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There are 8,000 hedge funds, and they are up to their eyeballs in unethical behavior.
"Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual; we are talking about something verging on a corrupt business model, for the defendants seem to have taken the concept of social networking and turned it into a criminal enterprise. "
But aren't there many (some?) honest and ethical people working in America's 8,000 hedge funds?
Maybe so, but the overwhelming culture within hedge funds makes cheating a way of life, according to Lynn Stout of UCLA Law School.
The more we dig into what hedge funds actually do, the more we find that insider-trading is just one of many unethical strategies used to rig bets. Their goal always is to find a sure thing. And the only sure way to secure such infallible investments is to cheat.
High frequency hedge funds set up their super-computers next to the stock exchanges so they get the information a few nanoseconds before the rest of us. This allows them to deploy automated systems to front-run our trades. Between the time you press your E-trade button and the time the trade actually goes through, a high-frequency trader is buying what you want and selling it back to you for a few pennies more. By systematically fleecing stock-market participants, high-frequency traders extract $5 to $20 billion a year from the rest of us.
[Jim Cramer]says that if you're not willing to lie, cheat and violate the law, "maybe you shouldn't be in the game."
To provide even more incentive for hedge fund managers to cheat their way to riches, the federal tax code rewards them with a special tax loophole called "carried interest." As a result, billionaire hedge fund managers pay a lower tax rate than the rest of us, and neither political party has the nerve to remedy this blatant injustice.
If you're receiving such largess, you don't want to know if the money is tainted. Better to pretend that these guys are just brilliant investors with the uncanny gift for making 30 percent a year, year after year after year.