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Preventing a Long Term Capital Fiasco

Traders Magazine, November 2004

Gregory Bresiger

On a 3-2 vote, the Securities and Exchange Commission gave final approval on a plan to require hedge fund registration. This is a plan designed to prevent fraud in this growing business - and a repeat of the Long Term Capital Management (LTCM) fiasco. SEC officials now have the power to review the books of closely held investment partnerships and the managers of these funds are now required to register with the regulators. SEC Chairman William Donaldson, backed by the two Democrat members of the SEC, supported the measure, which was recommended by the commission's staff. The rule requires hedge fund managers to do several things, among them filing the ADV adviser form with the SEC. The staff, in a memo to the commission, wrote that, "Effective Commission oversight could lead to earlier detection of actual and potential misconduct, help to deter fraud and encourage a culture of compliance and controls."

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