ALJ Decision Highlights the Critical Difference between “Audited” and “Verified” Returns in GIPS-Compliant Performance Advertising by Hedge Fund Managers

This article discusses the facts and legal analysis in a recent decision by an SEC Administrative Law Judge relating to shortcomings in GIPS compliance by a registered investment adviser.  See “A Step-By-Step Guide to GIPS Compliance for Hedge Fund Managers,” Hedge Fund Law Report, Vol. 4, No. 44 (Dec. 8, 2011).  This article also identifies seven compliance lessons – arising out of the case and related materials – applicable to performance advertising by hedge fund managers.  On the topic of performance advertising, see also “How Can Hedge Fund Managers Market Their Funds Using Case Studies Without Violating the Cherry Picking Rule? (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 47 (Dec. 12, 2013); and “Can Hedge Fund Managers Use Gross (Rather Than Net) Results in Performance Advertising? (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 42 (Nov. 1, 2013).

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