Answer: Fixed operating costs are above the industry average while manager compensation has a prominent variable component.

## Explanation Let's analyze each option: **Option A: A high percentage of illiquid investments or those marked to market by the manager** - This IS a potential fraud indicator because illiquid investments are hard to value objectively, and when marked to market by the manager, it creates opportunities for manipulation and overvaluation. **Option B: Personal trading by managers in the same securities or similar securities as the fund** - This IS a potential fraud indicator as it creates conflicts of interest and potential front-running, where managers might prioritize their personal trades over fund interests. **Option C: Fixed operating costs are above the industry average while manager compensation has a prominent variable component** - This is LEAST LIKELY to be a fraud indicator. While unusual cost structures might indicate inefficiency, they don't necessarily signal fraud. High fixed costs with variable compensation could simply reflect the fund's business model or compensation structure. **Option D: Unusually strong performance claims; e.g., hedge fund performance claims are better than market average over a long period of time** - This IS a potential fraud indicator as consistently superior performance over long periods is statistically improbable and could indicate performance manipulation or misrepresentation. Therefore, option C is the least likely indicator of hedge fund fraud risk among the choices provided.

Author: LeetQuiz .