SEC Responds to Challenge to New Rules by Private Funds

SEC Responds to Challenge to New Rules by Private Funds

Time Stamp: December 18, 2023 6:40 AM
Source Node: 3022121

The U.S. Securities and Exchange Commission (SEC) boldly defended its
recent rule overhaul to private funds in response to a lawsuit from six private
equity and hedge fund trade groups.

“Arbitrary and Capricious”

The groups had challenged the The U.S. Securities and Exchange Commission (SEC )’s authority, making a court filing
and claiming that the SEC’s new expense and disclosure rules were arbitrary and
capricious. The
lawsuit, filed in September, was prompted by the new rules requiring require
private funds to issue a swath of new reports and to perform annual audits, as
well as to disclose certain fee structures.

“The
rules exceed the Commission’s statutory authority, were adopted without
compliance with notice-and-comment requirements, and are otherwise arbitrary,
capricious, an abuse of discretion, and contrary to law, all in violation of
the Administrative Procedure Act,” the associations wrote in the lawsuit.
Bryan Corbett, chief executive officer of the Managed Funds Association (MFA),
said the rules would increase costs for investors and curb competition.

The Petitioners – Fund Industry Groups

The petitioners
are the MFA, National Venture Capital Association, American Investment Council,
Alternative Investment Management Association, National Association of Private
Fund Managers and the Loan Syndications & Trading Association.

SEC Prepared to Defend the Case in Court

In a court filing on Friday, the SEC argued that it had meticulously
followed proper procedure in rulemaking, asserting that the private funds
failed to demonstrate the agency’s overreach. The SEC, led by Chair Gary
Gensler, emphasized its commitment to transparency and competition, stating
that the rules aimed to address opacity and conflicts of interest in the
private funds sector, overseeing a whopping $20 trillion in assets.

Despite the legal pushback from Wall Street and trade groups, the SEC
remains resolute, prepared to defend its case with oral arguments in court.
Industry executives, critical of the
regulations as rushed and ill-conceived, have launched a wave of lawsuits
against new rules introduced by U.S. President Joe Biden’s Democratic
administration.

The U.S. Securities and Exchange Commission (SEC) boldly defended its
recent rule overhaul to private funds in response to a lawsuit from six private
equity and hedge fund trade groups.

“Arbitrary and Capricious”

The groups had challenged the The U.S. Securities and Exchange Commission (SEC )’s authority, making a court filing
and claiming that the SEC’s new expense and disclosure rules were arbitrary and
capricious. The
lawsuit, filed in September, was prompted by the new rules requiring require
private funds to issue a swath of new reports and to perform annual audits, as
well as to disclose certain fee structures.

“The
rules exceed the Commission’s statutory authority, were adopted without
compliance with notice-and-comment requirements, and are otherwise arbitrary,
capricious, an abuse of discretion, and contrary to law, all in violation of
the Administrative Procedure Act,” the associations wrote in the lawsuit.
Bryan Corbett, chief executive officer of the Managed Funds Association (MFA),
said the rules would increase costs for investors and curb competition.

The Petitioners – Fund Industry Groups

The petitioners
are the MFA, National Venture Capital Association, American Investment Council,
Alternative Investment Management Association, National Association of Private
Fund Managers and the Loan Syndications & Trading Association.

SEC Prepared to Defend the Case in Court

In a court filing on Friday, the SEC argued that it had meticulously
followed proper procedure in rulemaking, asserting that the private funds
failed to demonstrate the agency’s overreach. The SEC, led by Chair Gary
Gensler, emphasized its commitment to transparency and competition, stating
that the rules aimed to address opacity and conflicts of interest in the
private funds sector, overseeing a whopping $20 trillion in assets.

Despite the legal pushback from Wall Street and trade groups, the SEC
remains resolute, prepared to defend its case with oral arguments in court.
Industry executives, critical of the
regulations as rushed and ill-conceived, have launched a wave of lawsuits
against new rules introduced by U.S. President Joe Biden’s Democratic
administration.

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