“The Securities and Exchange Commission has had to prosecute too many hedge-fund fraud cases and is actively monitoring developments in the industry, Paul Roye, director of investment management, said at a conference on Monday,” writes Allison Colter in today’s Wall Street Jouranl.

“The director’s comments, made at a gathering of mutual-fund industry executives in Orlando, Fla., echo similar remarks he made last year about the danger of hedge-fund investing.”

” ‘As hedge-fund assets have grown we have also seen an unfortunate growth in hedge-fund-related fraud,’ the director said in Monday’s speech, which has been posted on the SEC’s Web site. The commission has had to bring far too many hedge-fund-fraud cases in circumstances where the losses to investors have been substantial, he said.”

“He said the commission will continue to be vigilant in identifying these cases.”

“Last year, Mr. Roye warned that hedge funds weren’t ideal pension-fund investments, calling the proliferation of cases the SEC had brought against unregulated funds at that point a ‘miniboom.’ “

“As private-investment pools, hedge funds are free from many of the regulatory constraints mutual funds face on shorting stock, borrowing money and moving funds into cash. This ability to hedge against market risk has allowed many managers to outperform the stock market during the past couple of years, attracting many first-time investors.”

“The $500 billion industry took in $31 billion of new money last year, according to TASS Research.”