An adviser on investing in hedge funds cannot be sued for securities fraud for recommending a fund that later turned out to be a Ponzi scheme, the 2nd U.S. Circuit Court of Appeals has ruled.

The circuit found that requirement of scienter was not met in the pleadings against an adviser who steered a client to Samuel Israel III and other founders of the Bayou funds group that later bilked investors out of more than $400 million.

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