SEC Chairman Edges Towards Inspection Of Hedge Funds

by Glen Shapiro, LawandTax-News.com, New York

26 May 2003

Following its 2-day roundtable last week on hedge funds, the Securities and Exchange Commission (SEC) has extended the period during which it will accept comments on whether additional regulation of the industry is necessary until July 7, 2003. “It is essential that the Commission have the benefit of all relevant information,” SEC Chairman William Donaldson said in a statement.

Donaldson told a House Capital Markets Subcommittee last week that the Commission has made progress in its investigation of the hedge fund industry, but has yet to reach any conclusions. He added that the SEC wants public input before making any decisions.

The SEC Chairman said the commission will consider making properly evaluated hedge funds open to retail investors, a step that may require government inspections. Donaldson said that SEC inspections of hedge funds would dispel concerns that hedge funds are too risky for the retail investor. However, both Republican and Democratic members of the Subcommittee told Donaldson not to impose heavy regulation on hedge funds, which have threatened to desert the US en masse if they are subjected to too much hassle.

For good measure, the SEC Chairman said that mutual funds in general don’t give investors enough information about the incentives they use to get brokers to sell their products.

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