Donaldson In Favour Of Increased Hedge Fund Scrutiny

by Mike Godfrey, for LawandTax-News.com, Washington

20 February 2004

Drawing fire from both within his own organization and Federal Reserve Chairman Alan Greenspan, the Chairman of the SEC William O. Donaldson has proposed radical plans that will increase regulatory scrutiny on the hitherto lightly regulated hedge fund industry.

Donaldson is keen for hedge fund managers to undergo registration and is proposing the creation of a new SEC department consisting of 106 employees whose task will be to register and inspect the funds. This would operate alongside a new computer screening system that would use data from registered hedge funds to spot any worrisome trends within the industry.

Donaldson is said to be “very concerned” that hedge funds may have played a significant role in more than half of the recent mutual fund scandals.

However, reports indicate that two SEC commissioners are not in favor of Donaldson’s proposals, and influential figures such as Federal Reserve Chief Alan Greenspan have spoken out recently against the idea of closer hedge funds scrutiny.

"I grant you that registering advisers in and of itself is not a problem," the Fed chairman said in testimony to the Senate Banking Committee last week. "The question is, what purpose does it serve unless it's going to go further? Therefore, I feel uncomfortable with that issue."

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