August 05, 2006

SEC Ponders Next Move

Following the decision of the U.S. Court of Appeals for the D.C. circuit to disregard the U.S. Securities and Exchange Council (SEC) rule that requires hedge funds to register with the agency, the SEC is pondering its next move. But time is running out – the regulatory body has only a couple of days left to decide its course of action with the August 7 deadline heading closer.

Mitch Nichter, partner in the law firm Paul Hastings, says that the SEC has the following options:

  • Petitioning for a re-hearing in D.C.
  • Petitioning for a stay pending an appeal to the U.S. Supreme Court. It has time up to September 21 to file the appeal.
  • Avoid petitioning and wait for the legislature to come up with an alternative solution.

While the first two options would buy the SEC the most time, SEC Chairman Christopher Cox is wary of the second option fearing that a second loss would set a very bad precedent.

The SEC will not put the regulation issue to bed, according to Terrence O'Malley, a partner in law firm Fried Frank, not after having spent a lot of time and effort over the past year in relation to regulating hedge funds and their business practices.

Cox also testified before the Senate banking committee last week that he was recommending that the SEC reinstate a few provisions of the earlier rule, including some that are beneficial to hedge funds, on an emergency basis. Only time will tell if the SEC succeeds in dragging hedge funds under its scanner, or if the funds succeed in slipping through the holes in the SEC dragnet.

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August 5, 2006 in Regulation | Permalink




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