WASHINGTON (HedgeWorld.com)–Laying great stress, in the manner of Sherlock Holmes, on the issue of silence–as in that of a certain dog in the night–the petitioners in a lawsuit seeking to have the Securities and Exchange Commission’s hedge fund registration rule vacated have filed a reply to the SEC’s brief defending the lawfulness of its rule.
There are three petitioners: Phillip Goldstein; Kimball & Winthrop Inc., of which Mr. Goldstein is president and 50% shareholder; and the hedge fund Opportunity Partners LP, Pleasantville, N.Y., of which Kimball & Goldstein is general partner.
Their latest brief asserts that the issue has narrowed, because the SEC, in its brief, conceded an important point, or, perhaps, two important points, by its tactical silence.
The petitioners argue in the June 3, 2005 filing, as they have before, to the U.S. Court of Appeals for the District of Columbia, that the hedge fund rule requiring most managers to register as investment advisers as of Feb. 6, 2006, is invalid because it requires the registration of private investment entities that Congress has exempted from that obligation. They also respond to the SEC claim, in a brief filed May 18, that the statutory exemption at issue, which covers entities with fewer than 15 clients, is ambiguous as to how to count clients, and that the ambiguity justifies the agency in a rule clarifying its meaning.
The SEC rule imposes the registration requirement on most hedge funds by “looking through” a pooled investment vehicle as the “client” of an adviser and counts each contributor to that pool as one.
The petitioners, in their latest filing, write that they had expected the SEC’s brief to argue that the holders of securities in the pooled investment funds are, in fact, the clients of the advisers of those funds. But, to borrow from the Sherlock Holmes tale “Silver Blaze,” that dog didn’t bark, and petitioners perceive great significance in its silence.