In the hedge fund industry you have one name and one reputation. If you ruin that, you could have influential people in the industry refusing to do business with you for 15-20 years after their initial opinion is formed. In such a competitive, close vested industry where large profits can be made, the temptation to cut corners or look past fiduciary duties is sometimes too much.

The FBI recently had agents posing as a Florida-based hedge fund managers to nab 10 individuals in 5 kickback schemes connected to securities sales. The SEC charged 10 individuals and the U.S. Attorneys office charged six with criminal offenses.

In each case the posing hedge fund manager told the targets that their actions must be kept secret because it violated his fiduciary duties, making it explicitly known that what was going on was illegal and unethical. “This case illustrates the Commission’s ability to work together with criminal authorities in creative ways to uncover fraudulent schemes and to protect our markets,” Linda Chatman Thomas, the head of the SEC’s enforcement division, said.

Bottom Line: If you are smart enough and hard working enough to be successful then you don’t need to cut corners and blatantly break securities laws. Innovation and relationships are the competitive advantage that should make you extremely profitable, not cheating the system.

Richard Wilson is a hedge fund consultant, founder of the Hedge Fund Group (HFG) and runs the Hedge Fund Consultants Blog.