Hedge Fund Reader : Scandals in the industry may deter investors

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September 24, 2005

Scandals in the industry may deter investors

The year has been a bad time for the Hedge Funds since 1998 after the infamous blowout of the Connecticut-based Long Term Capital Management. The industry this year has seen two scandal and money laundering incidents. First the industry saw the KL Financial, a $200 million, West Palm Beach, Florida-based hedge fund which went bust. And, the Korean-origin principals fled the country after the SEC allegedly sued them in March this year for lying about their funds' returns and issuing bogus reports to its investors. The second mega event was that of Bayou Management, LLC which had all the ingredients of a Hollywood block buster scandalous film. There were reports about the funds’ CFO being terrorized by Bayou's founder, Mr. Samuel Israel III, and presumably shot, but was alive for a statement, Mr. Israel was rumored to be absconding, the returns were made an eye-candy for its investors. And, finally federal prosecutors filed a suit alleging that Bayou's managers raised $300 million between 1998 and 2005 from its investors by lying to them about the fund's returns and other issues. It is yet to be seen how much of these issues would have an impact on the investor’s perception of industry. But no body is complaining money keeps pouring in the hedge funds industry’s coffers. CNN Money Reports:

Meanwhile, several funds have come under the scrutiny of federal regulators this year for allegedly defrauding investors. Two principals of KL Financial, a $200 million, West Palm Beach, Fla., hedge fund, fled the country after the SEC sued them in March for lying about their funds' returns and issuing bogus reports to investors.