Hedge Fund Fraud Whistleblower
Hedge funds are groups of private investors who pool their money and invest it, sometimes in speculative ventures, with the assistance of a fund manager. Because they are not subject to the same regulatory oversight as are mutual funds, hedge funds tend to be riskier investments and are often prone to fraudulent activity. While the Securities and Exchange Commission (SEC) has relatively less latitude to regulate hedge funds, the laws against investment fraud still apply.
The government does what it is able to investigate and prosecute hedge fund managers who defraud investors and otherwise violate federal securities laws. But they rely on the assistance of individuals with inside information to step forward and report what they know. These persons, known as whistleblowers, play a significant role in protecting investors and securities markets from bad actors. They may also qualify for a reward for having the courage to report what they know. The whistleblower law firm of Oberheiden P.C. helps whistleblowers submit their claims and receive the rewards they deserve for reporting hedge fund fraud.
What to Know About Hedge Funds
Hedge funds are typically directed at wealthier investors who have more money available than others with which to invest. That’s because many of the risky investment strategies used by hedge funds, although legal, carry significant risk. Examples include leveraging, short selling, derivatives, and other speculative investments.
Unfortunately, this makes hedge funds an easy vehicle for investment fraud. Hedge funds are managed by professional fund managers who are trusted to take reasonable risks like those listed above. In exchange, the investors hope, the returns on the investments will be higher than average. This is the expected payoff for risk and it works well for many investors. Yet in other situations, fund managers take advantage of the trust placed in them and commit various forms of fraud in the hedge fund industry.
Examples of Hedge Fund Fraud
Despite the high latitude that hedge fund managers have to take risks with their investors’ money, there are certain areas where speculative investment behavior crosses the line into fraud. The SEC has the authority to not only investigate and put an end to such activity but to reward the individuals who alert the government. You might work for a hedge fund firm and, because of your position, have access to inside knowledge that might demonstrate fraud. If so, our skilled legal team wants to work with you.
Reach out to us if you have observed any of these common examples of hedge fund fraud:
Making material misrepresentations to investors
Assigning a value to hedge fund investments is relatively more difficult compared to mutual funds due to allowable differences in investment products. This makes it harder to determine how well or poorly an investment is performing. Nonetheless, the SEC will enforce securities laws against hedge fund managers who make significant misrepresentations about the value, performance, or nature of their investment products. These may include making false, misleading, or fraudulent statements concerning:
- How the net asset values of investor funds are calculated (e.g. the methodology that is used)
- The hedge fund’s hedging and trading strategy
- Valuations and reporting regarding the fund’s performance
- Fees and expenses
Misappropriation of funds
Misappropriation includes anything that amounts to the use of another person’s property or funds for their own personal and unauthorized use. It is a form of fraud because it violates the fund manager’s fiduciary duties that they owe to the investors. Unfortunately, there are many ways that managers may misappropriate funds. An example is the classic Ponzi scheme in which existing investors are paid with the funds of newer investors, giving the illusion of higher than average returns. Since hedge funds already involve both risky investments and the promise of significant returns, they often provide the perfect opportunity for this type of misappropriation.
Insider trading
Insider trading is the transaction of a security based on material and non-public information. Hedge fund managers who execute trades based on this information can be found guilty of insider trading just as any other participant in the securities market. Because of the push to make good on promised guarantees of above-normal investment returns, it is not unusual for hedge fund managers to participate in a wide array of insider trading schemes.
The above are by no means the only examples of hedge fund fraud. Due to the diversity of hedge funds, it is virtually impossible to compile a comprehensive list of how fraud might occur. If you suspect inappropriate behavior, but you aren’t sure whether it amounts to fraud, contact Oberheiden P.C. for a thorough review of the information you have.
Put our highly experienced team on your side
Dr. Nick Oberheiden
Founder
Attorney-at-Law
Lynette S. Byrd
Former DOJ Trial Attorney
Partner
Brian J. Kuester
Former U.S. Attorney
Hon. Kevin McCarthy
55th Speaker, U.S. House of Representatives (ret.)
