SEC Has Long Row to Hoe With Hedge Funds

Fordham Law School’s Corporate Law Center in HedgeFund.net, September 29, 2010

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The Securities and Exchange Commission has been set up for “political failure,” by the new financial reform bill, in its increased role as policeman of private investment firms.

Speaking at a conference Monday former SEC Chairman Harvey Pitt said that the huge increase in hedge fund examinations and rule drafting required by the Dodd-Frank financial reform bill was daunting.

“That’s all while you hope the markets remain stable,” Pitt said, at the event sponsored by Fordham Law School’s Corporate Law Center. “And if you think that, I have a bridge . . . ”

Pitt appeared at the conference alongside current chairman Mary Schapiro, as well as another former chairman, Richard Breeden, who now heads up his own investment firm, Breeden Capital Management.

Schapiro said the agency now has more than 11,000 investment advisors under its aegis. Although the main responsibility for oversight for some of those advisors will shift to state regulators under the new laws, the SEC’s mandate to take on hedge funds will more than make up for that.

One way Schapiro said the agency will try to cope with their increased workload is by dong more risk-based examinations as well as leveraging the work of custody and accounting firms.

Breeden voiced concern that the Dodd-Frank bill brought a new level of “Congressional micro-management” to the financial markets.

“You don’t need to protect institutional investors,” Breeden said. “We’ve had private placement markets; there should be a space where, absent fraud, we let big sophisticated players do their work without SEC oversight.”

“These are supposed to be free markets; you can’t smooth out every bump in the road,” he said.