Author Archives: Hedge Fund Lawyer

CFTC Uses New Enforcement Authority to Police Forex

Forex Firm Caught Operating a Ponzi Scheme

The CFTC just announced that it charged a group out of Atlanta with operating a Ponzi scheme. This is the first action the CFTC has brought against a forex firm for fraud. At the beginning of last year Congress passed the Farm Bill which provided the CFTC with more authority for regulating the off-exchange foreign currency markets (also known as the spot forex markets). This action indicates that the CFTC is serious about cleaning up the forex markets. As we’ve detailed before, forex registration will be coming shortly. Continue reading →

Madoff Whistleblower

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The hedge fund industry has been shaken by volatile financial markets and the Madoff investment scandal of December 2008. While the hedge fund and investment management industries are changing because of these twin forces, many people are looking back to try to piece together what has happened and more importantly why it happened. One primary source will definitely be “The World’s Largest Hedge Fund is a Fraud” – a whistleblower manifesto provided to the SEC on November 7, 2005 by Harry Markopolos. This article provides a link to the manifesto (Madoff Whistleblower Report), and discusses the observations and predictions therein. Continue reading →

Incubator Hedge Funds

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How to Create an Auditable and Marketable Trackrecord

One of the biggest hurdles that start up hedge fund managers face is the issue of having a marketable track record. Many managers do not have an audited marketable trackrecord for any number of reasons. While it is not strictly necessary to have an audited marketable trackrecord, it will help with the marketing efforts when soliciting investors, especially institutional investors. To solve this problem many start up managers establish incubator hedge funds. Continue reading →

Hedge Fund Affiliated Broker Dealer

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What does it mean for a hedge fund to have an affiliated broker-dealer?

Definition of Broker-Dealer

We will start off by defining a broker-dealer. Basically a broker-dealer is the term used in the investment management industry for a firm which executes securities trades. The trades may be executed by these firms through an agency relationship (commission) with the client or through dealer (mark up) relationship with a customer. Some firms act in only one capacity and some act in both capacities depending on the securities traded. Continue reading →

Hedge Fund Taxation – Law School Professor Perspective

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Overview of Hedge Fund Taxation

The following is a reprint of the Joseph Bankman’s testimony before Congress. Mr. Bankman is a professor at Stanford Law School. While the testimony has a bias against the current hedge fund taxation structure, it provides a great overview of hedge fund tax issue, specifically the taxation of the hedge fund performance fee (also known as a “performance allocation,” “carried interest” or “carry”). Ultimately the future of the hedge fund taxation regime will be decided in the political arena, but this article provides a good overview of the arguments for changing the current tax code. Continue reading →

IRC Subchapter K – Partners and Partnerships

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Below is Subchapter K of the Internal Revenue Code. Most hedge funds are taxed as partnerships and we discuss some of these provisions from time to time on this website. Please let us know if you have any questions on hedge fund tax or if you would like to start a hedge fund. Continue reading →

Hedge Fund Comments/ Questions and Answers

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Questions and discussions from Hedge Fund Law Blog readers

I get quite a few questions from readers and usually I am able to answer these questions via email within a couple of days. If you have any questions, comments or simply want more information on starting a hedge fund, please feel free to contact us. We also will take requests for blog posts on certain issues and we also will publish articles (with all appropriate recognition and links) by guest authors. [Note: any grammatical errors in the original messages have not been corrected.] Continue reading →

Forex Hedge Fund Launch

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Henderson Global Announces Forex Hedge Fund

The British hedge fund manager will be launching a forex hedge fund in the first half of 2009. The fund will be targeted towards institutional investors and will trade based on quantitative metrics. The fund is expected to invest in G10 currencies and potentially emerging market currencies. The traders are reportedly acquisitions from Fortis. The full article can be found here. Continue reading →

Another Ponzi Scheme

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Broken Record

I’ve said it all before. The following press release can be found here. Please see the following articles on hedge fund and investment advisor fraud.

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Hedge Fund Taxation

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(www.hedgefundlawblog.com)

Overview of the Tax Issues Affecting Hedge Funds

One of the most important aspects of the hedge fund structure are the tax aspects as they relate to the hedge fund, the manager and the investors. This article will detail the important tax aspects which are relevant to most hedge funds. Please note that any of these individual tax aspects may or may not apply to certain hedge funds – for information on a particular fund’s tax attributes, refer to such fund’s private placement memorandum. Please also note that this article is not seeking to provide any sort of tax advice to managers or hedge fund investors, please see our disclaimer for information on IRS circular 230. [The following article deals with domestic hedge fund taxation. We will provide another article on offshore hedge fund taxation in the future.] Continue reading →