SEC won't appeal hedge fund rule

Date: Tuesday, November 30, 1999
Author: Aaron Siegel, Investmentnews.com

The Securities and Exchange Commission said yesterday that it will not appeal a court decision that overturned a rule requiring hedge fund advisers to register with the regulator.

The decision comes a month and a half after a District of Columbia appeals court thwarted the SEC's attempt to broaden its regulation reach to the $1.3 trillion hedge fund industry.

"Further appeal would be futile and would simply delay and distract from our goal of advancing investor protection," said SEC Chairman Christopher Cox, in a statement.

The regulator, however, moving to put together rules and issue guidelines aimed at encouraging voluntary registration and helping advisers already registered to remain signed up.

The now-voided rule, which went into effect in February, required advisers of most U.S. hedge funds with more than $30 million in assets and15 or more clients to submit periodic audits, keep better records and follow procedures aimed at discouraging wrongdoing.

The SEC, under then former Chairman William H. Donaldson, in 2004 voted to require many hedge fund managers to register and submit audits.

Phillip Goldstein, manager of Pleasantville, N.Y.-based Opportunity Partners LP, sued to block enforcement of the rule arguing that the regulator relied on an "arbitrary" definition of a client in order to bring hedge funds under greater scrutiny.

The U.S. Court of Appeals for the District of Columbia, ruled on June 23 that the SEC hedge fund rule was arbitrary because it exempted funds with 15 clients or fewer.