UNITED STATES COURT OF APPEALS OVERTURNS SEC HEDGE FUND REGISTRATION RULES
SEC Rules called ‘arbitrary’
The rules requiring most U.S. hedge funds to register with the SEC were struck down on 23 June 2006 by the U.S. Court of Appeals for the District of Columbia. This is a setback for the Securities and Exchange Commission (SEC).
The Court called the rules requiring hedge funds with more than 15 investors to register ‘arbitrary’, because they exempt hedge funds with fewer than 15 clients. U.S. hedge funds do no longer need to register under the Investment Advisors Act of 1940.
According to the Court: “The number of investors in a hedge fund — the ‘clients’ according to the commission’s rule — reveals nothing about the scale or scope of the fund’s activities. It is the volume of assets under management or the extent of indebtedness of a hedge fund or other such financial metrics that determines a fund’s importance to national markets.” The Court decision can be found here.
Karel Frielink
Attorney (lawyer) / Partner
