Wednesday, December 17, 2008
Massive Madoff fraud nails hedge fund reputation
Thank you sir, may I have another. That's what hedge fund managers must have thought when the news of the massive fraud perpetrated by Bernard Madoff was uncovered. The Wall Street Journal writes that the scandal is the nail in the coffin for the fund of funds business. One of the key advantages promoted by FOFs is that they do the due-diligence on hedge funds. Oops. The Journal notes that "in an industry that depends on trust and confidence, the fact that so many respected names fell short is likely to lead to yet more redemptions across the sector.
Of course the Madoff affair has set off new calls for regulation of the hedge fund industry and a former SEC official was on the Newshour last night. The official called hedge funds "unregulated" and predicted that regulation is on the way, due in part because the SEC's "international reputation is now taking a major hit." View the segment on PBS.org.
The New York Times writes that certain banks spotted "obvious" red flags when doing due diligence on Madoffs funds, but other banks weren't so lucky.
Billions in losses, mammoth fraud, Palm Beach society and non-profits left high and dry. Thank you sir, may I have another.