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SEC Grants Bar Association Clarification On Hedge Funds

A subcommittee of the American Bar Association Thursday received the confirmation it sought from the Securities and Exchange Commission that hedge fund advisers that withdrew their registrations will not be viewed as violating rules that apply only to registered advisers.

A subcommittee of the American Bar Association Thursday received the confirmation it sought from the Securities and Exchange Commission that hedge fund advisers that withdrew their registrations will not be viewed as violating rules that apply only to registered advisers.

In a letter dated July 31, the Subcommittee on Private Investment Entities asked the SEC to make such a clarification for those hedge fund advisers planning to deregister with the SEC and registered solely because of its registration rule. A June 23 federal appeals court decision struck down the rule, which remained effective until Aug. 7. The SEC had until then to appeal the court's decision or take other actions.

The subcommittee's letter sought to address areas where the appeals court decision, in striking down the SEC rule, had created a vacuum, said Todd Lang, former-co chair of the subcommittee and partner at Weil, Gotshal & Manges in New York. The SEC's custody rule, for example, requires hedge fund advisers to distribute audited statements within 120 days of the close of the fiscal year. The subcommittee requested the SEC not to deem a hedge fund adviser as violating the custody rule, if it fails to distribute its audited statements within the required period subsequent to its deregistration.The SEC also honored the ABA's request set a deadline of Feb. 1, 2007 for the provision. The deadline will "provide hedge fund advisers a reasonable period of time within which to make a reasoned decision about whether to remain registered," the ABA letter stated. Robert Plaze, associate director in the SEC's Division of Investment Management, said the division worked with members of the subcommittee on clarifying some of its points.Paul Roth, partner at Schulte, Roth & Zabel in New York, now serves as sole chair of the subcommittee and Jeffrey Tabak, partner at Weil, Gotshal & Manges in New York, is vice chair.

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