SEC Issues Proposed Rules Affecting Hedge Funds And Other Pooled Investment Vehicles

By Thomas John Holton, Ephraim Lemberger and Michael Mavrides.

On December 27, 2006, the Securities and Exchange Commission published two sets of proposed new rules. Many pooled investment vehicles, including hedge funds, venture capital funds, private equity funds, listed closed-end funds, and mutual funds, will be affected by one or both sets of rules. The first set of rules, proposed Rules 509 and 216 under the Securities Act of 1933, as amended (the "1933 Act"), would provide for an enhanced accredited investor standard for natural persons investing in funds (other than certain venture capital funds) that rely on the exemption provided under Section 3(c)(1) of the Investment Company Act of 1940, as amended (the "1940 Act"). The second rule, proposed Rule 206(4)-8 under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), would prohibit any investment adviser, whether or not registered, to a pooled investment vehicle from making false or misleading statements