SEC Closes Hedge Fund Fraud Loophole

Jul 11 2007 | 2:42pm ET

Closing a loophole opened by a federal court decision, the Securities and Exchange Commission today banned hedge funds from misleading investors. But Bulldog Investor’s Phillip Goldstein says more rules are not the answer to fraud. 

Phil GoldsteinPhil GoldsteinThe new rule, which unlike the controversial hedge fund registration rule, enjoyed unanimous support on the five-member commission, and allows the SEC to sue hedge funds for lying about investment strategies, performance, a manager’s experience or risk. The SEC’s authority to do so was called into question by the Goldstein decision, when the Court of Appeals in Washington tossed the agency’s registration rule.

“This rule will give the commission an important tool to help us police this market to deter misconduct,” SEC Chairman Christopher Cox said.

While Goldstein lauds the SEC intentions, he thinks the Commission needs to do more than just come up with new legislation.

“It’s like if there are a lot of bank robberies in the neighborhood, then you don’t need more laws against bank robberies; you just have to go out and arrest the robbers” Goldstein told FINalternatives.

“If managers lied to investors, they can get sued anyway so what’s the difference? They should spend more of their resources going after the fraudsters than adopting new rules. Unfortunately, they’re very slow about acting in a lot of cases.”   


In Depth

'Smart Beta' Funds In Regulators' Sights, Hedgies May Be Next

Mar 26 2015 | 11:11am ET

Funds that mimic strategies used by active managers for a fraction of the cost could...

Lifestyle

Study: Both Marriage and Divorce Lead to Negative Hedge Fund Performance

Mar 25 2015 | 6:51pm ET

Trouble at home leads to trouble in the market for fund managers, according to researchers...

Guest Contributor

The Life Settlement: Yield For The Investor And Cash For The Consumer

Mar 31 2015 | 6:48am ET

Investors are languishing in a yield-starved, low-interest rate environment, looking...

 

Sponsored Content

    Mar 9 2015 | 6:35am ET

    Kelly RodriquesKelly RodriquesAs more investors look to diversify, many are beginning to use retirement funds to invest in alternative assets such as private equity and real estate. Kelly Rodriques, CEO & President of PENSCO Trust Company, explains how companies can connect with those looking to use their retirement accounts in a different way. Read more…

Editor's Note