Volatile markets may tempt hedge-fund fraud

[Dover]

"Hedge-frauders"


Volatile markets may tempt hedge-fund fraud

BOSTON (Reuters) - While fraud can happen any time, the loosely regulated $1.7 trillion hedge-fund industry looks especially vulnerable following record losses.

Losses of roughly 15 percent this year and a growing sense of panic as hedge-fund clients exit worldwide are creating ripe conditions for a small number of the estimated 9,000 hedge-fund managers to break the law, according to forensic accountants, private investigators and former prosecutors.

"In volatile markets there is a greater likelihood that a manager might want to try and cover up his tracks by issuing bogus reports or making false valuations of securities if the market has turned against him," said Walter Pagano, a former Internal Revenue Service agent who now heads the Litigation Consulting & Forensic Accounting Services Group at Eisner LLP.

Whether managers fabricate returns to salvage ailing funds or spend clients' cash on fast cars or famous paintings for themselves, industry experts said fraud is often accompanied by warning signs.

"There usually isn't one big red flag," said Peter Turecek, a managing director at Kroll Inc, a risk consultancy owned by Marsh & McLennan Cos Inc (MMC.N: Quote, Profile, Research, Stock Buzz), the world's largest insurance broker. "But often there is a pattern of little red flags."

These include returns that look too good to be true, accountants said. Investors should ask secretive hedge-fund managers to show more than top-line numbers and to provide details on how they make money....>

http://www.reuters.com/article/americasDealsNews/idUSTRE4AJ8HX20081120

[HereSince1628]

1. Fund Managers Cheat? Who would think that possible???????

As if there hasn't been any cheating to date.