By: Simeon G. Mann
As individuals attempt to preserve and grow their wealth in a
quite volatile economic environment, more have turned toward hedge
funds as one of the components necessary to achieving their
financial goals. This increase in hedge fund investing piqued
the interest of the U.S. Securities & Exchange Commission
(SEC). After much research, the SEC determined that it did
not have adequate regulatory measures in place to properly monitor
hedge funds in order to protect investors. In turn it amended
the Investment Advisers Act in such a way that would require many
hedge funds and their managers to register with the SEC. The
amendments were met with praise from some, but with loud criticisms
from others. Ultimately, a federal appeals court ruled that
the amendment was an “arbitrary” rule that must be vacated.
Again, there were voices commenting from both sides, all stating
very different ideas as to what amount of regulation is appropriate
for the hedge fund sector.
The outcome has been that the regulatory aspect of the hedge
fund sector is completely unsettled, never having been in such a
state of flux. This Note puts forth that the court’s
decision, which stifled the SEC’s attempt to further regulate hedge
funds, is a positive legal development for the hedge fund industry,
the investing public, and even the SEC itself. This Note, in
fact, proposes that it was not just positive, but imperative, for
the SEC to fail in its chosen course of action. This Note
also stresses that while the hedge fund sector may require some
form of change, the amendments the SEC proposed would not have
alleviated the concerns they were meant to suppress; therefore, any
additional steps taken should be of a different variety than the
amendments that ultimately failed when analyzed by the Court.
Before concluding, therefore, this Note proposes several
alternatives that could potentially satisfy all involves, from the
hedge fund managers to the SEC itself.