MAY 24, 2004     Up Front


Hotshots With Hidden Rap Sheets

An arsonist. A drug dealer. A chronic gambler. To the investors who have entrusted them with millions, they are hotshot money managers promising big returns. In reality, they're hedge-fund rogues drawn to the lightly regulated $750 billion industry. Investors are left in the dark because records of past transgressions by investment advisers who run hedge funds are often inaccessible. The Securities & Exchange Commission maintains the disciplinary records on investment advisers and gives the public easy access to them for just two years. A few states keep them open longer.

All it takes to tidy up a tarnished record is to simply let an old registration lapse and apply for a new one. One out of six managers have had some run-in with the law, says Guy Simonian, president of, which does background checks for investors. He has turned up everything from felonies to SEC violations to fake investment credentials.

What's needed, Simonian says, is a rule requiring records for investment advisers be made publicly available for seven years. No doubt investors would agree.
By Mara Der Hovanesian