Investors willing to pay two percent in fees and 20 percent of the profits probably deserve whatever happens to them. After all, anyone who expects persistently outsized returns after paying costs like these is probably at least a little delusional. Such returns may happen for a while — especially thanks to leverage — but not for long. And hedge funds have long attracted charlatans and crooks. They also forgo the protections afforded — or so one hopes — of regulation of all kinds.

Or all kinds but one. The criminal charges against former Bear Stearns hedge-fund managers Ralph Cioffi and Matthew Tannin highlight the fact that even hedge fund chiefs aren’t allowed to lie to their investors, rich and “sophisticated” though they may be. The essence of securities fraud is that a manager tells investors one thing while believing another. There’s nothing new or fancy about the idea, which predates securities regulations and goes back to the common law.

Hedge funds, marketed to the elite few and accountable to almost no one, effectively “postdate” securities regulations. But the oldest rules of market fairness still apply. And fraud charges are more straightforward than obstruction of justice allegations, which are harder to prove.

The feds say the Bear Stearns duo misled investors about the health of two hedge funds that went belly up when the subprime mortgage crisis was still fairly new. If a series of e-mails between the two men show they knew one thing and told their investors another — that their rosy statements were not simply mistakes — that could lead to prison, even if their “victims” were hardly blameless themselves.

Image by Flickr user o2ma, CC 2.0