Hedge funds and secrecy vs. securities fraud concerns

On Behalf of | Jul 30, 2020 | Fraud |

Many hedge fund companies and managers are transparent about corporate culture and operations. However, not every New York firm maintains such an approach to investor relations. Some entities support the maximum amount of corporate secrecy possible. Top executives might shun the public spotlight. Such things aren’t always concerning, but things change when secrecy attempts to hide fraudulent actions.

A research paper recently examined the relationship between skill, secrecy and transparency. Interestingly, the paper revealed that secretive hedge funds sometimes do quite well for their investors. Of course, different hedge funds will yield different results for investors. Anyone interested in working with a hedge fund, whether a transparent or secretive one, might benefit from examining the firm, its culture, past performance and legal issues.

Investors might not worry about secrecy if the hedge fund firm delivers solid returns. Investors likely work with a hedge fund because they want to maximize their earnings and profits. Concerns about secrecy become irrelevant to some investors provided that the company delivers growth.

Secrecy that serves as a cover to fraud, however, represents an entirely different manner. If a hedge fund takes money and does not even invest it, this would be an egregious example of fraud. As incredible as such a scenario sounds, there are instances of blatant embezzlement taking place.

“Pump and dump” schemes sometimes occur as well. With these schemes, false or otherwise inappropriate states serve to inflate prices. Stock prices that rise on misrepresentation won’t stay high forever, but the schemers may opt to sell the overvalued stocks before a potential crash.

Investment professionals charged with securities crimes might find it valuable to speak with an attorney. If an individual maintains their innocence, a criminal defense attorney may be able to defend them in court. The attorney might even seek a dismissal of the charges. A criminal defense attorney may also be able to arrange plea bargain and sentencing negotiations.

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