Securities Law

SEC Asserts Hedge-Fund Authority

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The Securities and Exchange Commission has adopted a new anti-fraud rule that clarifies its ability to sue hedge-fund managers who mislead investors.

The new rule, which takes effect 30 days after it is published in the Federal Register, covers account managers who make false or misleading reports to investors, the Wall Street Journal reports.

The SEC acted in response to a federal appeals court ruling last year that said the client of a hedge-fund adviser is the fund itself, rather than investors, Bloomberg News reports. The ruling by the U.S. Court of Appeals for the D.C. Circuit rejected 2004 rules that required hedge funds to report to the agency and submit to inspections.

SEC Chairman Christopher Cox proposed the new rule instead of appealing the ruling. “This rule will give the commission an important tool to help us police this market to deter misconduct,” he said.

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