July 29, 2006

Cox For Anti-Fraud Plan

The past five years have seen a sharp rise in the number of hedge funds and in the subsequent growth of the industry to its current mammoth proportions. The downside of this development is that the frauds and wrong-doings of these funds have also grown proportionally.

The numbers have increased exponentially, from four cases of insider trading, alleged stealing of fund assets, and hushing up the truth about fund performance, to more than 60 today. The US Securities and Exchange Commission (SEC) has charged fund managers of defrauding investors out of more $1 billion over the last five years.

So it comes as no surprise that the SEC  Chairman Christopher Cox has stated that he would advocate new emergency regulations for these high-risk investment pools. Cox outlined his plans for an anti-fraud rule that will ensure that fund managers are responsible for investors, before the Senate Banking Committee.

The plan will also meet the legal objections of the appeals court that invalidated the SEC regulation that required hedge funds to adopt transparent dealing strategies. The appeals court had also noted that a few federal anti-fraud regulations are not limited to fraud against clients.

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