Hedge Funds, Risk Tolerance, and Stockbroker Fraud

One of the most common forms of hedge fund fraud has to do with the suitability of an investment for the investor in question and whether the significant risks associated with this type of investment have been disclosed to the client. Unfortunately, some financial professionals may attempt to convince unwary investors that a hedge fund is “completely safe” or “risk free” in order to line their own pockets.

It’s important to understand that all investments come with some element of risk, especially those that offer high returns. Here are just a few examples of why hedge funds may be risky for some investors:

  • Hedge funds can be complicated and are not always transparent. Hedge funds may use speculative investment strategies, and the actual companies invested in may not always be known to the investor.
  • Hedge funds are only minimally regulated. Hedge funds are not required to register with the SEC and lack the regulatory oversight that other investments are subjected to.
  • Hedge fund managers get paid even if investors don’t. Because of the way hedge fund managers are paid, it is possible for them to make money when investors don’t – meaning the person making investment decisions for the hedge fund is likely far more tolerant to risk than the investors involved.
  • Some hedge fund risks are difficult to measure. Because hedge funds look at long-term performance and often involve illiquid or volatile investments, the value and performance of the fund may be hard to gauge.

If you believe you have been the victim of stockbroker fraud related to a hedge fund, don’t wait until it’s too late to pursue the recovery of your losses. Reach out to a friendly and knowledgeable investment fraud attorney with Meyer Wilson today. You can reach us by phone or email to schedule a completely free and confidential consultation, or you can fill out the online contact form on this page for more information.

You can learn more about hedge funds by watching our helpful video.


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