Hedge funds are financial products in which investor money is pooled and reinvested. Hedge funds are subject to less regulatory oversight than ordinary mutual funds and hedge fund fraud is not uncommon. Despite the fact that hedge fund managers have wide latitude to pursue risky investment strategies (e.g leverage, short-selling, derivatives, and other speculative investments), hedge fund fraud is a violation of federal securities laws.
If you have knowledge of hedge fund fraud, Newman & Shapiro can help you recover a reward under the SEC Whistleblower Program, which was established under the Dodd-Frank financial reform measures of 2010. Given the volume of transactions underlying hedge funds and the speed at which investments can be bought and sold, hedge fund fraud can be hard to detect and difficult, therefore, to prevent. The SEC Whistleblower Program has a number of advantages, including maintaining the confidentiality of whistleblowers in the program.
Because the potential harm to investors and financial markets, is so severe, it takes courageous whistleblowers to come forward and report hedge fund fraud. When you become our client, we will work to protect your rights, your career, and your future, and help you recover the reward you have earned.
Hedge Funds Come With High Risk
While hedge funds can achieve extraordinary returns, market volatility, mismanagement, and fraud can also result in significant losses, which is why these products may not be well-suited for the ordinary investor, even less so for seniors living on a fixed income.
In addition, hedge funds are illiquid, which means that investors are typically required to keep their money in the fund for at least one year and there are limitations on withdrawals, making it difficult to cash out any part of an investment until a predetermined date (e.g. 5-10 years). Illiquidity can be problematic for many investors and even more so for seniors, many of whom may have been misled about the fund’s liquidity and withdrawal policies.
What is hedge fund fraud?
Hedge fund fraud is pervasive given the lax regulatory framework governing these investment vehicles. In particular, hedge funds are not required to provide disclosures similar to those investors would receive from mutual funds, which makes it difficult to evaluate the terms, representations, and, ultimately, the returns of the fund.
Some examples of hedge fund fraud that may qualify for a SEC whistleblower award include:
- Material misrepresentations to investors
- Misappropriation of investor funds
- Insider Trading
- Ponzi Schemes
While hedge fund fraud is most prevalent at the management level, individual brokers and financial advisors also engage in hedge-fund fraud.
As an example, brokers may receive kickbacks or commissions for getting clients to invest in a certain fund, regardless of whether it is suitable for the investors’ income level, age, or degree of risk tolerance. Moreover, unscrupulous brokers or advisors can leverage the fact that hedge funds are illiquid to steal all or part of an elderly client’s investment. If a client can’t cash out for five years, for example, a broker may be tempted to skim off the top without being noticed.
Finally, many states have enacted laws to prevent the financial abuse of elders which could make perpetrators of hedge fund fraud culpable for violations of those statutes as well.
Hedge Fund Fraud Whistleblower Awards for Reporting Hedge Fund Fraud
Under the SEC Whistleblower Program, individuals who provide the SEC with original information of hedge fund fraud and other violations of federal securities law may be entitled to a whistleblower reward as long as the information leads to a successful enforcement action resulting in monetary sanctions exceeding $1,000,000. The award may range from 10 to 30 percent of the penalties collected by the SEC. Since the program commenced in 2011, whistleblowers have been awarded more than $325 million.
It is important to note that the SEC Whistleblower Program is designed to protect the confidentiality of whistleblowers by not directly or indirectly reveal their identities. Whistleblowers who are represented by an attorney can report hedge fraud to the SEC anonymously. In addition, both Dodd-Frank and SOX contain protections for whistleblowers against employment retaliation for reporting hedge fund fraud. Ultimately it takes a skilled whistleblower attorney to enforce your rights and help you obtain the reward you have earned.
Contact Our Experienced Hedge Fund Fraud Whistleblower Attorneys
At Newman & Shapiro, we recognize that individuals with knowledge of hedge fund fraud may fear coming forward because it can be potentially damaging to their careers. That is why we work to ensure that our clients will retain their anonymity and preserve their reputations. When you work with our legal team, you can rest assured we will help you stand up to hedge fund fraud and the powerful forces that pose harm to investors and the financial markets. Please contact our office today to speak with our experienced whistleblower attorneys.