An amended lawsuit just filed against a UBS Paine Webber/Mark Advisors hedge fund could bring to light some of the biggest challenges faced by the growing number of firms sponsoring SEC-registered hedge funds. The suit challenges earnings and investment representations, and raises questions about how these funds are explained to brokers and marketed to investors.

SEC-registered hedge funds have been flooding the securities market as sponsors hope to lure wealthy investors with alternative investment products that produce positive absolute returns not correlated with the stock market. In many cases, sponsors are hiring traditional hedge fund managers to manage all or a portion of the fund's assets.

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