SEC Commissioners Meet To Consider Regulatory Changes Affecting Hedge Funds and Mutual Fund Governance

The Securities and Exchange Commission held an open meeting on December 13, 2006, to consider, among other things, certain regulatory changes affecting investments in hedge funds and also affecting mutual fund governance.

Hedge Funds

The continuing focus on regulatory changes affecting the hedge fund industry follows the decision this past summer of the U.S. Court of Appeals in Phillip Goldstein, et al. v. SEC, which overturned the SEC’s 2004 rule requiring many advisers to hedge funds to count investors in the funds for purposes of determining if registration as an investment adviser is required.

At the meeting, the SEC Commissioners unanimously approved a proposed rule to apply an "enhanced accredited investor" standard for individuals that invest in certain privately offered funds which rely on the Section 3(c)(1) exemption from registration under the Investment Company Act of 1940. The Staff of the SEC noted that the enhanced accredited investor standard would not apply to