Apparently, anyone who invests in a US fund (hedge fund, mutual fund, closed-end fund etc) which later turns out to be a fraud, can not only lose the money they have in the fund, but they can be sued for money they took out years before the fraud was discovered - - both profits *and* principal*. Effectively what this means is that any investment in any fund in the USA, creates a multi-year liability equal to 100% of the sums withdrawn. There is no way to eliminate this risk. This means that any amount of money you withdrawn from any fund, can never be spent until either the fund is liquidated and all funds returned (thus proving no fraud took place), or the statute of limitations runs out (assuming there is one in this case). Due to this totally unavoidable liability, I wonder how can anyone justify having a single dollar invested with any US investment fund, hedge fund, or mutual fund. You could withdraw your money, then years later be bankrupted by a lawsuit asking for all the money - profits and principal - to be returned...even though you may have spent that money on essentials such as your mortgage or food and clothing, or you may have paid it in tax or given it away to charity. It is in effect identical to suing a shopkeeper because a thief used stolen money to buy goods in the store many years ago. That is not viewed as a justifiable clawback, for the simple reason that the shopkeeper was unaware and took the money in good faith, and to institute clawbacks would make *all* monetary transactions too risky to engage in. Exactly the same applies in the case of investment funds, but the US legal system is currently ignoring this fact. After the Madoff fraud clawbacks start, and retired individuals and charities who have already lost 90% of their net worth subsequently get bankrupted and made homeless by the government pursuing this crazy law, I wonder whether the authorities will change their tune. Some of these victims will commit suicide or go to jail rather than pay back that money. http://www.bloomberg.com/apps/news?pid=20601087&sid=a3kFmYaaw5sY&refer=home
Read this thread-: are hedge funds honest? http://elitetrader.com/vb/showthread.php?s=&threadid=148121
Madoff's fraud has been declared "a ponzi scheme". This reminds me of Ponzi scheme "12dailypro" that had collected $300 million in 1 year. When FBI shut it down, investors who had earned high profits earlier were receiving "Chargebacks" to their credit cards and Banks accounts. FBI was withdrawing money from "profitable investors" and giving it to "new investors" to minimize losses. Everything was in a Big mess. This had happened some 3 years back so now I am not sure what actually had happened.
75% of Hedge funds & Mutual funds are honest but they DO NOT have "business brains". "Honest Hedge funds & Mutual funds" are worst than "fraud companies" because "Honest Hedge funds & Mutual funds" will invest people's money in "Loss-making business" & in the end Hedge funds & Mutual funds will shut down and people/investors will lose all their money. In other words, there is no difference between honest & fraud hedge & mutual funds
When people deposit money with Hedge funds and Mutual funds, they do not know where their money is being invested. For example-: People deposited Multi-billions with Madoff's investment Co. and they never knew their Multi-billion was invested in a "Ponzi scheme". People received their "profit statements" every year and they were very happy. Honest Hedge funds and Mutual funds invest people's money in "Loss-making business" such as Stocks, Real estates, worthless giant companies and banks. People/Investors do not question the "source of investments". Only "final results" are sent to investors. My sincere opinion is that, worldwide Hedge funds and Mutual funds should be shut down. If not, there will be many more Multi-billion dollars frauds and business losses in future because of these "worthless Hedge and Mutual funds"
Aren't hedge funds just glorified partnerships? If you are a "partner" in a fund that conducts fraudulent activity, any proceeds you get from that fraudulent activity are considered "ill-gotten" and subject to being returned to your other partners.
Yes, Hedge funds and Mutual funds are just glorified partnerships which has Millions of partners/investors and their money is collectively invested in fraudulent activity or loss-making business. But only the top 10 or 50 partners (management persons) are active and the remaining Million partners (investors) are innocent. They have no idea where there money is being invested.