SEC Charges Fund-of-Funds Manager for Lying about Correlation
The SEC filed an enforcement action against a fund-of-funds manager that the SEC claims failed to properly disclose the level of correlation among the underlying hedge funds. According to the SEC, the defendant represented that the underlying funds were uncorrelated and that the fund-of-funds were therefore diversified and conservative. However, the SEC charges that the defendant never did any correlation analysis and the underlying funds were in fact highly correlated. When the market fell in 2008, many of the funds suspended redemptions, leading to investor losses. The SEC charges violations of the anti-fraud laws and rules.