Hedge Fund Managers Acquitted in Sub-Prime Fund Failure; SEC Action Continues
Two hedge fund managers were acquitted of criminal fraud charges brought by the Justice Department in connection with failed hedge funds invested in subprime mortgage paper. The prosecution claimed that the managers intentionally misled investors in the funds during a period when they witnessed the collapse of the underlying subprime market. The SEC is still pursuing civil fraud charges, which requires a much lower burden of proof.
OUR TAKE: The impact of the case is that fund managers can’t go to jail for marketing their funds. However, the limits of marketing activities in the face of a turbulent market will be determined by the SEC action.