Fear Of SEC Reprisal Has Ad-verse Effect

Throwing caution to the air waves and the rest of the press, lawyers are advising their hedge fund clients to limit their contact with the media lest their comments be construed as advertising, a violation of Securities and Exchange Commission rules. HedgeWorld.com reports that lawyers are directing investment advisers, particularly those that market only hedge funds, to avoid the press since the SEC has provided little guidance on the matter that is specific for HFs. And lawyers advise that any stray comments may invite scrutiny by the SEC. “An article in a trade journal is not advertising,” Patrick Egan of Philadelphia-based Attalus Capital told HedgeWorld. “But some lawyers are advising their clients it is.” SEC Director of Public Affairs John Nester says he doesn’t know of any specific move to target talky hedge funds, but then again, he says, it depends on what is said and how they say it. This fear of SEC reprisal, reports HedgeWorld, has inspired some firms to implement tough press-related policies in their compliance manuals. Whether the SEC is actually gunning for a test case remains to be seen, though the strict rules suggest that no one wants to win that dubious distinction.