Bill Would Bring Hedge Funds Under SEC Scrutiny

Bill Would Bring Hedge Funds Under SEC Scrutiny - 1/29/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

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Bill Would Bring Hedge Funds Under SEC Scrutiny
Evan Weinberger

Securities Law 360. January 29, 2009
_________________________________________________________________________

EXCERPT: A Senate bill introduced Thursday would bring all hedge funds under the scrutiny of the U.S. Securities and Exchange Commission. The Hedge Fund Transparency Act of 2009, introduced by Sens. Carl Levin, D-Mich., and Charles Grassley, R-Iowa, would require that all hedge funds and other alternative investment groups managing $50 million or more register with the SEC, closing what the two senators called a “loophole” in the Investment Company Act of 1940. The senators said that recent financial scandals, including the collapse of two offshore hedge funds owned by Bear Stearns Cos. that contributed to the collapse of the investment bank, and Bernard L. Madoff's alleged $50 billion Ponzi scheme, simply highlighted the need for increased transparency in the financial markets. “There wasn’t much of an appetite for this sort of legislation before the financial crisis. I hope attitudes have changed and that Congress takes up this important legislation without delay,” said Grassley, who introduced similar legislation two years ago. The hedge fund industry argues that the funds should be allowed to operate outside of the bounds of the SEC because of the relative sophistication of their investors. That sophistication allows them to take on more risks, and the typical 2 and 20 percent fee structure — where hedge fund managers charge a 2 percent management fee and 20 percent of all the fund's profits — also increases hedge funds' risk-taking appetites. “The problem is that hedge funds have gotten so big and are so entrenched in U.S. financial markets, that their actions can now significantly impact market prices, damage other market participants and can even endanger the U.S. financial system and economy as a whole,” Levin said on the floor of the Senate.

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