Plaintiff Richard Kelter invested almost $4 million with the Apex Equity Options Fund, L.P. hedge fund (Apex or the Fund).  He alleged that virtually all of his investment evaporated when the Fund entered into a very large unhedged call contract.  Kelter sued, claiming that the Fund breached various representations about the Fund’s practices, including that his principal would be safe and that the Fund’s options transactions would all be hedged.  On August 24, 2009, the United States District Court for the Southern District of New York dismissed his complaint, holding that: (i) there were no misrepresentations made in the private placement memorandum (PPM) or prior to its issuance and, even if there were, the PPM precluded a claim based on those representations; and (ii) the alleged misrepresentations made after Kelter’s investment in the Fund could not form the basis of a claim because they were not made in connection with the purchase or sale of a security (being induced to continue to hold a security – as opposed to being induced to buy or sell a security – does not give rise to a claim).  Notably, the court did not question Kelter’s assertion that Rule 10b-5 of the Securities Exchange Act of 1934 (Exchange Act) applied to his investment in the Fund, a hedge fund.  We explain the factual background of the case, including details the PPM language, and the court’s legal analysis.