Ten Recommendations to Help Hedge Fund Managers Conduct Successful Internal Investigations

Hedge fund managers should demonstrate a vigorous commitment to preventing and detecting securities law violations, especially in an environment with increasing SEC enforcement activity and heightened fund investor due diligence of managers.  See “OCIE Director Carlo di Florio and Asset Management Unit Chief Bruce Karpati Address Examinations and Enforcement Priorities for Hedge Fund Managers,” Hedge Fund Law Report, Vol. 6, No. 4 (Jan. 24, 2013).  Therefore, at the first signs of red flags, a hedge fund manager must strongly consider whether to initiate an internal investigation, which can facilitate the accomplishment of various goals, including potentially deterring any nefarious activity; demonstrating the firm’s independent commitment to good compliance; and, if the wrongdoing has already occurred, preventing or mitigating any charges that could be brought against the manager.  See “For Hedge Fund Managers in a Heightened Enforcement Environment, Internal Investigations Can Help Prevent or Mitigate Criminal and Civil Charges,” Hedge Fund Law Report, Vol. 2, No. 47 (Nov. 25, 2009).  However, if not conducted properly, internal investigations can present their own risks, including inadvertent disclosure of the investigation; waiver of the attorney-client privilege; and accusations of improper handling or even obstruction of justice.  To mitigate these risks, hedge fund managers should adopt a carefully-conceived plan for conducting internal investigations.  In a guest article, Sung-Hee Suh and Nelida Lara, partner and associate, respectively, at Schulte Roth & Zabel LLP, offer ten recommendations designed to help hedge fund managers conduct successful internal investigations.

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