As recently reported in The Wall Street Journal, the Chairman of the Securities and Exchange Commission ("SEC"), Christopher Cox, has recently commented that hedge funds "should not be, and will not be unregulated." Chairman Cox, testifying before the Senate Banking Committee on July 25, 2006, specifically suggested that the SEC should move quickly to address "the hole" left by the recent D.C. Circuit decision (Phillip Goldstein, et al. v. SEC) which struck down a rule which required most hedge fund managers to register with the Commission.

In response to the recent D.C. Circuit decision, Chairman Cox previously issued a statement that “[the SEC] will continue to work with the other members of the President’s Working Group on Financial Markets, including the Treasury, the CFTC, and the Federal Reserve, to evaluate both the systemic market risks and retail investment issues associated with the growing presence of hedge funds in the world’s capital markets.”

Chairman Cox also warned that hedge funds were too risky for “Mom and Pop” investors and commented that the increasing use of hedge funds by so-called “retail” investors (such as pension funds, university endowments and charitable organizations) “carries with it potential for retail exposure to hedge fund risk.”

As the Wall Street Journal article indicates, although Chairman Cox is not calling for specific regulation he is not backing down entirely from regulating hedge funds.

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