Losses and Penalties Overview
Those hedge funds guilty of financial fraud are subjected to liability on a criminal level. Other losses include court fees, restitution, legal counsel fees, penalties, and initial losses acquired from the fraud itself. Monetary losses are only the first type of loss that individuals guilty of financial fraud experience.
The second type is reputation losses, that result from deceit and misconduct. Individuals that are accused of financial fraud often have to answer to the masses. Since a hedge fund usually operates using a large number of investors, the reputable losses can prove to be huge for the company and individuals involved. More than half of the market participants believe that financial fraud will occur due to hedge fund fraud. Hedge funds obtain about one and a half trillion dollars worth of assets and securities.
Hedge fund regulations predict large losses for investors, since over four hundred of the more than eight thousand hedge funds are under investigation for fraud. However, since hedge funds are private investment agencies, it is much harder for hedge fund regulation to be enacted. Hedge funds that are guilty of fraud or insider trading, are liable under the Securities Exchange Act of 1934.
Hedge funds regulation requires that all funds that exceed one hundred million dollars, and are traded publicly, must be reported to the SEC. Hedge fund regulations require that all hedge funds report substantial amounts of investment information to their investors to avoid financial fraud. The Exchange Act is a hedge fund regulation that requires companies to report all public investments to the SEC. Many times the equity of a hedge fund officer totals more than twenty five percent. This can cause that one officer to lose a substantial amount of money if an investigation occurs.
Although hedge fund regulation places restrictions on companies, they do not always succeed in interrupting fraud. Many times the regulations against financial fraud are in response to the fraud. Only recently have regulations increased to prevent losses. Hedge funds are usually untouched by regulation fees, and penalty charges.
Even though hedge funds have to follow laws and regulations, they are regulated liberally. Unlike mutual funds, and the open market, private trade can operate differently. The losses experienced due to the to financial fraud within hedge funds has pushed regulation increases. Protection is given to managers and investors of stock to create a lower profit laws. Since hedge funds control a large portion of the economic flow, regulation is vital in preventing a catastrophic downfall in the economy.
