SEC calls for tighter rules on hedge funds

Rules governing the $1,200bn (£650bn) US hedge fund industry are still inadequate and need tightening, Wall Street's chief regulator said yesterday.

The chairman of the Securities and Exchange Commission, Christopher Cox, said the organisation was having to "go back to the drawing board" after a plan to force hedge funds to register with the SEC was thrown out by a court of appeal last month.

Mr Cox said he would move to impose new restrictions making it harder for ordinary Americans to invest in hedge funds, which are supposed to be aimed only at wealthy individuals with an appetite for risky investments. But he also held out the possibility the SEC would ask Congress to introduce new legislation to improve the regulation of the industry.

Mr Cox made his remarks to a hearing of the Senate banking committee, which is investigating the hedge fund industry because of mounting criticism of the activities of short sellers and a number of trading scandals.

The SEC estimates there are 8,800 hedge funds operating in the US but, because they are usually incorporated offshore, it is impossible to be certain. Last month an appeal court threw out a rule requiring funds with more than 15 clients, or $30m, to register with the regulator. Ruling on a lawsuit brought by Philip Goldstein, the manager of the hedge fund Opportunity Partners, the court said the requirement was arbitrary.

"We must move quickly to fill the gaping hole that the Goldstein ruling has left," Mr Cox told lawmakers. He will immediately move to bar hedge fund investing by any person or couple whose assets are worth less than $1.5m - the limit now is $1m - and there will also be tougher rules on marketing materials.