Government Consultant
Mike Pompeo
Of Counsel
Former U.S. Secretary of State
John W. Sellers
Former Senior DOJ Trial Attorney
Linda Julin McNamara
Federal Appeals Attorney
Nicholas B. Johnson
Former Prosecutor
Roger Bach
Former Special Agent (DOJ)
Chris J. Quick
Former Special Agent (FBI & IRS-CI)
Michael S. Koslow
Former Supervisory Special Agent (DOD-OIG)
Ray Yuen
Former Supervisory Special Agent (FBI)
How to Qualify For a Whistleblower Reward
If you have information about hedge fund fraud, you may be able to report it to the SEC and qualify for a whistleblower reward. Among other requirements, your information must:
- Be original: Original information is that which the SEC or other government agencies do not already know about. It is also not public. If someone else knows what you do and reports or goes public with it, your information will no longer qualify as original.
- Be provided voluntarily: Generally, you must hand over your information to the government voluntarily if you wish to claim a whistleblower reward. Conversely, you probably are ineligible for a reward if you provided the information in response to a subpoena or other request.
- Lead to a successful enforcement action and recovery of at least $1 million: The SEC must be able to use the information you provide to enforce securities laws against the wrongful party. Moreover, the government must recover at least $1 million in monetary sanctions.
Why You Should Hire an Attorney
An experienced whistleblower attorney can help you by:
- Examining the evidence you have to see if it demonstrates hedge fund fraud
- Reporting the hedge fund fraud by filing the necessary paperwork in accordance with the SEC whistleblower program
- Protecting your anonymity if you do not want your identity known
- Managing all communications with the government, which is crucial for protecting your right to a reward
- Proving to the government that the information you possess is useful and aids the SEC’s enforcement action
- Negotiating with the SEC to help you win a fair whistleblower reward
- Helping you fight unlawful employment retaliation that you may experience as a whistleblower
If you have evidence of hedge fund fraud, let our dedicated attorneys help you get started with your whistleblower claim. Connect with Oberheiden P.C. today.
FAQ: Filing a Hedge Fund Fraud Whistleblower Complaint
What Counts as Employment Retaliation?
Your employer may retaliate against you in numerous ways if it learns that you have blown the whistle. More obvious ways are job loss, reduced pay, withheld pay and bonuses, denial of promised promotions, and demotions; less obvious ways may include decreased hours and reduced access to employee facilities. If you face harassment or discrimination because of your status as a whistleblower, talk to our firm about your legal rights.
How Much of a Reward Can I Claim?
If the SEC is able to recover at least $1 million in sanctions from the parties who are responsible for the hedge fund fraud, you may be able to claim a reward of between 10% and 30%. Some cases of hedge fund fraud are quite substantial, so you should work with an attorney to submit your information and claim a reward from the SEC whistleblower program.
How Can I Improve My Chances of a Reward?
The more detailed and specific your information is, and the more that it helps the government’s enforcement action, the more likely it is that you can claim a reward. Your information must also meet the other requirements above, such as being original. Cases of hedge fund fraud in which there are many victims, or the government wants to strongly deter future similar instances, are also likely to qualify you for a reward.
Why Is Cooperating With the Government So Important?
Many hedge fund whistleblowers are reluctant to step forward with what they know, and even more hesitant to continue working with the SEC over the course of an investigation. However, it is rare for the information that a whistleblower provides to be a smoking gun. The government will need more evidence to build a case against all liable parties. By cooperating with the government, you improve your chances of a higher reward.
Can I Anonymously Blow the Whistle?
You may choose to anonymously report your evidence of hedge fund fraud. However, you are required to have an attorney represent you. That’s because your lawyer will need to work with the SEC on your behalf and ensure continued cooperation. Our team helps protect your anonymity by working to make it difficult for anyone to directly or indirectly identify you.
What Happens If I Wait to Report My Information?
You may want to wait to accumulate additional proof of hedge fund fraud, especially if the evidence you have is weak. But there is a risk to this: if you wait too long, someone else may report it before you do. This will eliminate your ability to claim a whistleblower reward since your information will no longer qualify as original. If you aren’t sure whether the evidence you have is compelling enough to initiate a whistleblower claim, talk to us about it and let us guide you on the next best steps to take.
