A professional advisor is currently reviewing the mandatory reports that hedge funds are required to submit to the United States Securities and Exchange Commission (SEC). The advisor is particularly focusing on the techniques available for investors to identify and minimize the risk of fraudulent activities by analyzing these reports. Which of the following statements is correct?

Exam-Like

Disclosures of past regulatory or legal violations are not effective in predicting fraud because circumstances almost always change.

18.2%

There is not enough evidence to conclude that investors of hedge funds are compensated for fraud risk by receiving higher returns.

45.5%

Regulatory and legal prohibitions prevent fraud, and insufficient requirements on disclosure of violations cause fraud.

21.2%

Regulatory and legal violation disclosures benefit only a small fraction of investors who have access to high-cost contemporaneous data

15.2%

Financial Risk Manager Part 2