Washington (July 23, 2004)--The Securities and Exchange Commission released for comment a proposed new rule that would require hedge fund advisers to register with the commission under the Investment Advisers Act of 1940.

The releases also proposes related rule amendments. SEC staff estimate that only 40 percent to 50 percent of all hedge fund advisers are currently registered with the agency.

The SEC said that registration under the proposed rule would permit it to: collect and provide to the public basic information about hedge funds and hedge fund advisors; examine hedge fund advisors to identify compliance problems early and deter questionable practices; require all hedge fund advisors to adopt basic compliance controls to prevent violation of the federal securities laws; improve disclosures made to prospective and current hedge fund investors; and to prevent felons or individuals with other serious disciplinary records from managing hedge funds.

The SEC said that the proposed rule would require advisors to "private funds" to register with the commission by requiring the advisors to "look through" the funds and to count the number of investors (rather than the fund) when determining whether the advisors are eligible for the Adviser Act's exemption for advisors with 14 or fewer clients. The proposed rule also contains special provisions for advisors located outside the United States.

-- WebCPA staff

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