At Lax & Neville LLP, our attorneys have extensive experience in hedge fund litigation representing hedge funds, hedge fund managers and general partners accused of wrongful conduct, as well as investors who have been defrauded in hedge fund investments.
A hedge fund is an alternative investment that invests in a variety of securities, such as equities, bonds, options and other investment products, by pooling investor capital from a number of investors. A hedge fund is managed by a professional management firm, often a limited partnership or a limited liability company. The hedge fund manager oversees and makes decisions about the investments the hedge fund makes. The hedge fund offering documents should accurately provide the fund’s objectives, risks and what investments the hedge fund can or cannot invest in. A hedge fund investment manager is typically paid an annual management fee (for example 2% of the assets of the fund), and a performance fee (for example 20% of the increase in the hedge fund’s net asset value during the year). Investors are generally limited partners or members of the hedge fund who invest their capital in the hedge fund.
Hedge fund investments are normally limited to sophisticated and accredited investors, such as institutions and individuals with significant income and a high net-worth. Typically, hedge funds are not offered or sold to the general investing public. The range of investment strategies available via hedge funds and the types of positions they can take are fairly broad and in many instances, very complex and risky. For example, a hedge fund can utilize a macro hedge fund investment strategy wherein it invests in bond and stock markets or currencies in the hopes of profiting on significant shifts in global interest rates and economic policies. An equity hedge fund, on the other hand, generally hedges against downturns in equity markets by shorting stocks or stock indexes that management believes are overvalued. Many hedge funds also utilize significant amounts of leverage increasing the risks and rewards for the investor. Because not all hedge funds are the same, it is important to understand the differences between the various hedge fund strategies and the advantages and risks embedded in each hedge fund.
In recent years, investors, including more traditional retail investors, have increasingly utilized hedge funds for significant portions of their investment portfolio. Brokerage firms and investment advisors have formed marketing teams to specifically market and sell hedge funds to retail investors, and more investors are investing their capital in hedge funds. FINRA issued a Notice to Member 03-07 - NASD Reminds Members of Obligations When Selling Hedge Funds reminding FINRA member brokerage firms of their obligations regarding the sale of hedge funds particularly to retail customers, as hedge fund investment recommendations raise substantial suitability concerns when they are recommended to retail investors. Hedge funds may be risky and highly leveraged investment vehicles that may pose a threat of devastating losses to investors if the market conditions changed, or if the hedge fund’s holdings are not properly managed.
Our Team at Lax & Neville LLP has represented investors in hedge funds who have been defrauded due to unsuitable investment advice to invest in the hedge fund. We have also represented clients with claims against hedge fund managers who acted in their own self-interest to the detriment of the investors. Our firm is also experienced in cases where a statement of purpose or goals of the hedge fund contained in the offering documents was so vague that it left the hedge fund managers with unlimited discretion and the potential to not act in the best interests of the hedge fund investors.
In addition, we have significant experience representing hedge managers and general partners in lawsuits when the hedge fund was victimized by fraud or breaches of investment contracts in the companies in their portfolio. We have also recovered substantial settlement for defrauded hedge funds. Our attorneys have also successfully defended hedge funds in securities fraud actions.
At Lax & Neville LLP, we also represent hedge funds in arbitrations claims against broker dealers/prime brokers for making commercially unreasonable risk calls, unethical demands, and putting their own financial interests ahead of their hedge fund client’s interests.
Contact Lax & Neville LLP for a free consultation with an experienced hedge fund litigation lawyer.