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Unnecessary Reform: The Fallacies With and Alternatives to SEC Regulation of Hedge Funds | Author: Evan M. Gilbert

Unnecessary Reform: The Fallacies With and Alternatives to SEC Regulation of Hedge Funds | Author: Evan M. Gilbert

Today, with recent estimates indicating that well over 9,000 funds are managing more than $1.4 trillion in assets, hedge funds seem to have solidified themselves as one of the most significant players in our financial system. The industry’s tremendous growth, however, has rendered it the target of some substantial criticism. A number of commentators have begun to question the soundness of exempting hedge funds from the regulatory oversights of federal securities laws. With some going so far as to refer to the industry as a “dark, shadowy world with no legitimacy,” these critics express three basic concerns. Their primary complaints center on the notion that a failed hedge fund could cause the collapse of an entire financial system, and the idea that the hedge fund industry, which is supposed to exclude the common layperson investor, is now catering to that very subset of the investing population. A concern raised less frequently, but one which critics claim is equally disconcerting, is the belief that hedge fund fraud is a widespread problem. Critics reason that these concerns warrant stripping hedge funds of their exempt status and requiring them to comply with the registration and disclosure requirements of the Securities and Exchange Commission (SEC).

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