Mutual funds fall under hedge regulation

Mutual funds will now be subject to a new rule that prohibits fraud in hedge funds and other private investment pools.
JUL 11, 2007
Mutual funds will be subject to a new rule approved by the SEC that prohibits fraud in hedge funds and other private investment pools. In a meeting today in Washington, all five members of the commission voted for final approval of the rule, although Commissioner Paul Atkins argued that it should be more specific as to what types of actions would run afoul of the antifraud rule. The mutual fund industry, which has pushed the SEC to adopt hedge fund regulations similar to those governing mutual funds, had argued against being included under the rule. “Mutual fund shareholders are already well protected against fraud by existing laws and regulations,” said Investment Company Institute spokesman Ed Giltenan. “We feel the rule is redundant.” In addition, some advisory industry officials argued that advisers could run afoul of the rule even without having intent to defraud investors. “The rule does not impose new obligations on advisers to pooled investment vehicles,” said Robert Plaze, associate director of the SEC’s Division of Investment Management, speaking at the meeting. Including specific types of fraud in the rule “could provide a roadmap for those wishing to engage in fraudulent conduct that harms investors in our markets. The commission would need to continuously update the rule as new schemes are developed,” Mr. Plaze said. The rule will take effect 30 days after its publication in the Federal Register, which usually takes about a week after rules have been approved by the commission.

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