UPDATE 1-Massachusetts regulator charges hedge fund manager

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By Svea Herbst-Bayliss

BOSTON, May 19 (Reuters) - Massachusetts' top securities regulator on Monday charged a hedge fund manager, who promised to earn as much as 20 percent for his clients, with improperly soliciting investors.

William Galvin, the state's secretary of the commonwealth, said Michael Regan did not check whether investors in his River Stream fund were wealthy enough to legally invest with him.

Galvin's office also found documents that suggest most of the money clients entrusted to Regan may be lost.

Decades-old rules designed to protect less affluent investors from putting their savings into loosely regulated hedge funds require fund managers to make sure that all of their investors meet a minimum net-worth requirement.

Regan could not be reached for comment.

Investigators found River Stream client data thrown into a dumpster near an empty office where Regan said he worked.

The money manager wooed friends and social contacts with false Ivy League credentials and promises of healthy returns between 10 percent and 20 percent a year. He claimed to have an MBA in Finance from Columbia University which he did not earn, Galvin's office said.

Galvin's investigators also found a brokerage statement showing the River Stream fund had $1,625.45 at the end of April, a fraction of the $15 million Regan claimed to be managing earlier in the month.

One client said he put roughly $1.5 million with Regan in 1996, Galvin's office said.

"This is another example of the need for additional oversight of the hedge fund industry," Galvin said in a statement, adding, "Because of the absolute lack of required oversight, people may lose their homes, their retirement funds, or have difficulty funding education for their children."

Hedge funds have become increasingly popular in the last years as large investors like pension funds and endowments began relying on them to try and boost sagging portfolios. But because hedge funds can use trading techniques that are off limits at most mutual funds, they can make or lose money very quickly, something which makes them unsuitable for average investors, regulators have said.

Galvin, whose job includes protecting investors in Massachusetts, has waged aggressive campaigns against anyone caught trying to cheat investors.

(Reporting by Svea Herbst-Bayliss; Editing by Lisa Von Ahn, Leslie Gevirtz)