Tuesday, April 2, 2013  

Hedge Fund Industry Survey Reveals More than One-Third of Professionals Feel Pressured to Break the Rules in Pursuit of Alpha

Significant Percentage of Hedge Fund Professionals Have Witnessed Misconduct and Lack Faith in Regulators and Fund Leadership

NEW YORK, NY (April 2, 2013) – An independent survey of hedge fund professionals commissioned by law firm Labaton Sucharow LLP, HedgeWorld and the Hedge Fund Association, revealed that nearly half (46%) believe that their competitors engage in illegal activity; more than one third (35%) have personally felt pressure to break the rules and about one third (30%) have witnessed misconduct in the workplace.  

When asked if they would blow the whistle or report the misconduct, 87% of respondents said they would report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program.  This investor protection program has broad extraterritorial reach and offers eligible whistleblowers, regardless of nationality, significant employment protections, monetary awards and the ability to report anonymously.  To ensure that adequate funds are available to pay awards, Congress has established a replenishing Investor Protection Fund, which currently has a balance in excess of $450 million.

"While wrongdoing in the hedge fund industry may not be as widespread as many outside the industry believe, it does occur, and people in the industry are aware of it," remarked Christopher Clair, Managing Editor at Hedgeworld.  "It's only when we eliminate the unfair advantages sought and exploited by some that true alpha can be found."

"The high percentage of hedge fund professionals that are aware of the SEC Whistleblower Program and are willing to report wrongdoing is extremely encouraging," said Jordan Thomas, Chair of the Whistleblower Representation Practice at Labaton Sucharow.  "Without individuals willing to report possible securities violations, internally or externally, responsible organizations and law enforcement authorities cannot police the marketplace effectively and efficiently."

The survey's top ten findings include:

  • 46% of respondents reported that their competitors likely have engaged in unethical or illegal activity in order to be successful.

  • 35% of respondents reported feeling pressured by their compensation or bonus plan to violate the law or engage in unethical conduct, while 25% of respondents reported other pressures that might lead to unethical or illegal conduct.

  • 30% of respondents reported that they had personally observed or had first-hand knowledge of wrongdoing in the workplace.

  • 87% of respondents would report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program, while 83% of respondents were aware of this important program.

  • 29% of respondents reported that it was likely that they would be retaliated against if they were to report wrongdoing in the workplace.

  • 28% of respondents reported that if leaders of their firm learned that a top performer had engaged in insider trading, they would be unlikely to report the misconduct to law enforcement or regulatory authorities; 13% of respondents reported that leaders of their firm would likely ignore the problem.

  • 54% of respondents reported that the SEC is ineffective in detecting, investigating and prosecuting securities violations.

  • 34% of respondents reported that recent regulation and law enforcement scrutiny will weaken the hedge fund industry.

  • 13% of respondents reported that hedge fund professionals may need to engage in unethical or illegal activity in order to be successful and an equal percentage would commit a crime—insider trading—if they could make a guaranteed $10 million and get away with it.

  • 93% of respondents reported that their firm put the best interests of investors first.
"Our members have a deep commitment to corporate integrity," noted Lara Block, Executive Director of the Hedge Fund Association.   "Although some of the findings are troubling, this groundbreaking survey provides valuable insights that will help the industry to further strengthen its investor protection programs and root out any bad actors."

About the Survey

Between February 25-March 17, 2013, ORC International conducted a confidential online survey of 127 respondents age 18 or older who work in the Hedge Fund industry.  The sample for the study came from three sources:  HedgeWorld, The Hedge Fund Association and ResearchNow. 

About Labaton Sucharow LLP

For 50 years, Labaton Sucharow has been one of the country's premier law firms comprehensively representing businesses, institutional investors and consumers in complex securities and business litigation.  It was the first law firm in the country to establish a practice exclusively focused on protecting and advocating for whistleblowers who report possible securities violations to the SEC.  Building on the firm's market-leading securities litigation platform, the Whistleblower Representation Practice leverages a world-class in-house team of investigators, financial analysts and forensic accountants with federal and state law enforcement experience to provide unparalleled representation for whistleblowers.  The practice is led by Jordan A. Thomas, a former Assistant Director and Assistant Chief Litigation Counsel in the Enforcement Division of the Securities and Exchange Commission who played a leadership role in the development of the SEC Whistleblower Program.  The firm is consistently among the top plaintiffs litigation firms based on its rankings in Chambers & Partners, The Legal 500, The National Law Journal's Plaintiffs' Hot List and Benchmark Plaintiff.  More information about Labaton Sucharow and the Whistleblower Representation Practice is available at http://www.labaton.com/

About the Hedge Fund Association (HFA)

HFA is an International not for profit industry trade and nonpartisan lobbying organization devoted to advancing transparency, development and trust in alternative investments. Membership in HFA includes hedge fund firms, global financial institutions with hedge fund offerings including private banks, asset management firms and broker dealers, investors including funds of hedge funds, family offices, public and private pension funds, endowments and foundations, high net worth individuals, allocators, and service providers including prime brokers, administrators, custodians, auditors, lawyers, risk managers, technologists and third party marketers.

About HedgeWorld

HedgeWorld is the hedge fund industry's leading news, research and analysis source for individual and institutional accredited investors and their professional advisers, fund managers and service providers in the global hedge fund industry. Established in 1999 by a consortium of private investors, today as a Thomson Reuters company, HedgeWorld leads the global hedge fund community in innovation with its award-winning news, events, online products and proprietary research products and services.



Zack Kouwe
Dukas Public Relations



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