letsmakemoney

Don't Be Scammed by Madoff Investor Sob Stories

"First, only sophisticated investors can invest with hedge funds. A hedge fund is a private investment fund open to a limited range of investors"

This statement is technically incorrect. The SEC only imposes wealth and income thresholds in order to qualify to invest in a hedge fund. You make a huge leap of faith in assuming that wealth and income equals sophistication, and therefore entitles them to less protection from outright fraud. The majority of high net worth individuals who have amassed wealth generally have done so in non-Wall St professions (i.e., small business owners), so I do not believe that wealth translates to sophistication.

"Such a fund is less regulated and allowed to undertake a wider range of activities than other investment funds"

Again, technically incorrect. It is the fact that hedge funds do not REGISTER with the SEC that allows them to undertake a wider range of activities than other investment funds (derivatives, futures, short selling, etc). They forgo registration, are permitted to use the additional tools, and agree to limit the way they can market and accept limitations on the total number of investors they can take. These are simple trade offs, the motivation of which is not intended to shirk regulation, but to increase investment flexibility. I am so tired of this misconception that hedge funds are not regulated, or are less regulated. If a hedge fund manager breaks securities laws, he goes to jail, just like a mutual fund manager. The level of regulation is not a material difference, and is totally overplayed by sensational journalism.