Wall Street & Technology: Blog
subscribe July 12, 2007

SEC Adopts Anti-Fraud Rule for Hedge Funds

The Securities and Exchange Commission (SEC) has adopted an anti-fraud rule that makes it easier for the regulatory body to sue money managers who mislead or defraud investors, including those in hedge funds.

The rule targets hedge funds that lie about investing strategies, performance, a manager’s experience and the risks of putting money in a fund.

It also applies to investment advisers of private equity funds, venture capital funds, and mutual funds. Collectively, these funds hold trillions of dollars of investors' assets and play an important and growing role in the U.S. capital markets, SEC Chairman Christopher Cox said.

“This rule will give the commission an important tool to help us police this market to deter misconduct,” he added.

The SEC’s action was prompted by a federal appeals court’s decision last year to reject regulations that required hedge funds to report their size to the agency and submit to routine inspections.

The court’s decision raised doubts over the SEC’s authority over the $1.6 trillion industry.

On Wednesday, members of Congress warned the mushrooming, unregulated hedge fund industry to proceed with care, as lawmakers are increasingly willing to clamp down out of concern that the industry’s growth and lack of regulation could hurt investors and financial markets.

Posted by Melanie Rodier at 03:18 PM



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