Hedge fund are domiciled off-shore so that foreign investors aren't subject to withholding tax in the US. Nobody from overseas will invest with you if you don't have an offshore domicile. That surely doesn't free you from regulators and anti-fraud laws in the US if you operate in the US. As John points out - all real funds have admins and auditors and nobody would invest in them if they didn't.
Obviously there are people like Madoff whose admin and administrators are their brother in law but that is the exception. I just had my fund audited by Deloitte and everyone liked that. (asking about the auditor and the admin is a decent kind of due diligence).
Hedge funds are subject to anti-fraud laws like everyone else. Further, every hedge fund worth anything has an admin, an outside shop that is responsible for reporting results. That means that prior to taking incentive fees or reporting any official results someone outside the firm has signed off on the results. Firms are also audited annually and any such results manipulation would show up in the audit.
If you earn 40%, let everyone know and celebrate. Much better than going to jail.
Hedge funds are pretty shadowy organisations and are often (always?) based offshore away from the regulators. So the answer is probably 'no'.
Hedge funds, like all organisations, are legally required to report accurately.
Let's say a hedge fund earns 40% annual ROI, can he report 30% returns to it's investors ? (which still would be happy in that case, while not knowing that there were greater returns)
