What’s striking fear in the heart of many a hedge fund manager? It’s not so much the Securities and Exchange Commission‘s promise to conduct random searches of their businesses as much as the green team conducting them. “This is a constant source of frustration for us,” Karl Watcher, general counsel of Amaranth Advisors of Greenwich, Conn., said at the Managed Funds Association conference in Florida. He and others are worried that the army of 400 to 500 examiners from the SEC’s Office of Compliance has little knowledge of the hedge fund industry, and because of that are likely to interpret broadly securities laws written after the stock market crash in 1929 and before the rise of the HF industry. Hedge fund lawyer Terrance O’Malley of Schulte Roth Zabel, the premier HF law firm, said “90% of all examinations result in some violation. Sometimes they create new rules through enforcement.” All of which HF folks predict will mean more expenses along with more regulations – unless the SEC staffers are fast and willing students
“The OC staff is young and inexperienced,” MFA President Jack Gaine said at a press conference. “We are trying to educate them.”