The discovery, duration and depth of Ponzi schemes and insider trading rings uncovered during the last two years have altered, to a degree, the assumptions of institutional investors.  While investors do not presume that every hedge fund manager is engaged in illicit activity, they have expanded their due diligence checklists to include questions intended to identify and avoid bad actors.  Investors also realized that due diligence can never be perfect, and accordingly, have refocused on the legal rights and remedies available to parties invested with managers that are or are alleged to be operating Ponzi schemes or engaged in insider trading.  See “Hedge Funds in the Crosshairs: The Law of Insider Trading in an Active Enforcement Environment,” Hedge Fund Law Report, Vol. 3, No. 7 (Feb. 17, 2010).  In recognition of these abiding concerns among institutional investors, and the concomitant interest among hedge fund managers in demonstrating their commitment to compliance, law firm Katten Muchin Rosenman LLP hosted a seminar on March 16, 2010 titled “Infected Hedge Funds: Rights and Remedies.”  The Katten Partners that served as panelists discussed various relevant topics, including the categories of claims and defenses available to investors in hedge funds whose managers are accused of Ponzi scheme operation or insider trading; differences in remedies available to direct and indirect investors; the SEC’s new enforcement initiatives and cooperation measures (including cooperation agreements, deferred prosecution agreements and non-prosecution agreements); and prophylactic measures hedge fund managers can take to prevent accusations of insider trading or running a Ponzi scheme.  This article describes in detail the most relevant topics discussed and points made at the Katten seminar.