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SEC Issues Guidance For Hedge Fund Advisors

The Securities and Exchange Commission's division of investment management has issued a response to queries from the American Bar Association regarding the U.S. Court of Appeals' decision to overturn the hedge fund registration rule.

SEC Investment Management Associate Director Robert Plaze said his division will not hold hedge fund advisors to the standards set by the overturned rule and its amendments. However, advisors dealing with U.S. investors that are registered with the SEC must abide with the Investment Advisers Act of 1940. Second, the division won't recommend enforcement proceedings against any hedge fund managers that registered but did not preserve their books or records of meetings prior to Feb. 10, 2005, because they were too new.

Plaze also confirmed that his division will not trigger enforcement proceedings against qualified advisors that take a cut of clients' gains if those advisors would have been exempt from such proceedings under the rule.

The rule also gave funds-of-funds 180 days to provide annual audits after the end of the fund's fiscal year, rather than the 120 days required of other investment vehicles. Plaze said his division will not seek enforcement against funds-of-funds that waited 180 days, because they had set their schedules according to the now-invalid rule.

For those hedge funds planning to withdraw registration, they must do so by Feb. 1, 2007.

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