Unstructured Finance

Sometimes it seems that insider trading cases are all about hedge funds. After all, the overwhelming majority of the federal government’s multi-year crackdown on insider trading has netted dozens of traders and analysts working in the $2.25 trillion hedge fund industry.

But this week’s escapades involving a former top audit partner at KPMG and his golfing buddy are reminder that the temptation to profit from inside information exists in many industries and professions.

Still, senior hedge fund reporter Svea Herbst-Bayliss reminds us in the following post,  a recent survey found a good portion of people who labor for hedge funds harbor private doubts about the integrity of their colleagues. If the numbers expressed in this survey are anything close to accurate, law enforcement should be busy for quite a while longer.

By Svea Herbst-Bayliss

This week’s insider trading case involving a former KPMG partner has stolen some of the attention from the hedge fund industry. But a survey released this month suggest the regulatory heat won’t be lifting from the industry any time soon.

Half of the respondents in the hedge fund industry survey said they believe their competitors engaged in illegal activity and more than one third said they have felt pressure to break the law or engage in unethical behavior. The poll was  commissioned by law firm Labaton Sucharow LLP, HedgeWorld and the Hedge Fund Association and released earlier this month.

Virtual offices can be a great cost-saver for a solo attorney, a lone accountant or any other professional who can’t afford the expense  of maintaining a separate support staff to run a business. But these outfits, in which a solo professional gets to essentially rent the services of a receptionist, a secretary and conference space, also can provide cover for bad guys bent on doing mischief.

A case in point is Robert Sucarato, a New Jersey man, who was sentenced Friday to 11 years in a federal prison for using a virtual office as a front for an alleged multi-billion hedge fund that bilked investors out of $1.6 million. A few years ago, when I was at BusinessWeek, I wrote about Sucarato long before federal prosecutors were on his trail. The BW story was called “Suite Scams” and it focused on much more than Sucarato and showed how virtual offices were proving to be a useful tool for Wall Street fraudsters with a slick website and a good marketing pitch.

Former federal prosecutors, back when I talked to them, said they were well aware of how  virtual offices were becoming the hallmarks of scams. But they said there was little  they could do to stop it since the due diligence requirements for virtual office operators are minimal.