The Securities and Exchange Commission is considering subjecting hedge funds to routine inspections, sources told Reuters. The SEC is particularly interested in reviewing hedge funds’ trading strategies, although the sources said the SEC does not want to publicly disclose these trading strategies. The SEC is expected to release the findings of its investigation of the $600 billion hedge fund industry by the end of this month or early next month.

As the SEC had previously indicated it was not interested in regulating hedge funds’ trading strategies, this would be a shift in focus and possibly provoked by New York State Attorney General Eliot Spitzer’s settlement against hedge fund Canary Capital Partners this past Wednesday (see MME 9/4/03). The case involves alleged late-trading with the hedge fund by four mutual fund companies: Bank One Corp ., Bank of America’s Nations Funds, Janus Capital and Strong Capital.

"My guess is the SEC will shift its focus a little bit because they don’t want to look like they’re two jumps behind Eliot Spitzer," John Coffee, a securities law professor at Columbia University Law School, told Reuters.

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