The recent federal appeals court ruling overturning the Securities and Exchange Commission‘s rule requiring hedge fund adviser registration will not deter the SEC from pursuing enforcement actions against hedge fund advisers. Hedge fund advisers will remain a focus of the SEC enforcement division regardless of the outcome of the court ruling, said Bruce Karpati, assistant regional director of the SEC’s Northeast Regional Office, told the Strategic Research Institute‘s Hedge Fund Symposium in New York on Tuesday. The SEC will continue to be pro-active in the hedge fund arena, Karpati said. The ruling vacating the SEC’s hedge fund adviser registration rule will become effective on Aug. 7 unless the SEC appeals the court decision.
There are ways for the SEC to obtain information about unregistered hedge fund advisers, for example, through prime brokers or trading records, Karpati said. In addition, the SEC may target unregistered advisers by conducting enforcement sweeps, said Derek Meisner, partner at Kirkpatrick & Lockhart Nicholson Graham in Boston. “Essentially, if the SEC identifies a specific type of fraud at a particular adviser that employs a unique investment strategy, the SEC could proactively open investigations of other advisers that employ a similar strategy to confirm the absence of wrongdoing,” he said.