Can Investors Benefit From Enhanced Application of Fiduciary Duty Standard?

Abstract

The article analyzes a hedge fund manager fraud case to develop the argument for expanding the fiduciary duty standard to include the disclosure of acts believed harmful by hedge fund vendors to investors and hedge fund stakeholders. The disclosure to be made at three levels: Within vendor firm, among third-party vendors, and to regulatory agencies, private and public. The requirement is likely to mitigate hedge fund manager fraud and reduce adverse consequences of the fraud such as financial losses to employee retirement plans and other investors and expensive needless lawsuits filed against hedge funds and their service providers. Extending the application of the standard of fiduciary duty to hedge fund service providers is critically important considering that the SEC just lost more than 10% of its staff because of the administration's plan to reduce the size of the government. Article offers responses to arguments against applying the standard of fiduciary duty to hedge funds service providers.