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ARTICLE · 10 JULY 2006

Not Quite Dead Yet—SEC Hedge Fund Manager Rule in Limbo

Thelen LLP
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As has been widely reported in both the financial and trade press, on Friday, June 23, 2006 a federal appeals court in Washington, DC invalidated the SEC’s hedge fund manager registration rule, calling the controversial rule "arbitrary." The rule, which sought to redefine the meaning of the term "client" as used in the Investment Advisers Act of 1940, was passed in late 2004 by a deeply divided Commission.

United StatesFinance and Banking
Mark Braswell
Mark Braswell
Byron Pickard
Byron Pickard

As has been widely reported in both the financial and trade press, on Friday, June 23, 2006 a federal appeals court in Washington, DC invalidated the SEC’s hedge fund manager registration rule, calling the controversial rule "arbitrary." The rule, which sought to redefine the meaning of the term "client" as used in the Investment Advisers Act of 1940, was passed in late 2004 by a deeply divided Commission. The registration deadline was February, 2006, and as many as 1250 hedge fund managers have registered with the SEC as a result of the now-invalidated rule.

What Should Newly Registered Hedge Fund Managers Do Now?

Do Not Withdraw SEC Registration.

Contrary to what some commentators have suggested in recent days, newly registered hedge fund managers should not move to withdraw their SEC registration by filing a Form ADV-W, at least not yet. The appellate court decision is not yet final, and during this interim period, the SEC’s rule is still on the books and enforceable. Any

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