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December 1, 2004

The Hedge Fund Fight Is Not Over

By Gregory Bresiger

The battle over registration of hedge funds, which appeared to have been settled, may be heading to the courts. And it could get ugly.

Officials of the Managed Futures Association (MFA), which was one of the groups that opposed the controversial measure, said they expected someone to file a lawsuit against the Securities and Exchange Commission's decision, which was adopted on a three to two vote.

The MFA, in numerous comment letters to the SEC, has laid the groundwork for a legal challenge. For example, it argued that the SEC does not have the authority to mandate regulation of these funds.

Federal Statute

In one of its recent letters, the MFA held that "the rulemaking power granted to an administrative agency charged with the administration of a federal statute is not the power to make law. Rather, it is the power to adopt regulations to carry into effect the will of Congress as expressed by the statute."

Specifically, the MFA and others have contended that the SEC exceeded its authority by refining the meaning of a client under Section 203(b)(3) of the Investment Advisers Act of 1940.