Hedge Fund Bill Only Restores SEC Oversight: Sen.

Hedge Fund Bill Only Restores SEC Oversight: Sen. - 4/28/2009

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Hedge Fund Bill Only Restores SEC Oversight: Sen.
Jessica Dye

Securities Law 360. April 28, 2009
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EXCERPT: In an attempt to allay hedge fund managers' fears about proposed regulatory measures, Sen. Chuck Grassley, R-Iowa, has said the bill he sponsored aims only to restore the U.S. Securities and Exchange Commission's authority to regulate the $1.3 trillion hedge fund industry. In a speech at the Reuters Global Financial Regulation Summit in Washington on Monday, Grassley told the audience that the Hedge Fund Transparency Act of 2009, introduced in January with co-sponsor Sen. Carl Levin, D-Mich., will take aim at overturning a 2006 D.C. Court of Appeals decision that blocked a 2004 SEC attempt to force hedge funds to register as investment funds under the Investment Company Act of 1940, according to a Reuters report. What it won't do, he told the audience, is force every hedge fund to disclose the name of every client — a response to confusion among advisers and investors over how much scrutiny hedge fund clients would be exposed to if the legislation passes, according to Reuters. Grassley and Levin made clear when they introduced the legislation that the bill was designed to overturn the decision in Goldstein v. SEC, in which the appellate court overturned the SEC's attempt in 2004 to change registration standards in order to compel more hedge funds to come under agency oversight. In the ruling, the court specifically objected to the SEC's redefinition of the term “client” in determining whether the fund had reached the 15 clients required to compel registration. Prior law allowed most hedge funds to skirt registration requirements by counting each fund as one client, but the SEC's 2004 proposal forced hedge funds to count each individual investor, which the court ruled “counterintuitive” and “arbitrary.” The client provision that held up the 2004 SEC rule is not in the proposed legislation, which instead uses the hedge fund's total asset amount to qualify for registration.

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