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SEC Official Calls For Hedge Fund Registration

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NU Online News Service, Dec. 5, 2003, 7:54 a.m. EST – A member of the U.S. Securities and Exchange Commission is recommending that the SEC seek the authority to register hedge fund advisors.[@@]

Recent news of governance problems at one large hedge fund “illustrates the need, at least to me, for the registration of hedge fund advisors,” SEC Commissioner Harvey Goldschmid said Thursday at a securities law conference in Washington. “Too much money is now being managed in the shadows.”

Goldschmid cited an SEC staff report completed in September that suggests that registering hedge fund advisors would help deter fraud by including the advisors in the SEC’s regular inspection and examination programs.

Effective oversight could “encourage a culture of compliance and controls,” Goldschmid said, according to a written version of his remarks posted on the SEC Web site.

The SEC also would get the authority to collect basic information about organizations that happen to be increasingly influential players in the U.S. financial markets, Goldschmid said.

Goldschmid added that making hedge fund advisors register would force the advisors to disclose information about issues important to investors, such as relationships with prime brokers.

Hedge funds are investment funds that serve small numbers of wealthy, sophisticated investors.

Several big life insurers have been trying to get into the hedge fund business in recent years in an effort to give wealthy clients alternatives to mutual funds.

Some hedge fund advisors already participate in the SEC’s registration process for advisors to mutual funds that serve ordinary retail investors. But federal securities laws let hedge fund advisors operate without registering, on the assumption that the wealthy, sophisticated investors who put their money in hedge funds ought to be able to take care of themselves.

The SEC has posted the written version of Goldschmid’s speech at