Forbes – The SEC’s hedge fund registration requirement was ill-conceived, did not serve to protect investors and met a well-deserved fate at the hands of the District of Columbia Circuit Court of Appeals.
First, the “secret world of hedge funds” is not very secret at all and is already subject to vast SEC regulation. The SEC has not had any difficulty prosecuting unregistered hedge funds for violations of the federal securities laws in the past.
For example, the SEC has for years been investigating hedge funds’ purported insider trading in connection with PIPEs (private investments in public equities) transactions. No special regulatory apparatus was required for the SEC to find and send a virtual shotgun load of subpoenas to the dozens of hedge funds now being investigated–somehow the SEC was quite capable of penetrating the mystical, smoke-filled, top-secret locations of the hedge fund cabal well before registration existed.
In fact, names and information about many hedge funds can be found readily in various public documents–which are easily accessible over the Internet–including registration statements, reports of equity holdings, and secretary of state documents, for those who care to look. For an SEC staff attorney armed with a subpoena, even more information about hedge funds is available from brokers, issuers, investors and the hedge funds themselves.
Second, paternalists concerned about supposedly unsophisticated “small-town business owners” investing in “unregulated” hedge funds worry too much in ways that don’t matter and worry not enough in ways that do. But they are unabated by registration.
