It’s Not a Hedge Fund, It’s a “Process”
March 25, 2009 by Lela Davidson
Filed under Finance
The importance of understanding the sometimes smoky world of finance is illustrated in another story of finacial fraud this week. Lucky for these investors, this one has a happy ending.
Investors Win in Arbitration
Investors in the Apex Hedge fund offered by Associated Securities broker Jeffrey Forrest were awarded nearly $9 million in damages as the result of arbitration. Throughout 2005 and 2006 Forrest sold clients this “safe and secure” fund, which was actually a highly speculative hedge fund that engaged in risky options trading and was wiped out in 2007.
The investors were represented by Philip M. Aidikoff and Robert A. Uhl of Aidikoff, Uhl & Bakhtiari, a Beverly Hills, California law firm (www.securitiesarbitration.com) that represents investors in disputes with the securities industry.
The Process of Defrauding Investors
According to Mr. Aidikoff, Forrest’s responsibility to the investors in this case was clear. The law states that presentation of a hedge fund investment must be fair and balanced. Not only did Forrest fail to provide a balanced portrayal of the fund, the arbitration panel found that he committed fraud by intentionally misleading investors. Aidikoff agrees, adding:
Forrest never even called the investment a hedge fund.
He called it a “process”.
Indeed, a process for separating investors from their principal. Forrest claimed this “process” would protect principal and encouraged investors to borrow against their homes, life insurance policies, or any other assets to invest in the hedge fund.
Associated Securities operates as an independent contractor broker dealer. Forrest was branch manager of his own office. They have been found jointly and severally liable for Forrest’s fraudulent conduct because they failed to “diligently and properly supervise Forrest’s activities.”
What is a Hedge Fund?
It’s not a “process” that’s for sure. I plan to write a primer on hedge funds next week. The short version: super risky, unregulated, highly leveraged, and most certainly not intended for novice investors.
Image Credit: AssociatedSecurities.com screen shot
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