Bayou hedge fund?

Bayou hedge fund? The Bayou fraud has nothing to do with the REAL hedge fund industry. Financial scams have occurred since money was invented; you can't prevent, regulate or legislate against them ever happening. What you can do as an investor is extensive due diligence, diversify with many managers and use common sense.

Auditing is an INDEPENDENT third party check; if the audit firm is not independent it is NOT an audit. Valuation is ONLY valid is done externally. Enron showed years ago the need for arms-length checks and balances. A brand-name administrator is also essential. It is long overdue for that to be mandatory. A no-brainer for all proper hedge funds - ANY transfer of capital from accounts requires agreement from two INDEPENDENT service providers.

Background checks, whilst important, are not the panacea. Just because someone's past checks out fine, does not mean they won't flip out in the future. Just like performance, past behavior is often a poor indicator of future behavior. Ongoing monitoring is also needed.