The Chairman of the US Securities and Exchange Commission declares boldly that hedge funds are not unregulated. Announcing the SEC’s decision not to appeal a court verdict invalidating the hedge fund registration rules, Chairman Cox states:
Finally, notwithstanding the Goldstein decision, it is important to point out that hedge funds today remain subject to SEC regulations and enforcement under the antifraud, civil liability, and other provisions of the federal securities laws. The SEC will continue to vigorously enforce the federal securities laws against hedge funds and hedge fund advisers who violate those laws. Hedge funds are not, should not be, and will not be unregulated.
One can well imagine an excerpts from this paragraph adorning the publicity material of a hedge fund to reassure its investors that a hedge fund is a well regulated entity not too different from a mutual fund!
I understand the feeling of “sour grapes” that underlies the statement of Cox. But one expects a little more care and circumspection from the top securities regulator in the world. A good deal of anti fraud and civil liability exists even under contract law. Push the logic a little further and one could argue that the SEC does not need to exist. Ha! Ha! Perhaps we should all re-read Stigler’s classic paper on that subject once again (Journal of Business, Volume 37, 1964, page 117-142 and 382-422).