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Regulation and Compliance > Federal Regulation > SEC

SEC Crafts Web Site for Imaginary Hedge Fund as Wa

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NEW YORK (– Guaranteed Returns Diversified Inc., which calls itself “one of the world’s leading operators of hedge funds,” on its web site isn’t real. It’s part of the Securities and Exchange Commission’s investor education program.

GRDI’s assertions seem to be a parody of all the misleading claims that a fraudulent money manager might make.

“Based in the Wylshock Islands in the Indian Ocean, with 68 offices worldwide, we’ve been making money for sophisticated investors for more than 18 years,” reads the introduction to the fabricated GRDI story. The firm alleges that it manages 17 hedge funds, many now closed to new investors, and has US$765 million under management.

GRDI tickles investors’ fancy by saying it has achieved almost 40% annual returns over 18 years and is now launching a new fund, GRDI Select, expected by some publication called “Stock Market Report” to return 22% in the first quarter after launch and 32% thereafter.

“Be sure to read the ‘you can get scammed!’ page,” Lori Schock, special counsel to the director in the SEC office of investor education and assistance, advised in a message. That page pops up when you try to submit an application to invest.

But how useful is this in the fight against fraud? “The SEC’s goal to notify and educate prospective investors in hedge fund products is sound,” said Ron Geffner of Sadis & Goldberg, New York, a law firm with an extensive financial industry practice. “The method, however, is questionable.”

Fraud over the Internet can happen in connection with any offering of securities unrelated to hedge funds, he points out. “The SEC’s time would be better spent looking for those persons who make securities offerings of all kinds over the Internet and shutting down their web sites, rather adding one more site,” Mr. Geffner argued. “For example, my firm has been approached by people who have been hurt investing in companies that sought to raise assets via the Internet through mass solicitation that may have been fraudulent.”

The new web site’s “Watch Out” page warns that you should check the people behind the offer. GRDI provides no information whatsoever on its managers. But this is something of a giveaway that GRDI can’t be a real hedge fund. In this reporter’s experience, when a hedge fund firm is presented, its principals are almost always named and their credentials mentioned, whatever the validity of those claims.

Looking for such clues is fun–the web site can be mildly entertaining, if not very helpful.

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