Proposed Act Requires SEC Registration of Hedge Fund Advisers

U.S. Senator Charles Grassley has introduced legislation that would require most hedge fund advisers to register with the Securities and Exchange Commission. Called the Hedge Fund Registration Act, the bill closes a loophole created by the U.S. Court of Appeals (DC) when it struck down a 2004 SEC rule requiring most hedge fund advisers to register with the agency.

That ruling lets hedge fund advisers count the different funds they manage as just one client, rather than noting the number of investors who have purchased into each fund. Because of this, the majority of hedge fund advisers do not have to register with the SEC because they fall under the 1940 Investment Advisers Act exemption.

Senator Grassley says that if the bill were passed, only advisers with less than 15 clients would be exempt from registering. An adviser exempted from registration would also have to oversee less than $50 million and could not publicly “hold himself out” as an adviser.

Senator Grassley also said the bill would allow the SEC to oversee these advisers and prevent them from “operating in secret.” He said that this type of oversight was important because hedge funds affect not just wealthy investors but regular investors and the market overall.

Because hedge fund assets have increased to over $1 trillion, requiring that hedge fund advisers register with the SEC has become a very controversial issue. While critics of registration say that being allowed to operate without the SEC’s oversight is has led to hedge funds’ success, advocates of registration say this requirement would create the necessary transparency in a trillion dollar, and growing, field of intestments.

At Shepherd Smith and Edwards, our securities litigation attorneys are committed to helping investors that have been the victims of securities fraud recover damages. We represent clients from all over the United States and abroad, and we have offices located in cities throughout the United States, including Houston, New York, Dallas, Chicago, Phoenix, San Francisco, and New Orleans, as well as in Mexico City. To schedule a free consultation, contact Shepherd Smith and Edwards today.

Related Web Resources:

Sen. Grassley Introduces the Hedge Fund Registration Act of 2007,, May 15, 2007
Investment Advisers Act of 1940,

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