NEW YORK (HedgeWorld.com)–Goaded by the aggressive investigations of New York State Attorney General Eliot Spitzer, the Securities and Exchange Commission could be looking to increase hedge fund regulation to show it is dealing with financial industry problems.
Recent scandals mainly concern mutual funds, but hedge funds might look like a convenient whipping boy for regulators who want to prove they’re taking action. The issues Mr. Spitzer uncovered on the mutual fund side have stimulated the SEC to play catch up, said Michael Tannenbaum of Tannenbaum Helpern Syracuse and Hirschtritt LLP, a law firm with a financial services practice.
Two agencies playing one-upmanship is potentially dangerous for the industry, he noted.
Judging from the SEC’s request for more money to hire additional staff, including auditors for the investment management division, the movement to require hedge fund managers to register as investment advisers is not going away, Mr. Tannenbaum said.
A senior adviser to SEC chairman Donaldson has stated that hedge funds willingly participated in mutual fund market-timing schemes. “We are poised in a situation where hedge funds stand to become scapegoats for all the ills of the financial industry,” said Mr. Tannenbaum.