The U.S. Securities and Exchange Commission proposed making it harder to invest in hedge funds, responding to a federal court rejection of rules subjecting funds to more oversight.The SEC yesterday unveiled a measure that would require individuals to have $2.5 million in available assets to invest in hedge funds. The change would add to an existing requirement that individuals have $1 million in net worth or at least $200,000 in income for each of the past two years. The agency will review public comments before making a final decision on the regulation."The proposed rules do a much better job of assuring that individuals investing in private funds are likely to have the knowledge and the sophistication that's necessary to evaluate the merits and risks of investing in hedge funds," SEC Chairman Christopher Cox said at a meeting in Washington.Hedge funds are private pools of capital that allow managers to participate substantially in the gains of the money invested. Regulators have become increasingly concerned that the $1.3 trillion industry's lax oversight could put less sophisticated investors at risk. A U.S. Court of Appeals in Washington rejected rules in June that subjected funds to random SEC inspections.Senate Finance Committee Chairman Charles Grassley asked Cox and Treasury Secretary Henry Paulson to boost the industry's transparency after Amaranth Advisors LLC lost $6.6 billion on bad natural gas trades and collapsed in September. Lawmakers such as Grassley, an Iowa Republican, are concerned that a hedge-fund meltdown could put pension fund investments at risk.The asset-qualification proposal would be the first time the SEC has considered revising the conditions individuals must meet to invest in hedge funds since 1982. The SEC also unveiled an anti-fraud rule that stipulates hedge fund advisers can't make false or misleading statements to individual investors.SEC Commissioner Paul Atkins said the agency should be cautious in using taxpayer money to regulate an industry that is open primarily to the wealthy. He previously voted against the rejected rule that required hedge funds to register with the agency."I'm unclear why a taxpayer in Peoria, Ill., has to foot the bill to oversee the hedge-fund investments of people like Bill Gates, Paris Hilton or Ted Turner," Atkins said at the public meeting.SEC staff said the new proposal would limit the amount of U.S. households eligible to invest in hedge funds to 1.3 percent from 8.5 percent. The regulation would make clear that eligibility standards for investing in funds managed by venture capital firms wouldn't change, said Andrew Donohue, the director of the SEC's Division of Investment Management.Separately, the SEC proposed new regulations that would allow overseas companies to withdraw from agency oversight if 5 percent or less of the firm's daily trading volume occurs in the U.S. Foreign companies are reconsidering the benefit of listing their shares in the U.S. after the 2002 Sarbanes-Oxley Act raised audit and legal fees.Finally, the SEC approved submitting for public comment an economic analysis of a rule that would require mutual funds to hire independent chairman. The rule, which was approved before Cox joined the commission in August 2005, was twice the target of successful lawsuits to overturn it by the U.S. Chamber of Commerce.
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This Week's Circulars
Lawrence - Madeleine "Maddy" (Waye Descoteaux Brown), 87, passed away on April 5, 2020. Maddy was born to Irene and Charles Waye in Nashua, N.H., on December 17, 1932. She was predeceased by her parents; a brother Charles Waye; and husbands, Louis G. Descoteaux of Nashua, N.H., and George Br…
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