Hedge Fund Case

Hedge Fund Research Report

FRL 330- Investment Analysis

Winter 2014- Muhtaseb

March 11, 2014

Jennifer Aguirre

Jordan Gonzalez 

Table Of Content

I. Executive Summary…………………...................................................................... 3

II. Hedge Funds Overview ……………………………………………………………4

III. Douglas Vaughan Ponzi Scheme…………………………………………………. 6

IV. Consequences……………………………………………………………………… 8

V. Lessons……………………………………………………………………………. 8

VI. Retrospect ………………………………………………………………………….9

VII. Works Cited………………………………………………………………………10

I. Executive Summary

Hedge funds are defined as private investment pools, open to wealthy or institutional investors that are largely exempt from Securities and Exchange Commission regulation and can therefore pursue more speculative policies than mutual funds (Bodie). Hedge funds are very much like mutual funds except for the differences in disclosure, investor base, investment strategies, regulation, and compensation structure. Hedge fund managers are largely free to pursue dynamic trading strategies for their restrictions from the Securities and Exchange Commission are very limited. With this freedom to invest privately, it opens up the doors to fraud and very risky investments. The characteristics and strategies of Hedge Funds are unique and they have to possibility of great returns but also high requirements in investments. Hedge funds, like mutual funds, can offset risk in investments through derivatives, short sales and other options in a variety of different investments. Douglas Vaughan of Vaughan Company Realtors in New Mexico is an example of possible fraud in hedging where he upheld a Ponzi scheme in which he sold fraudulent promissory notes to new investors. Hedge funds are more conducive to fraud than other investment managers because of their limited regulations and can be mitigated with proper screening of fund managers.

II.