-- SEC Warns Investors on Hedge Fund Dangers --
WASHINGTON (Reuters) - Warning that loosely regulated hedge
funds pose a growing danger to investors, U.S. market
regulators on Wednesday issued an alert and released data
showing a sharp uptick in fraud actions brought against hedge funds.
The Securities and Exchange Commission also posted a scam
hedge fund pitch on the Internet promising 22 percent returns
on investment from the fictional Guaranteed Returns Diversified
Inc., based in the uncharted Wylshock Islands in the Indian
Ocean.
The bogus "Gotcha" Web pitch was intended "to show
investors an example of a hedge fund fraud," said the SEC,
which has been pursuing a hedge fund "fact-finding
investigation" for months.
With the investigation continuing, the SEC said in a
statement that it brought 12 hedge fund fraud cases in 2002
versus five or fewer in each year from 1998 to 2001.
"We're not telling people not to invest in hedge funds,"
said Susan Wyderko, director of the SEC's Office of Investor
Education and Assistance. "But it's very important that
investors understand the potential risks and potential returns
that are possible with these investment vehicles."
Hedge funds are investment pools favored by institutions
and the super-rich. Unlike mutual funds, hedge funds generally
are not registered with the SEC.
In the 1990s bull stock market, some hedge funds delivered
stellar returns, aided by loose government oversight allowing
them to invest in almost anything, unlike mutual funds.
The bear market has caught up with the $550 billion hedge
fund industry. But its reputation for huge profits lingers,
helping it in recent efforts to reach down to lower income
brackets to attract more middle-class investors.
Amid a three-year bear stock market, Wyderko said,
"Investors are searching for alternative investments, as
traditional investment returns have not been as high as they
were before."
The SEC's hedge fund probe is multi-pronged, but one aspect
focuses on "funds of hedge funds," which gather the assets of
small investors to get them in the high-stakes hedge fund game.
The commission this summer began sending questionnaires to
hedge fund managers asking how they trade and value their
portfolios. SEC officials have also personally visited funds.
On May 24, SEC Chairman Harvey Pitt announced the
market-regulating agency was launching an investigation of
hedge funds with an eye toward possibly toughening regulation.
(C) Reuters 2003. All rights reserved.
12-Feb-2003 18:07:03 GMT |
