Tags: states | hedge funds | regulators | regulation

States’ New Job: Policing Hedge Funds

Sunday, 22 Aug 2010 04:32 PM

The recently passed Dodd-Frank financial regulatory bill contains provisions aimed at achieving tighter control over hedge-fund advisers by compelling all of them to register with regulators and undergo exams.

The law will require that thousands of small and midsize hedge funds — those overseeing less than $100 million — be overseen by the states in which they are located rather than by the Securities and Exchange Commission, which will oversee hedge funds that manage more than $100 million.

The SEC estimates that states will oversee about 4,000 investment advisers. Unfortunately, it isn't clear the states are ready to assume that responsibility.

"Right now, as it is, the states don't have the budget or the manpower to even deal with the advisers that they have," Bart Mallon, an attorney who advises several hedge-fund advisers that have registered with states, told The Wall Street Journal. "You're lucky if the states [examine firms] on a three-year basis. I've had certain clients who have never been audited."

Regulators and investors should be concerned that some of the states don't have the capacity to monitor what smaller managers are doing, experts say, especially since more than 3000 investment advisers have never been monitored by the SEC.

Bloomberg reports that a U.S. bankruptcy judge has ruled that HSBC, Europe’s biggest bank, must turn over its records of internal reviews related to potential fraud and other operational risks at the hedge fund run by convicted Ponzi schemer Bernard Madoff.

Banco Santander SA, the Spanish bank that lost $3.2 billion in the Madoff scam, was sued by investors for allegedly failing to notify customers that it had identified risk tied to Madoff’s secrecy and accounting practices as early as 2006.

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The recently passed Dodd-Frank financial regulatory bill contains provisions aimed at achieving tighter control over hedge-fund advisers by compelling all of them to register with regulators and undergo exams. The law will require that thousands of small and midsize hedge...
states,hedge funds,regulators,regulation
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2010-32-22
Sunday, 22 Aug 2010 04:32 PM
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