Until the Securities and Exchange Commission finds a way to regulate hedge funds that won’t get bounced by a court, the agency plans to keep an eye on them anyway: through the eyes and ears of broker-dealers. Speaking at a conference in New York, SEC Director of Enforcement Linda Chatman Thomsen said, “What we’re seeing in cases is beyond a blind eye and into aiding and abetting. Activities with hedge funds are going to be something we’re going to focus on.” She pointed to the recent mutual fund scandal and how the SEC learned about late trading and marketing timing through broker-dealer transactions with hedge funds. “The regulated entities are our window into hedge funds,” Thomsen told the conference. “Everybody’s doing business with them. We’re going to find out what they’re doing through what we can see.” Susan Merrill, NYSE Regulation’s chief of enforcement, agrees. Addressing the same Practising Law Institute meeting, Merrill added that the not only the big firms are going to get the attention. “Now, we’re beginning to focus on the individual brokers who were facilitating market timing of customers [often hedge funds], and we’re looking at supervisors of those brokers.”
