In a study examining the effectiveness of  five known “red flags,” Vanderbilt Owen Graduate School of Management professor Nicolas Bollen says he’s already picked out 195 possibly fraudulent hedge funds that haven’t yet been charged with violations.

Regulators are likely to use such “red flag” statistical screens to monitor hedge funds and identify cheaters early. The first step took place last week, on Friday, when the commission approved a preliminary rule requiring most hedge-fund managers, who currently operate with limited supervision, to register with the agency.  The agency has proposed requiring hedge funds and private-equity funds to submit to inspections and new disclosure requirements, aiming to expand oversight as required by the Dodd-Frank law.

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