US court rules SEC 'exceeded' its authority over hedge fund fee disclosures
In a significant setback for the SEC's oversight of the hedge fund industry, a U.S. appeals court has struck down a rule requiring greater transparency about the fees and expenses of hedge funds and private equity firms.
On June 5, the Fifth Circuit of Appeals issued a unanimous decision, with a three-judge panel ruling that the SEC exceeded its statutory authority in enforcing the provision.
The court's ruling followed a challenge from six industry groups that argued the SEC's sprawling 656-page rule would materially change industry operations and increase compliance costs.
The rule it provided for requirements such as quarterly performance and fee reports, annual audits and the removal of preferential treatment for certain investors.
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Turkey will not tax cryptocurrency profitsIn a statement representing the bench, Judge Kurt Engelhardt rejected the SEC's argument that the Dodd-Frank Act, enacted after the 2008 financial crisis to reform the financial sector, expanded its authority over private funds. Engelhard emphasized that the sections of the Act cited by the SEC do not grant such authority to the Commission, stating:
The promulgation of the Final Rule was unauthorized and no part of it can be confirmed.
The court's decision echoes criticism of the SEC by the crypto industry, which has raised similar concerns about the regulator's powers. In numerous lawsuits against crypto firms, the SEC has argued that many cryptocurrencies fall under its jurisdiction as securities, using the Howey test as a legal framework. However, the companies hit back, saying the SEC lacks the express approval of Congress needed for crypto regulation.
The SEC is now facing potential legislative action that could alter its jurisdiction over the US crypto industry. The Financial Innovation and Technology for the 21st Century (FIT21) Act, which aims to transfer major authority over the crypto industry to the Commodity Futures Trading Commission, recently received strong bipartisan support in the House of Representatives.
Additionally, the Securities and Exchange Commission narrowly avoided a congressional resolution aimed at rescinding its Staff Accounting Bulletin (SAB) 121 banning banks from owning crypto, thanks to veto of President Joe Biden.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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