Appeals Judges Question SEC's Hedge Fund Rule

Laying the groundwork for disaster?--Dictynna

By Carrie Johnson

Washington Post Staff Writer
Saturday, December 10, 2005; Page D01

Appeals court judges sharply questioned yesterday whether the Securities and Exchange Commission had a reasonable basis for adopting a controversial rule that requires hedge funds to register with the agency.

A divided SEC passed the rule in a 3 to 2 vote last year, citing evidence that the loosely regulated investment pools had become a breeding ground for fraud and trading abuses. But New York fund adviser Phillip Goldstein sued to stop the rule, arguing that the SEC had overstepped its authority and did not provide adequate foundation for the move.