In an interview with CBS MarketWatch on Monday, former chairman of the US Securities and Exchange Commission (SEC), Harvey Pitt warned the securities regulator not to exempt hedge funds from too many of the requirements which apply to mutual funds.
The SEC last Wednesday voted 3-2 to propose a rule which will oblige hedge fund advisers to register with it. The proposal, which would see hedge fund advisers providing similar information to the SEC as their mutual fund counterparts, has been sent out for 60 days in order to allow public comment, after which a final vote will take place.
However Mr Pitt, now head of a Washington-based consulting firm, revealed that if the final vote falls in favour of increased hedge fund regulation, he expects the SEC to exempt the risky investment vehicles from providing information in many of the areas required of mutual funds.
He went on to suggest that this "registration lite" approach could have dire consequences.
"If the SEC exempts hedge funds from certain existing statutory or regulatory requirements applicable to other investment advisers, and there's a scandal in one of those exempted areas, the SEC will have a huge disaster on its hands," he observed.
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