SEC Adopts New Anti-Fraud Rule

July 13, 2007

The Securities and Exchange Commission voted unanimously on Wednesday to expand its anti-fraud provisions by adopting new Rule 206(4)-8 under Section 206 of the Investment Advisers Act (the "Anti-Fraud Rule"). The new Anti-Fraud Rule is aimed at investment advisers who mislead or defraud investors, including those in hedge funds, private equity funds, venture capital funds, mutual funds, and other pooled investment vehicles, and is intended to close a gap in enforcement that was exposed in the Goldstein decision handed down in 2006 by the DC Court of Appeals.

In Goldstein, the DC Court of Appeals overturned SEC rules adopted in 2004 that required hedge fund managers to treat each investor in the fund as a separate client, rather than the fund itself as a single client, for purposes of registration as an investment adviser under the Investment Advisers Act. The effect of the 2004 rules was to require any manager advising a fund with a lock-up period of less than two years and with fifteen or more investors to register as an investment adviser under the Investment Advisers Act. Goldstein, founder of Bulldog Investors, a New Jersey-based hedge fund, sued the SEC prompting the overturn of the rule in 2006.

For more information about this e-Alert, please contact your regular Sonnenschein attorney.

Click here to read the e-Alert.


These materials should not be considered as, or as a substitute for, legal advice and they are not intended to nor do they create an attorney-client relationship. Because the materials included here are general, they may not apply to your individual legal or factual circumstances. You should not take (or refrain from taking) any action based on the information you obtain from this document without first obtaining professional counsel and you should not send us confidential information without first speaking to one of our attorneys and receiving explicit authorization to do so.

<< Back