The US Securities and Exchange Commission (SEC) is facing a legal challenge to its latest set of rules, which require hedge funds and private equity firms to detail quarterly fees and expenses to investors, according to a report by Bloomberg.
A lawsuit was filed a week after the rules’ adoption by industry groups, who are represented by former Secretary of Labor Eugene Scalia and include the American Investment Council, which argued that the rules would “fundamentally change the way private funds are regulated in America”.
The SEC’s response in court filings invoked the 2010 Dodd-Frank Act, which was enacted to restructure the financial regulatory system in the wake of the financial crisis, and described the rules as “a flexible and measured approach to resolve problems affecting investors and their stakeholders”.
Another set of rules adopted by the regulator — which is currently chaired by former Goldman Sachs veteran Gary Gensler — last August prohibits firms from allowing certain investors to cash out more easily than others.
The report described Gensler’s tenure as being characterised by a tightened grip on private funds and a desire for greater transparency in an industry known for opaque and complex layers of fees.
The court has not yet ruled on the case — in full, National Association of Fund Managers v. Securities and Exchange Commission, 23-60471, US Fifth Circuit Court of Appeals (New Orleans) — nor has the date been indicated.
This follows the SEC’s recent postponement of another set of rules which would introduce a requirement for hedge funds and proprietary trading firms to register as dealers.
