CHAPTER 27 Recent Hedge Fund Controversies

Hedge funds have seen fraud, excessive losses due to concentrated bets or leverage, and losses that were belatedly exposed because of lax operational controls and mark-to-market problems. While these are the rare exception, they have drawn widespread attention. The following is a partial list of hedge fund lapses.*

 

• David Askin, Granite Funds: Lost hundreds of millions in 1994 on mortgage-backed securities, which lost value as interest rates increased; investors did not know about the losses for a period of time because the portfolio was improperly marked to market.

• John Meriwether, Long-Term Capital Management: Lost billions in 1998 on extremely highly leveraged positions in “relative value” strategies. ...

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