Hedge fund is a nominally regulated fund. The concept of ‘hedge’ in finance refers to the ability or the process to overcome the negative market impacts. The investors get their returns after paying a performance fee to the fund manager. They can increase their speculative position in the stock market by leveraging their assets. It can be attained by engaging in short term stock sales.
In USA the government strictly regulates who can invest in a hedge fund unlike mutual fund. The process is restrictive and lengthy. Investment in hedge fund is determined by the net worth of the individual and institutional investor. Alfred W. Jones is credited for creating the hedge fund for the first time in the year 1949.
Like any other nation of the world, USA has its own stock market regulatory body and a set of government laws guiding the day to day market transaction. U.S. Securities and Exchange Commission is the supreme regulatory body. There are a host of acts that tries to cover every aspect of the stock market-
1) Securities Act, 1933 – It was the 1st major federal legislation regarding the offer and sale of securities. The purpose was to provide all information to the investors regarding the company.
2) Trust Indenture Act, 1939 – supplements the securities act, 1933. It makes appointment of qualified trustees mandatory for the benefit of the holder of securities.
3) Investment Company Act, 1944- makes it legal to disclose material details about the investment company. It also restricts short selling by different fund types.
4) Investment Advisers Act, 1940- regulates the behavior of investment advisors (registered or unregistered individuals or firms engaged in providing advices related to investment in equity market).
5) Sarbanes–Oxley Act of 2002- The law came into face as a result of several accounting and corporate scams. For example- WorldCom, Enron, etc. It has set new standards for public company boards, accounting firms, management, etc.
Due to the inherent market risk for investing in capital market, it is important to exercise caution. The advice is equally applicable to institutional as well as non-institutional entities. Along with the risks comes unique set of litigation issues related to the capital market sector.
The lawyers in this sector should not only have knowledge of law but also sound knowledge of financial sector. As a result in case you want to file a suit against a hedge fund management against irregularities, contact a lawyer who specializes in New York Hedge Fund.
If you are looking for a New York based reputed lawyer, please visit New York Attorney Directory to get the required information.
Ashley Smith is a contributor to legal journals offering right help in legal matters. In case you require New York Hedge Fund specialist counsel, he would suggest you the site-www.stockbrokerlitigation.com which he found to be very insightful, if you have any query about capital market litigation related issue in New York.