SEC Should Go Beyond Registering Hedge Funds: Editorial

Requiring hedge funds to register with the Securities and Exchange Commission, beginning in February, will protect investors to some degree, as they will be required to divulge any history of disciplinary action and the SEC will begin to randomly audit these investment firms, The New York Times suggests.

But requiring them to list their auditor and broker/dealer would do a far better job of raising any red flags, particularly in light of how Bayou Management Group hid its theft of $400 million by using a fictitious auditor and earned itself trading commissions through its own broker/dealer.

Calling the new registering requirement little more than creating a "phone directory of hedge funds," The Times maintains, "regulators need to know where the money goes (the broker/dealer) and who is checking on it (the accountant). As it stands, it is simply caught rubber-stamping an industry full of talented managers as well as some renegade fraudsters."

Had Bayou simply been registered with the SEC before blowing up, the wisdom of requiring this additional information would now be all too apparent.