SEC Chairman Issues Press Release Concerning Goldstein v. SEC

August 22, 2006

On August 7, SEC Chairman Christopher Cox issued a press release concerning the recent D.C. Circuit Court of Appeals decision in SEC v. Goldstein. In the release, Cox stated that the SEC does not intend to fight the recent decision of the Court which threw out the controversial hedge fund advisor registration rule that was effective earlier this year. This decision by the SEC effectively ends the most current debate of whether advisors to hedge funds fall under the Investment Advisers Act of 1940. However, while this current battle appears over, the issue is not.

In the same press release, Cox stated that he has instructed the SEC to continue looking at ways to monitor hedge funds and those persons that advise hedge funds. The SEC is looking at methods to bring hedge funds under the anti-fraud provisions of the Advisers Act in a way that would pass legal scrutiny. He said possible changes “would have the effect of ‘looking through’ a hedge fund to its investors. This would reverse the side-effect of the Goldstein decision that the anti-fraud provisions of the Act apply only to ‘clients’ as the court interpreted that term, and not to investors in the hedge fund.” Finally, Cox made an effort to remind the industry that while Goldstein may have thrown out the registration rule, hedge funds are still “subject to SEC regulations and enforcement under the antifraud, civil liability, and other provisions of the federal securities laws.”

To read the entire text of the press release click here

The debate over hedge fund regulation appears far from over. If you are an advisor to a hedge fund and have questions concerning these recent developments or just have general questions concerning the regulation of investment advisors, please give us a call.

Posted by Bryan Hill
Labels: SEC