Investment Adviser Regulation Exemption Faces Senate Challenge; House Financial Services Committee to Renew Inquiry on Hedge Funds

March 9, 2007

Earlier this week, Ranking Member of the Senate Finance Committee Chuck Grassley (R-IA) sought to attach a hedge fund registration amendment to legislation (S. 4) implementing many of the recommendations of the 9/11 commission.  The amendment would narrow the existing exemption from registration with the SEC of certain hedge fund managers.  Grassley's floor statement sought to tie the amendment to the 9/11 bill by noting that "reports have indicated terrorist links to some pooled investment groups including hedge funds."  Ultimately, citing a backlog of amendments, the lead sponsors of the bill prevented consideration of the amendment, but afforded Grassley the opportunity to speak on the amendment.  During his floor comments, Grassley commented that:

"The failure of Amaranth and the increasing interest in hedge funds as investment vehicles for public pension money means that this isn't just a high stakes game for the super rich.  It affects regular investors. Congress needs to act because of a decision made last year by a federal appeals court, the D.C. Circuit Court of Appeals [in Goldstein v. SEC, in which the court] overturned a SEC administrative rule that required registration of hedge funds."  Grassley also noted that "for the record, I want everyone to know that this morning when I said I intended to offer this amendment, my phones started ringing off the hook. Lots of powerful people don't want to see an amendment like this, but Americans want their government to know who is running these funds."

For more information about this e-Alert, please contact Mike McNamara, Chair, Public Law & Policy Strategies Group (202.408.6477 or mmcnamara@sonnenschein.com) or your regular Sonnenschein attorney.

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