The SEC will no longer be totally dependent on the whistle-blowers of the world to detect hedge fund fraud, Bloomberg BusinessWeek reports. Now they have a new, two word strategy — data mining.
The SEC is going to be looking at hedge fund performance from a variety of angles to determine if there are any irregularities in a firms operations. (Via Bloomberg BusinessWeek)
“We take a look at performance by comparing funds against their peers and then apply qualitative factors, including looking at experience, assets under management, their regulatory history, and whether they’ve been in trouble before,” said Bruce Karpati, co-chief of the SEC’s asset-management enforcement unit.
So pretend you were down for two years and then in your third year you make a killing — that would probably draw some eyes. So far, using this approach, the SEC has filed four fraud cases against hedge funds.
Obviously, there are two sides to this. For hedge funders, it seems like the SEC could be scrutinizing people for doing well in an industry where performance means everything.
On the other hand, as SEC enforcement director Robert S. Khuzami explained, this could be like Rudy Giuliani's broken windows approach to fighting crime. Catch people for the small infractions and they won't have the nerve to commit the bigger ones..
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