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SEC Mulls Requiring Hedge Fund Registration

Date: Wednesday, March 18, 2009
Author: Kaja Whitehouse, New York Post

Recent moves by the Securities and Exchange Commission to tighten its grip on so-called registered investment advisers (RIAs) is being viewed as a possible precursor to mandatory registration of hedge funds, industry watchers said.

As the SEC steps up its enforcement in the wake of embarrassing missteps involving convicted Ponzi-schemer Bernard Madoff, the agency has tightened rules surrounding audits of RIAs - commonly known as money managers - under its purview.

In order to improve its audits and investigations, the SEC now plans to independently verify the information given to it by RIAs with information from independent third parties, including auditors, accountants and even investors.

That has led some industry watchers to bet that SEC Chairman Mary Schapiro's next step - after closing gaps in the way the agency regulates RIAs - will be broadening the definition of what qualifies as an RIA to include hedge funds.

"I think they've given every indication in everything they've done, also based on the environment, that they want to move in that direction," said Joe Goldstein, founder of G&S Fund Services, a hedge-fund administration and accounting firm in New York.

Hedge funds that register with the SEC are already treated as RIAs. Last year, 1,991 hedge funds were registered as investment advisers with the SEC, according to the Government Accountability Office.

But such registration is largely voluntary and can be pulled at any time. Meanwhile, the SEC has no idea how many hedge funds even exist, the GAO report said.

Last week, the SEC sent a letter to the Managed Funds Association, a hedge-fund lobbying group, asking them to alert their members to the new RIA audit rules, which would only apply to registered hedge funds.

"We ask that you inform your members of this exam practice," the letter states.

A spokeswoman for the MFA declined to comment.