Number: RS22528
Title: Hedge Funds: Goldstein v. Securities and Exchange Commission
Authors: Michael V. Seitzinger, American Law Division 
Abstract: In 2004 the Securities and Exchange Commission (SEC) issued a rule which resulted in requiring many hedge fund advisers to register as investment advisers under the Investment Advisers Act. Because hedge fund advisers had for the most part before the rule been exempt from registration so long as they had fewer than fifteen clients, hedge fund advisers, referred to collectively as Goldstein, brought suit to challenge the rule. The District of Columbia Circuit, after examining an amendment to the Investment Advisers Act, previous statements by the Securities and Exchange Commission, and the Supreme Court case Lowe v. Securities and Exchange Commission, in a three-judge panel unanimously held that the SEC's hedge fund rule was arbitrary and vacated and remanded the rule. On August 7, 2006, Chairman Cox stated that the SEC would not seek en banc review of the Court of Appeals decision and would not petition the United States Supreme Court for a writ of certiorari. In response to the Goldstein decision, the SEC on December 13, 2006, voted unanimously to issue a proposal for a new antifraud rule under section 206(4) of the Investment Advisers Act that would prohibit an investment adviser from defrauding investors in a hedge fund or certain other pooled instruments. On July 11, 2007, the SEC voted unanimously to approve new Rule 206(4)-8 to state the commission's authority to pursue fraudulent misconduct by hedge fund advisers. The rule was adopted in the wake of Goldstein in order to clarify the commission's authority in this area. There is also congressional interest in regulating hedge funds.
Pages: 5
Date: July 31, 2007