SEC "Canvassing All Hedge Funds for Aberrational Performance"

According to the Wall Street Journal (link below), the U.S. Securities and Exchange Commission (SEC) "is scrutinizing hedge funds that consistently offer above-market returns amid concern about whether outsized returns are a result of malfeasance".

According to SEC enforcement director Robert Khuzami, any hedge fund that is beating market indexes by 3% and "doing it on a steady basis" will be subject to scrutiny.

Hedge funds have been increasingly under scrutiny as of late due to the current ongoing criminal case against Raj Rajaratnam of the Galleon Group, a New York-based hedge fund management firm. The case against Rajaratnam has opened up a can of worms that has shined a bright light into the somewhat murky world of hedge funds. Prosecutors are alleging that Rajaratnam made millions of dollars illicitly using a network of insider contacts. Thanks to this investigation, the SEC has uncovered potentially shady activities at other hedge fund firms.

The SEC lacks the necessary manpower to thoroughly scrutinize each and every hedge fund in existence, so there are hoping to create a short list of hedge funds that have potentially broken the law by identifying those that have consistently beaten market indexes by a substantial margin.

Firms such as SAC Capital, Paulson + Co. Inc., Renaissance Technologies, etc - consider yourselves warned.

Source: WSJ.com - SEC Looks at Hedge Funds with Repeated, Above-Market Returns