New SEC Chairman Speaks on Hedge Fund Regulation

Stephen Harris

19 September 2005

Christopher Cox, the new chairman of the US Securities and Exchange Commission, is planning to strengthen the regulation of the trillion-dollar US hedge fund industry along with forcing more disclose on corporate executive compensation. Mr Cox’s predecessor William Donaldson brought in a rule requiring hedge fund advisors to register with the SEC as he believed the agency needed to understand how the industry works in order to potentially prevent fraudulent behaviour. The rule was opposed by, among others, Federal Reserve chairman, Alan Greenspan. Mr Cox said the SEC can "learn from" information collected under the hedge-fund rule and would implement it "exactly as adopted." "There has been a 14-month transition period, which is exceptionally long, to ensure that implementation is not burdensome," he told the Wall Street Journal. "In many cases, the investment advisors are already registered with the SEC." Mr Cox must also outline his agenda on other important issues, such as whether a mutual fund's board should be chaired by directors who are independent of the fund's management. Another headache for the new SEC chairman is that oral arguments in a lawsuit challenging the SEC's authority to promulgate the hedge-fund rule begin next month. As for corporate wrong-doing, the new chairman does not rule out the use of fines. "Penalties are meant to exact justice in the specific case and also to provide a measure of deterrence against future offences," he told the WSJ. While the SEC needs to avoid "gratuitous injury to shareholders, the law needs to be applied to mete out justice," he said.