Mass. Regulators Sue Three Hedge Funds

Massachusetts securities regulators Wednesday sued three hedge funds for pitching their funds to investors who can’t invest millions, at a time when demand for these loosely regulated pools is growing, even among Main Street investors.

Massachusetts Secretary of the Commonwealth William Galvin, the state’s top securities regulator, said his office had filed civil complaints against the managers of Hercules Hedgehog Fund, Futronix Futures Fund, and Dhunn-Carr Hedge Fund. Efforts to reach the fund managers for comment were not successful.

Hedge funds typically are aimed at wealthy investors who earn at least $200,000 a year for two years or who can prove a net worth of at least $1 million. In return for being loosely regulated and enjoying freedoms such as selling stocks short, hedge funds managers are prohibited from advertising.

Two of the hedge funds sued Wednesday were run by Massachusetts residents who, according to the complaint, advertised their funds to clients who were prohibited from investing in hedge funds because their net worth was not high enough.

Often hedge funds require investors to commit at least $1 million, but recently some have slashed their minimums to attract more clients.

Hedge funds soared in popularity during the bear market, but gains have been muted recently. Federal regulators are mulling over new restrictions on the industry.

From Reuters