2nd Circuit Says Adviser’s Knowledge of Bayou Hedge Fund Fraud Not Proven

An adviser on investing in hedge funds cannot be sued for securities fraud for recommending a fund that later turned out to be a Ponzi scheme, the 2nd U.S. Circuit Court of Appeals has ruled in a closely watched case. The circuit found that the requirement of scienter was not met in the pleadings against an adviser who steered a client to Samuel Israel III and other founders of the Bayou funds group that later bilked investors out of more than $400 million.