SEC Adopts New Rules Allowing It To Sue Hedge Funds for Misrepresentation
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The U.S. Securities and Exchange Commission adopted new rules ensuring it can sue hedge funds for misleading investors, following a court ruling that put in doubt the regulator’s authority over the $1.6 trillion industry.
The SEC barred hedge funds from lying about investing strategies, performance, a manager’s experience, and the risks of putting money in a fund. SEC commissioners unanimously approved the rule yesterday.
“This rule will give the commission an important tool to help us police this market,” the chairman of the SEC , Christopher Cox, said. It allows the agency to hold responsible hedge funds that “have breached their obligations to investors,” he said.
The SEC acted after a federal appeals court rejected regulations last year that required hedge funds to report their size and submit to routine inspections. In its decision, the court said the client of a hedge-fund adviser was the fund itself, raising questions about whether the SEC could target managers for defrauding individual investors.
