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Hedge funds are lightly regulated precisely because there is great amount of assumed risk involved with them.
That is why they have income and minimum net worth requirements.
If the money was invested by an agent of the investor that person is liable for damages because they haven't done their due diligence with investing others money.
If someone is ruined because of one investment faltering, they at least have a large chunk of their money invested.
Hedge funds are risky, there is a For Dummies guide that costs about $20 that could have explained everything they needed to know about investing with them.
I'm sure the firemen and police in Colorado would love to have a copy of the Dummie book, since they had 60 million dollars of their pension money invested there.
Explain exactly what a funds manager could have done to know that Madoff was a crook???