TLDR:
- U.S. Court of Appeals for the Fifth Circuit struck down SEC’s proposed new rule for private fund oversight.
- Court ruled that the SEC exceeded its authority by seeking to regulate private funds.
A recent court ruling has invalidated the U.S. Securities and Exchange Commission’s (SEC) proposed rules aimed at increasing oversight of hedge funds and other private funds. The rule, adopted in a 3-2 decision last August, was designed to enhance regulation of private fund advisers to protect investors. However, the U.S. Court of Appeals for the Fifth Circuit stated that the SEC overstepped its boundaries by attempting to step up oversight of private funds. The court emphasized that private funds are exempt from the type of regulatory oversight necessitated in public markets, and that the Dodd-Frank Act did not eliminate this distinction. The ruling nullified the rule entirely, sparing the private funds industry and investors from unnecessary costs and disruption caused by the SEC’s unlawful actions. Trade groups that challenged the rule, including the Alternative Investment Management Association, celebrated the decision as a victory against regulatory overreach and improper rulemaking.
