Here it Comes….Hedge Fund Regulation
By David Feldman at 30 January, 2009, 9:26 am
The New York Times reported today that US Senators Carl Levin (Democrat) and Chuck Grassley (Republican) have introduced a bill to make clear that the SEC has the power to regulate hedge fund advisors.
Previously, former SEC Chairman Cox had passed rules to require advisors to register with the SEC, but a court ruled that the SEC did not have the statutory power to impose that requirement. The new bill, if passed (one assumes it will), would solve that problem and give them the legal authority to do so.
What SEC Chairman Schapiro will do with that power, of course, is the big question. Will she require registration of hedge fund advisors as investment advisors under the Investment Advisers Act of 1940? Maybe. If she does, what will be the impact? Well, a number of advisors already have voluntarily registered. Legitimate players should not have a problem with transparency at that level. We may see more advisors move offshore to avoid being registered.
The bigger question is whether Schapiro will consider broader oversight of the funds themselves. Apparently, the bill will only permit regulation of advisors, so we shall see and of course keep you informed!
Why do we care at the RM/SPAC blog? Because the PIPE financings that drive over half of all reverse mergers come almost entirely from hedge funds. Stay tuned.
Hi David: My comment is not so much about hedge fund regulation but about your book “Reverse Mergers”. I`m about at page 60. Your book is fascinating. It`s a little over-my-head but that means I will have to read it a few more times.
My question is what`s the difference between shell companies and dummy corporations? What are the legal uses of these entities?
Thanks
Hey Kevin. Thanks for the kind words! Dummy corporations are usually set up for improper purposes to hide money or someone’s involvement in something. It was suggested that NY Governor Elliot Spitzer set up dummy corporations (which were unfortunately reported incorrectly in the news as “shell companies”) to flow money through for his payments to prostitutes. Shell companies are either created from scratch or left over from real public companies and have the legitimate purpose of waiting for a private company that seeks to merge and be public. Hopefully the book will help explain it even better!
David