October 2, 2009

Draft House Legislation: Hedge Fund Regulation and SEC Enforcement Overhaul

As noted in this NY Times article, Rep. Paul Kanjorski, Chair of the House of Representatives’ Capital Markets Subcommittee, released a series of three draft bills yesterday. The Investor Protection Act would overhaul the SEC’s Division of Enforcement (much of the bill falls in line with what the Obama Administration proposed over the summer, with a few exceptions). The Private Fund Investment Advisers Registration Act would require the registration of all hedge fund and private equity managers and mandate certain recordkeeping and disclosure requirements. The Federal Insurance Office Act deals with insurance company issues.

Regarding the SEC’s enforcement program, the bill would:

– Establish a whistleblower fund
– Dramatically increase SEC budget nearly two-fold over five years
– Close various statutory enforcement gaps (e.g., penalties in c&d proceedings, nationwide service of process, etc.)
– Expand access by SEC to grand jury materials
– Impose a deadline on SEC to complete exams and investigations within 6 months (or 1 year for “complex” matters)

Other types of provisions include:

– Give the SEC authority to reduce the disclosure time frame for beneficial ownership and short swing profits reporting to less than 10 days
– Impose fees on registered investment advisers
– Establish consistent duties for brokers, dealers and investments advisers in connection with retail investors
– Require pre-sale disclosure regarding investment company shares

Section 16 and PUHCA

A member sent this in recenty: “This is really a trivial matter, but I just noticed on the top of Forms 3, 4 and 5 (eg. see this Form 4 on the SEC’s site), there is still a reference to filing the forms under PUHCA of 1935. I think the forms may have been last revised before the 1935 Act was repealed in 2005. I would imagine the SEC forms folks will delete the reference at some point in the future.”

CDIs vs. C&DIs vs. CD&Is…

On another semantics note, here are some thoughts from a member reacting to my preference for the term “CD&Is” (or at least “CDIs”) compared to “C&DIs” when referring to Corp Fin’s Compliance and Disclosure Interpretations:

I was at a mtg down at the SEC lately and its painful to hear the Staff force themselves to follow the “C&DIs” convention when they vocalize it. I agree that “C&DI” should be banished from the English language as an instance of blind pursuit of logic at the expense of flow. (Another example that drives me crazy: “Forms 4.”) But CD&I is just plain wrong. I vote for CDI.

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– Broc Romanek