The Securities and Exchange Commission may be red faced now over the recent U.S. Court of Appeals decision that the federal regulators lack the authority to oversee hedge funds, but they'll be thankful later, according to a New York Times article.
With the registration rule nixed, the SEC's powers revert to what they were prior to 2004, which is to investigate seemingly suspicious fund activity, often based on investor complaints.
"Now, when a fund explodes--and a fund will blow up--Christopher Cox, the SEC chairman, can testify on Capitol Hill with the comfort of knowing that the agency simply didn't have the authority," wrote columnist Jenny Anderson.
Hedge funds, once the domain of only the extremely wealthy, have raised concerns of regulators as more and more pensions and hedge funds move toward the $2.4 billion industry for opportunities.
"Imagining what comes next should not be hard for anyone who witnessed the collapse of Enron and its aftermath," Anderson wrote. "Congress will express shock and dismay at the rampant greed and moral vapidity of the hedge fund business, ignoring the fact that many in Congress receive campaign contributions from those very same funds. Rather than blame the SEC, lawmakers will aim their fury at he hedge funds, pools of money run by right people for rich people."
"What the rule was doing was making policy and making law," said Phillip Goldstein, the hedge fund manager with Bulldog Investments who sued to stop the rule. "When you read the Constitution, Congress makes the laws," he said.
The short-lived rule required funds with 15 or more investors to register with the federal regulator and subjected funds to audits.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.