Federal watchdogs seeking to increase regulations of hedge funds suffered a recent setback when the U.S. Court of Appeals for the District of Columbia called the Securities and Exchange Commission's advisor registration rule "arbitrary," sending it back to the SEC for further review. The rule, approved by the SEC in 2004, requires hedge funds advisors, beginning Feb. 1, 2006, to register with the regulator as investment advisors, hire a compliance officer, be subject to inspections and adhere to specified

certain recordkeeping practices.

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