Ropes & Gray’s Hedge Fund Update: December 2011

The following summarizes recent legal developments of note affecting the hedge fund industry:

U.S. Developments

SEC Files Enforcement Actions Targeting "Suspicious Investment Returns"

On December 1, 2011, the SEC announced four separate enforcement actions as part of a new initiative—the "Aberrational Performance Inquiry"—to combat fraud by identifying "abnormally" high-performing funds and targeting them for greater scrutiny. The four complaints, filed between November 9 and December 1, allege a range of securities violations, including inflating the value of fund holdings, purposefully concealing fund performance, and misrepresenting critical fund attributes such as liquidity, investment strategy, manager credentials, and conflicts of interest. These are the first enforcement actions the SEC has attributed to this new investigative approach.