Alerts

SEC Adopts New Antifraud Rule Under Investment Advisers Act

July 12, 2007

The Securities and Exchange Commission (the "SEC") yesterday voted to adopt the antifraud rule that it had proposed in the wake of the Goldstein decision vacating the hedge fund registration rule. The new rule, Rule 206(4)-8 (the "Rule") under the Investment Advisers Act of 1940 (the "Advisers Act"), makes it a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of Section 206(4) of the Advisers Act for an investment adviser — whether registered or unregistered — of a "pooled investment vehicle": (1) to make any false or misleading statement or omission of material fact to any investor or prospective investor in the pooled investment vehicle; or (2) to otherwise engage in any fraudulent, deceptive, or manipulative act with respect to any investor or prospective investor in the pooled investment vehicle. The Rule applies to investment advisers of pooled investment vehicles that rely on Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940 (the "1940 Act"), including but not limited to hedge funds, private equity funds and venture capital funds. It also applies to investment advisers of "investment companies" as defined by Section 3(a) of the 1940 Act, including registered funds and business development companies. Significantly, the Rule is not limited to the context of purchases or sales of interests in a fund, and is not limited to situations involving intentional wrongdoing.