Tarred by Market-Timing Brush, Hedge Funds Quit the Business

Hedge funds that used to rack up hefty profits trading mutual funds are running scared, even if they haven't done anything wrong.

Investigations in New York and Massachusetts turned up the heat on market-timing hedge funds, and some of them are getting out of the mutual fund kitchen altogether. The ripple effect from New York State Attorney General Elliot Spitzer's investigation into late-trading arrangements between mutual fund companies and hedge funds has affected businesses from Manhattan to Malta, shuttering funds and zipping lips as the controversy unspools.

"A lot of them may be feeling very paranoid," said Dermot Butler, chairman of Custom House Group, a Dublin company that does hedge fund administration and other support work for funds and managers. ...