care to comment anybody?

V

vladiator

Just saw this somewhere:
<i>
"The use of a limited liability company as a general partner of the Hedge Fund or as the general partner of the general partner of the Hedge Fund gives the "appearance" of limited personal liability.

We use the word "appearance" in quotation marks because many of the unexpected liabilities which a general partner might have in running a Hedge Fund are liabilities under the securities laws for which he or she can be held to be personally liable irrespective of the legal form of the entity which serves as the general partner."
</i>
Can anyone give me some examples of what those "unexpected liabilities" might be? I was under the assumption that I was protected from all liabilities, except things like fraud etc. Am I right? Being liable is kind of scary... :D
 
Anybody can sue you for any thing at any time. I'm not saying they'll be successful, but there's no restriction against filing a lawsuit naming you personally, as well as the management company LLC. An LLC makes your personal assets a little safer and harder to get to, but it is no guarantee.
 
Quote from Aaron:

Anybody can sue you for any thing at any time. I'm not saying they'll be successful, but there's no restriction against filing a lawsuit naming you personally, as well as the management company LLC. An LLC makes your personal assets a little safer and harder to get to, but it is no guarantee.
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:eek: :eek:
That doesn't sound good. I'm no lawyer, but don't the "qualified investors" pretty much agree that the high returns imply high risks and that they are willing to bear those? The lawyers did all the paperwork, but I thought there was some kind of "You make money and get your cut, but if you lose money I'm not gonna sue you" clause in there :) Don't they sign some sort of waiver?..
I'm not in trouble, no :D, just wanna be more informed of all the nuances/facets.
 
Since we are talking about hedge funds. Are not hedge funds excempt from registering with the sec since it is a private fund with less than 50 investors or high net worth sophisticated investors. Anyone know. I would like to get the scooP?
 
Quote from topguntrader:

Since we are talking about hedge funds. Are not hedge funds excempt from registering with the sec since it is a private fund with less than 50 investors or high net worth sophisticated investors. Anyone know. I would like to get the scooP?
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Yes, they are. Also it's typically less than 100 qualified investors although it seems like there are ways around it and the number can be larger.
I guess you are saying that more affluent people are less likely to sue over losses. In a way you are right, but they also have more resources to do so if they want to. :)
 
Quote from vladiator:



Yes, they are. Also it's typically less than 100 qualified investors although it seems like there are ways around it and the number can be larger.
I guess you are saying that more affluent people are less likely to sue over losses. In a way you are right, but they also have more resources to do so if they want to. :)
More...
Correct, and often 35 non qualified investors are admissable also. It is rare to find non qualified investors to make the minimum investment though.

There is a trade off for the hedge funds flexibility and freedom, it is not advertising and exclusion of the general public, which is largely the opposite of mutual funds that can, for the most part, only go long. Change appears to be on the horizon though as the mutual fund industry is lamenting their restrictions.
 
Vlad,

A good or similar example of this could be found in the Enron case as it related at the time to current and past partners of Arthur Andersen LLP. At the time there were several articles I glanced at in probably the WSJ about partners consulting with bankruptcy attorneys in an effort to protect assets. You may want to begin a search in this area.

To some extent, any small corp has this problem in something called Piercing the Corporate Veil. This basically comes in to play when an owner of a corporations mingles business assets with personal assets. Often hard if not impossible to do if you run a small shop. For instance, an electrician picking up his kid in a company vehicle from a ballgame is not going to be protected by the corporation if he has an accident.

There is available for individuals personal liability insurance through most P&C carriers. This is usually dirt cheap, perhaps $300 for 2m in coverage each year. If asset protection is a concern, it makes sense to explore this route with an attorney or agent. Since as Aaron said, you can be sued for almost anything.
 
Quote from trdrmac:

Vlad,

A good or similar example of this could be found in the Enron case as it related at the time to current and past partners of Arthur Andersen LLP. At the time there were several articles I glanced at in probably the WSJ about partners consulting with bankruptcy attorneys in an effort to protect assets. You may want to begin a search in this area.

To some extent, any small corp has this problem in something called Piercing the Corporate Veil. This basically comes in to play when an owner of a corporations mingles business assets with personal assets. Often hard if not impossible to do if you run a small shop. For instance, an electrician picking up his kid in a company vehicle from a ballgame is not going to be protected by the corporation if he has an accident.

There is available for individuals personal liability insurance through most P&C carriers. This is usually dirt cheap, perhaps $300 for 2m in coverage each year. If asset protection is a concern, it makes sense to explore this route with an attorney or agent. Since as Aaron said, you can be sued for almost anything.
More...

Thanks Trdrmac. I wasn't aware of this sort of insurance.
I was thinking that as long as I didn't do anything illegal, I was OK with just the protection of limited liability, but I guess it's not all that black and white.
 
Quote from vladiator:

Just saw this somewhere:
<i>
"The use of a limited liability company as a general partner of the Hedge Fund or as the general partner of the general partner of the Hedge Fund gives the "appearance" of limited personal liability.

We use the word "appearance" in quotation marks because many of the unexpected liabilities which a general partner might have in running a Hedge Fund are liabilities under the securities laws for which he or she can be held to be personally liable irrespective of the legal form of the entity which serves as the general partner."
</i>
Can anyone give me some examples of what those "unexpected liabilities" might be? I was under the assumption that I was protected from all liabilities, except things like fraud etc. Am I right? Being liable is kind of scary... :D
More...

v,

to the best of my knowledge, you are protected as a general partner in a llc if the business is properly constructed and operated to the letter of the law as an llc. what plaintiff's lawyers tend to do in such cases is attack the validity of the corporate structure--this is called "piercing the corporate veil". if the llc. is perfectly sound, you should have no worries--unless of course illegal activities took place like misrepresentation or fraud. if you would be sued, and the plaintiffs attorney would find a flaw in your structure, you can then sue your attorney/accountant, etal for setting up a flawed llc. . everything has to do with the validity of the structure. this is not legal advice and i am not a lawyer.

best,

surf:)
 
What about the assets of other investors. Say your management company is sued. There are only negligable assets in that. Can they go after the investment vehicle of the llc? They can at least try for your assets, can they go after the assets of other investors b/c they're in the same llc?
 
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