Palisades Fund Nears Cliff

Some investors also question the fund managers' ties to HPC Capital, a small Georgia investment firm that has served as a placement agent on a number of the PIPE deals in which Palisades has invested. Mannion is a managing director of HPC Capital and a former officer of the firm.

A placement agent collects a fee for arranging the PIPE and finding hedge funds to invest in the deal.

Mannion says HPC Capital's relationship to Palisades has never been hidden from the hedge fund's investors. Legal experts say there is nothing inherently wrong with a hedge fund manager being affiliated with a brokerage firm, as long as the relationship is fully disclosed to investors.

"It is not uncommon that people have affiliated entities or conflicts," says Ron Geffner, a partner with Sadis & Goldberg. "Under the advisers act, investment advisers are required to disclose all potential conflicts of interest to their clients."

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