Court Rules Against Improper SEC Regulation of Private Equity, Hedge Fund Managers

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The 5th U.S. Circuit Court of Appeals today ruled 3-0 against a controversial Securities and Exchange Commission 2023 rule regulating private equity and hedge fund managers. CEI Research Fellow Stone Washington praised the ruling:

“The Fifth Circuit’s unanimous decision to overturn the SEC’s rules for private fund advisers underscores the agency’s alarming statutory overreach to regulate private investments.

“The SEC was found by the court to have exceeded the parameters of the Investment Advisers Act of 1940, while overstepping its oversight capacity under Dodd-Frank. Each of the five SEC private fund rules imposed burdensome parameters for governing the conduct of private equity and hedge fund advisers.

“The court found that it was not the SEC’s proper place to dictate what financial information fund advisers must provide to their clients. Nor was it proper for the SEC to force private advisers to conduct routine audits on the funds they advise for customers.

“These excessive rules were rightfully vacated for imposing $5.4 billion in compliance costs and millions of additional work hours for private fund advisers to bear, undercutting their fiduciary responsibilities. The SEC has no business undermining the professional autonomy of private fund advisers.”

Related analysis: The SEC’s anti-competitive assault against private fund advisers