Yesterday, the SEC announced that it had brought enforcement actions against three advisory firms and six individuals for misconduct including improper use of fund assets, fraudulent valuations, and misrepresenting fund returns. Notably, the SEC stated that the cases were “part of an initiative to combat hedge fund fraud by identifying abnormal investment performance.”
Earlier this year in congressional testimony, SEC Enforcement Director Robert Khuzami mentioned an eye-opening agency initiative concerning hedge funds. He said his division was taking a look at at hedge funds that outperform market indexes by 3% on a steady basis, calling such performance “aberrational.” The idea generated some buzz among enforcement defense lawyers at the time, but nothing much really seemed to come of it until yesterday’s announcement.
