Post by jannikki on Jul 15, 2006 19:26:36 GMT -4
Tips not audits nail suspect hedge funds-DOJ atty
Fri Jul 14, 2006 4:29pm ET
Email This Article | Print This Article | Reprints [-] Text [+] NEW YORK, July 14 (Reuters) - A federal court decision last month overturning hedge fund registration requirements is unlikely to affect the number of prosecutions brought against wrong-doers in the industry, a top government prosecutor said.
The requirement that many hedge funds register as investment advisers was designed to ferret out criminal activity, in part by allowing U.S. Securities and Exchange Commission auditors to undertake spot audits.
But Kevin O'Connor, the U.S. Attorney for Connecticut, told an industry gathering in New York this week that leads typically come from angry investors, not from SEC audits.
"The cases don't come from an examiner. They come from aggrieved investors," said O'Connor, who led Department of Justice investigations into fraud cases at Bayou Management, Durus Capital Management and others.
O'Connor, who represents a state with the second-highest number of hedge funds in the United States outside New York, stressed that he isn't expressing an opinion on the validity of the SEC registration law, which went into effect in February.
He suggested the rules may be a deterrent against potential wrong-doers, "as cumbersome and burdensome as they have been."
But his comments at the hedge fund conference sponsored by Strategic Research Institute add to the debate over the value of registration, which was widely disparaged by the industry.
Hedge funds said the rule, which the SEC may reinstate in some form, adds considerably to the cost of doing business by requiring extensive record-keeping and compliance provisions.
"Investment managers and hedge funds are now in the documentation business," one Connecticut-based hedge fund manager told industry executives at the conference.
Still, some said the industry would be better off working with lawmakers and regulators over compromise federal rules in the wake of the court ruling, since state regulators could also enact their own rules in an effort to protect investors.
Former SEC Chairman Harvey Pitt, who in 2002 spearheaded an effort to study hedge fund trading practices, told the conference that the federal court decision "leaves people like Eliot Spitzer and Richard Blumenthal to take steps," referring to the New York and Connecticut state attorney generals.
"This could be far worse than SEC regulation," Pitt said.
yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20060714:MTFH47097_2006-07-14_20-29-40_N14173353&type=comktNews&rpc=44
Fri Jul 14, 2006 4:29pm ET
Email This Article | Print This Article | Reprints [-] Text [+] NEW YORK, July 14 (Reuters) - A federal court decision last month overturning hedge fund registration requirements is unlikely to affect the number of prosecutions brought against wrong-doers in the industry, a top government prosecutor said.
The requirement that many hedge funds register as investment advisers was designed to ferret out criminal activity, in part by allowing U.S. Securities and Exchange Commission auditors to undertake spot audits.
But Kevin O'Connor, the U.S. Attorney for Connecticut, told an industry gathering in New York this week that leads typically come from angry investors, not from SEC audits.
"The cases don't come from an examiner. They come from aggrieved investors," said O'Connor, who led Department of Justice investigations into fraud cases at Bayou Management, Durus Capital Management and others.
O'Connor, who represents a state with the second-highest number of hedge funds in the United States outside New York, stressed that he isn't expressing an opinion on the validity of the SEC registration law, which went into effect in February.
He suggested the rules may be a deterrent against potential wrong-doers, "as cumbersome and burdensome as they have been."
But his comments at the hedge fund conference sponsored by Strategic Research Institute add to the debate over the value of registration, which was widely disparaged by the industry.
Hedge funds said the rule, which the SEC may reinstate in some form, adds considerably to the cost of doing business by requiring extensive record-keeping and compliance provisions.
"Investment managers and hedge funds are now in the documentation business," one Connecticut-based hedge fund manager told industry executives at the conference.
Still, some said the industry would be better off working with lawmakers and regulators over compromise federal rules in the wake of the court ruling, since state regulators could also enact their own rules in an effort to protect investors.
Former SEC Chairman Harvey Pitt, who in 2002 spearheaded an effort to study hedge fund trading practices, told the conference that the federal court decision "leaves people like Eliot Spitzer and Richard Blumenthal to take steps," referring to the New York and Connecticut state attorney generals.
"This could be far worse than SEC regulation," Pitt said.
yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20060714:MTFH47097_2006-07-14_20-29-40_N14173353&type=comktNews&rpc=44