SEC targets hedge fund misconduct

The Securities and Exchange Commission is conducting more than 30 investigations into potential hedge fund manager misconduct in the Northeast alone, with more in other parts of the U.S., officials said Wednesday.

The investigations into potential insider trading, faulty asset valuation, conflicts of interest and other misdeeds are underway despite the agency’s setback last year when a federal court struck down a rule requiring the lightly regulated hedge funds to register as investment advisors.

“Whether you are registered or not, we at the enforcement division believe we have the tools to detect insider trading,” Bruce Karpati, New York-based assistant regional director for the SEC’s Division of Enforcement, said at a hedge fund conference in Connecticut.

The SEC and other federal agencies are grappling with how best to regulate the rapidly expanding $1.8-trillion hedge fund industry as it exerts a more powerful influence in the financial markets and the economy but closely guards its secrecy and its complex trading strategies.

The SEC has made prosecuting insider trading at hedge funds a major priority this year. It has brought more than 100 cases against hedge fund managers in the last five years.