Hedge Funds: Goldstein v. Securities and Exchange Commission Page: 2 of 3
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CRS-2
statutory authority to require the registration of hedge funds or their advisers.2 Arguments
for other kinds of regulation or for no regulation have also been urged.3
In 2004 the SEC issued a rule4 which resulted in requiring many hedge fund advisers
to register with the SEC as investment advisers5 under the Investment Advisers Act.6 The
hedge fund rule first defines a "private fund" as an investment company that is exempt
from registration under the Investment Company Act because it has fewer than one
hundred investors or only qualified investors, allows its investors to redeem their
interests within two years of investing, and markets itself based upon the "skills, ability,
or expertise of the investment adviser."9 The rule goes on to state that these private funds,
"[f]or purposes of section 203(b)(3) of the [Investment Advisers] Act (15 U.S.C. 80b-
3(b)(3)),...must count as clients the shareholders, limited partners, members, or
2 See, e.g. H.R. 5712, 109' Cong.
s See CRS Report 94-511, Hedge Funds: Should They Be Regulated?, by Mark Jickling.
4 69 FED. REG. 72,054 (Dec. 10, 2004), codified at 17 C.F.R. Parts 275 and 279.
s An investment adviser is defined as:
any person who, for compensation, engages in the business of advising others, either
directly or through publications or writings, as to the value of securities or as to the
advisability of investing in, purchasing, or selling securities, or who, for compensation
and as part of a regular business, issues or promulgates analyses or reports concerning
securities; but does not include (A) a bank, or any bank holding company as defined
in the Bank Holding Company Act of 1956 [12 U.S.C.A. 1841 et seq.] which is not
an investment company, except that the term "investment adviser" includes any bank
or bank holding company to the extent that such bank or bank holding company serves
or acts as an investment adviser to a registered investment company, but if, in the case
of a bank, such services or actions are performed through a separately identifiable
department or division, and not the bank itself, shall be deemed to be the investment
adviser; (B) any lawyer, accountant, engineer, or teacher whose performance of such
services is solely incidental to the practice of his profession; (C) any broker or dealer
whose performance of such services is solely incidental to the conduct of his business
as a broker or dealer and who receives no special compensation therefor; (D) the
publisher of any bona fide newspaper, news magazine or business or financial
publication of general and regular circulation; (E) any person whose advice, analyses,
or reports relate to no securities other than securities which are direct obligations of
or obligations guaranteed as to principal or interest by the United States, or securities
issued or guaranteed by corporations in which the United States has a direct or
indirect interest which shall have been designated by the Secretary of the Treasury,
pursuant to section 3(a)(12) of the Securities Exchange Act of 1934 [15 U.S.C.A.
789c)(12)], as exempted securities for the purposes of that Act [15 U.S.C.A. 78a et
seq.]; or (F) such other persons not within the intent of this paragraph, as the
Commission may designate by rules and regulations or order. 15 U.S.C. 80b-2(11).
6 15 U.S.C. 80b-1 et seq.
S15 U.S.C. 80a et seq.
8 15 U.S.C. 80a-3(c)(1), (7).
9 17 C.F.R. 275.203(b)(3)-1(d)(1).
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Seitzinger, Michael V. Hedge Funds: Goldstein v. Securities and Exchange Commission, report, November 7, 2006; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc817716/m1/2/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.