SEC says it won’t challenge hedge funds ruling

WASHINGTON — The Securities and Exchange Commission said Monday it will not challenge a federal appeals court ruling that overturned its new rules for oversight of hedge funds.

Because the appellate court’s decision was based on multiple grounds and was unanimous, “further appeal would be futile and would simply delay and distract from our goal of advancing investor protection,” SEC Chairman Christopher Cox said in a statement.

But as early as this week, the SEC will introduce a new anti-fraud rule under the Investment Advisers Act that would have the effect of “looking through” a hedge fund to its investors.

“At my direction, commission staff are also considering whether we should increase the minimum asset and income requirements for individuals who invest in hedge funds,” Cox said.

With fraud among hedge funds on the rise and ordinary investors getting hurt, Cox has pushed for new emergency regulations of the high-risk investment pools, which traditionally catered to the very wealthy but are increasingly luring ordinary investors.

The SEC regulations had required most hedge fund managers to register with the agency, thereby opening the funds’ books to SEC examiners. “It’s a classic case of the SEC passing the hot potato onto somebody else’s plate,” by letting lawmakers deal with it, said Andrew Stoltmann, a securities attorney in Chicago.