SEC slapped down on Hedge Funds
Uh oh. Looks like the SEC might be in for a difficult time in its attempt to corral hedge funds, the loosely regulated and often risky investment vehicles used by rich people and institutions.
Back in October Fidelity Observer wrote about how the SEC's plans to require hedge fund managers to register themselves as investment advisors was flawed, owing to internal SEC resistance to the plan and difficulty applying uniform rules to thousands of funds that apply complicated and very different investment strategies.
But it's not these issues that are giving the SEC trouble. It's a trio of federal appeals court judges, who last week questioned the SEC's authority to even get into the business of regulating hedge funds. From the article in the Washington Post, written by Carrie Johnson:
The court case was initiated by a New York fund player, who sued to stop the fund manager-registration rule. It's too early for him and others in the industry to start dancing in the street, though -- the case is far from decided in the courts, and even if the law doesn't work in the SEC's favor this time, there is always the possibility of public anger over shady hedge fund dealings prompting Congress to legislate the SEC into a more powerful position, or restrict hedge funds in some other way.
"You don't have authority to act simply because you exist," Judge Harry T. Edwards told Jacob H. Stillman, the SEC's lawyer.A few moments later, Edwards said: "We have to test your thesis, and your thesis doesn't hold up."
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