Hedge Funds SEC Enforcement Division
SEC Enforcement Division Targets High Performing Funds
n response to the Madoff scandal, the Division of Enforcement for the U.S. Securities and Exchange Commission is focusing on hedge funds that outperform market indexes by 3% on a steady basis. This initiative has raised a number of questions.
Recently, during congressional testimony, Robert Khuzami, the Director of the Division of Enforcement for the U.S. Securities and Exchange Commission (SEC), faced tough questions regarding the SEC's response to the Madoff scandal. In response, Khuzami revealed an investigative initiative concerning hedge funds. Enforcement is now focusing on hedge funds that outperform "market indexes by 3% and [are] doing it on a steady basis." Khuzami referred to such performance as "aberrational," and stated that Enforcement is "canvassing all hedge funds" for such "aberrational performance."
This initiative raises a number of questions. For example, should skilled portfolio managers (and their investors) bear the burden and costs of an SEC investigation just because they have returned more than the market? Moreover, how and why did the Enforcement Division determine to set the threshold at three percent? Is this threshold appropriate and does it reflect "aberrational" performance, like Khuzami suggests? Source