By Jan 5, 2009, 5:32 AM 

Bernard Madoff’s $50 billion Ponzi scheme continues to rock the financial world. But most hedge funds actually engage in similar — albeit legal — practices in the short run. At the heart of this is the distinction between realized and unrealized gains. Most hedge funds do not regularly liquidate their entire portfolio, so they always report unrealized gains to their investors and to the public.

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