House Democrats Introduce Hedge Fund Registration Bill

by Leroy Baker, for LawAndTax-News.com, New York

03 July 2006

Congressman Barney Frank, the Ranking Democratic Member on the House Financial Services Committee has introduced legislation to authorize the registration and monitoring of hedge funds, attempting a reversal of the recent Court of Appeals decision against the SEC's rule.

Frank stated last week that his legislation, known as the 'Securities and Exchange Commission Authority Restoration Act of 2006,' would give the SEC clear authority to require registration and monitoring. He also called for hearings in the Financial Services Committee to examine the hedge fund industry and identify any need for additional oversight and regulation.

“Given the increasing size of hedge funds and the growing role they are playing in the economy, it would be a grave error to allow the court decision denying any authority by the SEC to stand,” commented Frank.

“At the very least Congress should give the SEC the power it has sought to require registration, and we should also be looking into whether any further SEC or regulatory authority regarding hedge funds is needed," he added.

Last week, the DC Circuit Court of Appeals overturned the SEC rule, finding the Commission's reinterpretation of exemptions previously relied on by hedge fund advisors to be “arbitrary.”

Frank’s bill, which is co-sponsored by fellow Massachusetts Democrat Mike Capuano, along with Paul Kanjorski of Pennsylvania, would provide the SEC with the clear authority to require registration of hedge fund advisors under the Investment Advisors Act, reversing the decision of the court.

The bill would authorize the SEC to re-interpret the term “client”, thereby requiring registration of advisors to funds that have more than 15 investors. But it stands little chance of becoming law.

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