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January 1, 2005

Lawsuits for SEC Hedge Fund Registration

By Gregory Bresiger

The SEC's decision to require hedge fund registration has resulted in a flurry of critical comments and threats of legal action.

One early critic was Phillip Goldstein, a portfolio manager for Opportunity Partners. He recently said he's going to file a lawsuit on behalf of the advisers to the $73 million fund. Another early critic of the SEC decision was the U.S. Chamber of Commerce.

Goldstein said that his lawsuit would contend that the SEC, redefining what an adviser is, overstepped its powers and that the commission never allowed for a sufficient comment period before it voted.

An attorney, who didn't want to be quoted by name, said the decision could turn on, "whether the SEC went too far. What they were doing in regulating hedge funds was to change the definitions of what constitutes a client. This is key. I think this is Congress' call, not the SEC, but I realize that this could be a very tough issue."

Meanwhile, both the Wall Street Journal and the New York Times have criticized the decision. The Journal charged that SEC Chairman William Donaldson has shown a lack of understanding of hedge funds, characterizing the decision as "Hedge Fund Hubris." The Times, in an editorial, said Donaldson had "overstated" the need for regulation.