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To: sciAticA errAticA who wrote (33568)	5/12/2003 8:37:05 AM
From: sciAticA errAticA	Read Replies (1) \| Respond to of 74559

SEC enters next stage in hedge fund probe By Robert Clow Published: May 11 2003 18:15 \| Last Updated: May 11 2003 18:15 The Securities and Exchange Commission will enter the next phase of its hedge fund investigation when it holds meetings on the industry on Wednesday and Thursday. The discussions are part of an investigation that was initiated by Harvey Pitt, former SEC Chairman, in May 2002 in order to look into hedge fund fraud, conflicts of interest arising from hedge funds running mutual funds and the growing availability of hedge funds to retail investors. Initially, the agency sent out a broad questionnaire to hedge funds and the Wall Street firms that service them, inquiring, among other things, about funds' securities pricing policy, the commissions they paid and details about their hedge fund managers. Next week the probe continues with a range of panelists. Among those will be David Swensen, head of Yale Endowment and a leading hedge fund investor; Paul Roth, senior partner at New York law firm Schulte Roth & Zabel, which represents many leading hedge funds; George Hall, whose Clinton Group is a successful hedge fund; and David Hsieh of Duke University, a leading hedge fund academic. The panelists include private investigators, who perform background checks on hedge funds, and regulators from France and the UK. The group will discuss the structure and operation of hedge funds, hedge fund marketing, investor protection, trading strategies and market participation of hedge funds and current regulation. "I really don't go into [these discussions] with any prejudice," said Bill Donaldson, SEC chairman, last week. "There are a number of hedge funds I know of with terrific records," he added. Nevertheless, Mr Donaldson reiterated his concern about the massive proliferation of hedge funds and the increasing availability of hedge funds to retail investors. Noting that the hedge fund industry is $600bn in size, little is known about it and few regulations govern it, Mr Donaldson argued that the agency had to at least take a look at the industry. Mr Donaldson is thought to have a good understanding of the industry. That could be a relief for those in the hedge fund industry, who may have been alarmed by Commissioner Roel Campos's statement that some commission staff favour limits on short selling and leverage.If Mr Donaldson knows the industry well, he presumably knows how damaging limiting short selling could be to many hedge funds. Most lawyers still expect that when regulation does come it will involve requiring some hedge funds to register as investment advisers. Registration would allow the SEC to perform periodic surprise audits on hedge funds and would require their principals to file a professional history. Many hedge fund fraudsters have some history of unlawful or unethical behaviour, which a professional history should lay bare. Registration would, however, be a heavy burden for the SEC if it were applied to all the US's 6,000 or 7,000 hedge funds. More likely, lawyers think, the SEC will insist on registration only for those hedge funds dealing with retail investors and drop the requirement for those providing services only to rich investors and institutions. news.ft.com