SEC Responds to Challenge to New Rules by Private Funds

The U.S. Securities and Exchange Commission (SEC) boldly defended its recent rule overhaul to private funds in response to a lawsuit from six private equity and hedge fund trade groups.

"Arbitrary and Capricious"

The groups had challenged The U.S. Securities and Exchange Commission (SEC Securities and Exchange Commission (SEC) The Securities and Exchange Commission (SEC) is one of the most widely known independent authorities in the United States. The SEC has a wide range of responsibilities, helping police markets and curbing against abuse. This includes enforcing federal securities laws, proposing securities rules, and regulating the US’ stock and options exchanges.As one of the paramount regulatory authorities in the US, the SEC is responsible for the oversight of public companies in the aforementioned segments.Wha The Securities and Exchange Commission (SEC) is one of the most widely known independent authorities in the United States. The SEC has a wide range of responsibilities, helping police markets and curbing against abuse. This includes enforcing federal securities laws, proposing securities rules, and regulating the US’ stock and options exchanges.As one of the paramount regulatory authorities in the US, the SEC is responsible for the oversight of public companies in the aforementioned segments.Wha Read this Term)'s authority, making a court filing and claiming that the SEC’s new expense and disclosure rules were arbitrary and capricious. The lawsuit, filed in September, was prompted by the new rules requiring require private funds to issue a swath of new reports and to perform annual audits, as well as to disclose certain fee structures.

"The rules exceed the Commission's statutory authority, were adopted without compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term with notice-and-comment requirements, and are otherwise arbitrary, capricious, an abuse of discretion, and contrary to law, all in violation of the Administrative Procedure Act," the associations wrote in the lawsuit. Bryan Corbett, chief executive officer of the Managed Funds Association (MFA), said the rules would increase costs for investors and curb competition.

US Securities and Exchange Commission responds to challenge to new rules by private funds https://t.co/8f3ZqLYY4T pic.twitter.com/5oQYc4V1cQ

— Reuters (@Reuters) December 16, 2023

The Petitioners – Fund Industry Groups

The petitioners are the MFA, National Venture Capital Association, American Investment Council, Alternative Investment Management Association, National Association of Private Fund Managers and the Loan Syndications & Trading Association.

SEC Prepared to Defend the Case in Court

In a court filing on Friday, the SEC argued that it had meticulously followed proper procedure in rulemaking, asserting that the private funds failed to demonstrate the agency's overreach. The SEC, led by Chair Gary Gensler, emphasized its commitment to transparency and competition, stating that the rules aimed to address opacity and conflicts of interest in the private funds sector, overseeing a whopping $20 trillion in assets.

Despite the legal pushback from Wall Street and trade groups, the SEC remains resolute, prepared to defend its case with oral arguments in court. Industry executives, critical of the regulations as rushed and ill-conceived, have launched a wave of lawsuits against new rules introduced by U.S. President Joe Biden's Democratic administration.