Last Friday a three judge panel of the U.S. Court of Appeals for the D.C. Circuit unanimously struck down a rule adopted by the Securities and Exchange Commission to regulate hedge funds. The rule was challenged by Phillip Goldstein of Bulldog Investors, a hedge fund group based in Saddle Brook, New Jersey. Mr. Goldstein was represented by Gregory E. Keller of Chitwood Harley Harnes LLP and Philip D. Bartz and Cameron Cohick of McKenna Long & Aldridge LLP. Mr. Bartz presented the oral argument before the Court.
Goldstein's challenge asserted that the SEC had overstepped its authority under the Investment Advisers Act of 1940 and had acted arbitrarily in adopting the "Hedge Fund Rule." The Advisers Act exempts from registration any investment adviser that has fewer than fifteen clients. The Hedge Fund Rule would require a hedge fund adviser to count each individual investor in the fund as the advisor's "client" rather than the hedge fund itself. The Court noted that the "(SEC's) interpretation of the word 'client' comes close to violating the plain language of the statute" and is at best "counterintuitive." The Court concluded: "That the Commission wanted a hook on which to hang more comprehensive regulation of hedge funds may be understandable. But the Commission may not accomplish its objective by a manipulation of meaning."
Responding to the Court's ruling, Goldstein commented: "When we first filed this challenge, few thought we could win. We are pleased that the Court agreed with us that the Hedge Fund Rule was an impermissible attempt to eliminate an exemption expressly created by Congress. We thank our attorneys for their great work and we look forward to managing Bulldog's hedge funds without the burdensome red tape created by the SEC's ill advised Hedge Fund Rule just as we have done for the past thirteen and one-half years."
McKenna Long & Aldridge LLP (MLA) is an international law firm comprised of 400 lawyers and public policy advisors with offices in Albany, Atlanta, Brussels, Denver, Los Angeles, Philadelphia, New York, San Diego, San Francisco and Washington, DC. Our clients are a mix of Fortune 500 and mid-size companies, major government contractors and non-profit organizations of all types. MLA's diverse range of services fall into three broad categories: transactional, litigation and government/regulatory.
Chitwood Harley Harnes LLP has a nationwide litigation practice emphasizing the representation of shareholders and others harmed by corporate wrongdoing. During its fifteen-year history, the firm has prosecuted many high profile class actions, recovering billions of dollars for class members and obtaining a variety of critical corporate governance improvements. Chitwood represents both institutional and individual investors in securities class actions as well as other types of corporate governance litigation, including derivative and class actions to enforce the management's fiduciary duties to the company and its shareholders, and injunctive actions to preserve the rights of shareholders to vote in corporate elections. Chitwood is also a leader in representing plaintiffs in class actions under the antitrust and consumer protection laws.