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Guarding against hedge fund fraud

The SEC is pursuing more and more hedge fund abuses. It hopes that requiring managers to register, as passed by the regulator on October 26, will eradicate the problem. It won't. Investors need to see independent valuations.

Risk managing the black box

"I'M SO TIRED of the lies right now that I could scream. I'm not a good liar and my mom always said it made my ears turn red," laments Charles L Harris, principal of hedge fund Tradewinds International.

When the performance of 43-year-old Harris's hedge fund headed south he made a decision that would not only change his and his family's lives for ever but also those of all of his investors.

When he realized that he had no other choice than to come clean, Harris made a DVD recording in July 2004 asking his investors to treat him with compassion and permit him to continue his efforts to try to recoup their lost money.

He also admitted that he had taken investor money offshore. The recording in which he confesses to being a pitiful liar shows him on a boat, presumably the $481,000 62-foot yacht listed in his assets, probably anchored somewhere in the Caribbean.

Tradewinds International LP was created by Harris in 1996 and was run from his home and an office in Winnetka, Illinois. It invested in currency, bond and equity products.

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