Hedge Fund Due-Diligence: How to Use the FOIA System in 5 Minutes to Detect Fraud

Aaron Rabinowe | August 17, 2015

This is a quick how-to process for submitting a FOIA request to find out if a hedge
fund is under investigation by the SEC. Needless to say this is a very powerful tool for due-diligence and it’s both easy and free. Sparing about 5 minutes could save you millions (not a bad ROI!)

Step 1: Go to the SEC FOIA Request Website: https://tts.sec.gov/cgi-bin/request_public_docs

Step 2: Fill in all applicable information

    • Under the section ‘Type of Document’ select investigations.

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  • In the write-in section I usually write “I am seeking all information on current or past investigations, administrative proceedings and complaints relating to [Company Name] between [Start Date] and [End Date]
  • Step 3: Wait patiently for about a month for the response letter

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Step 4: Interpret the response

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Here’s the deal with these. The SEC does not comment on ongoing investigations for obvious reasons. However, they will imply that there is an ongoing investigation without explicitly acknowledging it. To see what that looks like, here is an example of what they have written when there was no record of investigations:

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Notice how it was clearly stated that they couldn’t locate any records relating to the request. Next, here’s an example of language they’ve used in a different situation in which it was later discovered that there was an ongoing investigation:

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As per usual, they indicated that there were no complaints or administrative proceedings. When it comes to investigations however, the explanation cited the need to withhold records compiled for law enforcement purposes. They later state that this is neither a denial or confirmation of an investigation, but due-diligence experts use this nuance to determine whether a fund is likely under investigation to avoid potential blow-ups.

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Aaron Rabinowe

Aaron is a research analyst at ClaritySpring, acting as a generalist and engaging in the due-diligence process

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