A Stern look at hedge fund risk

Abstract

Purpose

This paper aims to give an overview of the English law position on potential liability for misstatements and claims which investors may be considering.

Design/methodology/approach

The paper discusses liability for information contained in prospectuses, where liability for misrepresentation can arise, various possible remedies for investors, how criminal liability for misrepresentation can arise, and how hedge funds can protect themselves from misrepresentation claims.

Findings

A recent study by the Stern Business School found that 42 per cent of a group of over 400 hedge funds had either misrepresented information to investors or provided information that was inconsistent with material obtained from other sources.

Practical implications

The Stern Business School report is a timely reminder that all communications to investors, however informal, should be carefully verified and consideration should be given as to how pronouncements on future performance or investment opportunities are couched.

Originality/value

The paper provides practical guidance from experienced financial institution and securities lawyers.

Citation

Kosky, J., James, S. and Carty, H. (2010), "A Stern look at hedge fund risk", Journal of Investment Compliance, Vol. 11 No. 1, pp. 32-34. https://doi.org/10.1108/15285811011030185