Morningstar a Ponzi Scheme

When investors seek to take on more investments they will often look for the best company to do this with. Many investors will turn to Morningstar for this advice. However, it is believed that some think that Morningstar is giving false advice.

A lawsuit has been filed against Morningstar as a result of Morningstar being "reckless in giving a five-star rating to hedge a fund later." As a result of this the Securities and Exchange Commission labeled this a Ponzi scheme. If Morningstar had given a reasonable thought before giving a five-star rating, they would have noticed that a lower rating was necessary or no rating at all.

Morningstar is a company located in Chicago and for many years has been able to influence investors. Research has shown that Morningstar has been giving funds a higher rating than the firm actually deserves. In turn fund companies are taking these five-star ratings to help market there company as being a highly rated company.

Unlike mutual funds, hedge funds are not required to make standard public disclosures, which results in them being much less transparent. Morningstar rates these hedge funds based off of "self-reported data" as well as the firms acknowledgement. They will flag a fund when that fund begins to fall below certain standards, such as the use of a reputable independent auditor.

Morningstar is legally responsible to disclose information on why the fund received the rating it did. They do not need to audit the funds unless they promised that they would. This case is brought to court because it is believed Morningstar knew they were providing false information and continued with it.

Instead of Morningstar investing the money as they had promised, they operated as a Ponzi scheme. They used this money for personal expenses such as the defendent's luxary yacht rental and other unrelated things.

With this being said, it is important for investor's to be extremely cautious in the "less-than-transparent world of hedge funds." Those seeking to invest should go above and beyond ratings from Morningstar and do some research themselves. This can be done by requesting a standard due dilgence form from the fund firm. This form is known as Alternative Investment Management Association and provides a list of questions to be answered by the managers. Some of these questions include things like references of experience, team experience, and fees and contact information that would be helpful for the auditor.

Investor's should also request a copy of the fund's recently performed audits and make sure that an unqualified opinion has been provided by a well known auditing firm. They can also call the bank that holds funds money and be sure that they fund has a assets that it says it does. Investors should be very careful when using a hedge-fund firm.