I'm not an expert on this topic, but if a limited partner agrees to something like "2 and 20" fees doesn't that imply that the other 98% of the money is to be invested and not used for expenses? 2% management fee on $64M assets is only $1.2M which is pretty small considering the size of staff they had.

It's less bad if the investors agreed to high fees, but it could still be embezzlement if the money was spent on personal stuff.

Source: former hedge fund trader

Can you talk a bit about where the line is between this being merely unethical as opposed to outright illegal?

But if you authorize the company to spend money on something which is in itself illegal (cocaine or weed for the parties, hookers instead of strippers), that's illegal. And if you effectively direct the money to your own benefit (pay for your house's landscaping, new pool, pet grooming bill) that's not legal (among other things, it counts as taxable income and I bet you forget to pay on that).

If you make invoices that say you've ordered soda for the programmers, but there are no deliveries of soda because the money for sodas went to your overseas numbered account, that's illegal.

(Example: Enron)

> Defendants at all relevant times were investment advisers within the meaning of Section 202(a)(11) of the Advisers Act [15 U.S.C. § 80b-2(a)(11)].

My personal guess: that law makes various actions (self-dealing, lying about what investment funds are being used for, non-arms-length transactions, etc) crimes instead of civil torts.

Plus, you know, just plain fraud.