns. However, the latter is a benefit that can also make its investors more vulnerable to greater risk.

Unfortunately, many hedge fund investors who later go on to suffer significant financial losses will often say that they had no idea the degree of risk they were taking on or that they were led to believe that they were investing in a safe vehicle that would bring them high returns. Also, there are brokers who continue to recommend hedge funds to investors for whom they are unsuitable.

Our experienced hedge fund fraud attorneys and investment loss lawyers represent investors who lost money because of broker fraud or negligence. Call SSEK Law Firm at (866) 931-7628 today.

Below is a selection of the most common causes of hedge fund fraud claims that investors should be aware of:

• Fund mismanagement
• Brokers who unsuitably recommend hedge funds to customers because they want to earn higher commissions
• Marketing collateral or private offering materials that misstated the investing goals of the hedge fund
• Conflicts of interest that went undisclosed
• A hedge fund was the victim of fraud

For example, in 2013, when Puerto Rico bond funds and closed-end bond funds plunged in value, it wasn’t just retail investors that lost money. There were also thousands of investors of hedge funds and mutual funds that were among the island’s creditors who suffered huge investment losses.

While there are many hedge funds that operate ethically and are well-capitalized, there are those that have famously defrauded investors of billions of dollars.

• Bernard L. Madoff Investment Securities: Bernie Madoff’s hedge fund was essentially a $65B Ponzi scheme that went on for years until 2008. His scam defrauded thousands of investors, from the rich and famous to many others. Madoff was eventually convicted and sent to federal prison for 150 years. He died in April 2021.
• SAC Capital: At one point, Steven Cohen’s hedge fund SAC Capital held $50B in assets under management. Under investigation by the Securities and Exchange Commission (SEC) in 2011, a number of its traders began to face insider trading charges. Criminal convictions followed, including for portfolio manager Mathew Martoma for securities fraud. SAC Capital investors lost about $1.8B in his hedge fund fraud.

A hedge fund fraud doesn’t have to be “notorious” for investors to suffer significant financial losses. This is why it is important that you consult with knowledgeable securities fraud attorneys and securities lawyers to determine whether you have grounds for filing a Financial Industry Regulatory Authority (FINRA) arbitration claim to pursue damage.

SSEK Law Firm has represented institutional investors, high-net-worth investors, and retail investors for over 30 years. We have the experience, skills, resources, and knowledge to go after the brokerage firms and financial advisors responsible for your investment losses.

Even if the hedge fund has gone out of business, you may still have grounds for a FINRA arbitration case against your broker-dealer who should have conducted the proper due diligence to ensure that the hedge fund was safe and suitable for you.

Contact us online or call SSEK Law Firm at (866) 931-7628 to request your free case consultation with our highly-experienced FINRA lawyers and investment loss attorneys.