Hedge Fund
“Hedge fund” is a general, non-legal term that was originally used to describe a type of private, unregistered investment pool that employed sophisticated hedging and arbitrage techniques to trade in the corporate equity markets. Hedge funds generally rely on Sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 to avoid registration and regulation as investment companies as well as Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933 to avoid having to register with the SEC. To qualify, they represent that they only accept financially sophisticated investors and do not publicly offer their securities. It is the fact that they are private, and exempt from registration, that makes them attractive to con artists. In many cases, the principals fraudulently represent themselves to be dealing exclusively with sophisticated investors and publicly advertise as well – even legitimate hedge funds are subject to the antifraud provisions of the federal securities laws. See the David Mobley (Maricopa) case under Case Studies for a classic example of a con artists “Hedge Fund” operation.
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