Share
On June 5, 2024, a federal appeals court vacated a rule adopted by the U.S. Securities and Exchange Commission (commission) related to the regulation of private funds advisers (final rule) in its entirety. A three-judge panel of the United States Court of Appeals for the Fifth Circuit in New Orleans agreed with the argument made by the industry groups that by adopting this rule, the commission exceeded their rulemaking authority. The court agreed with the industry that the rules did not add value for “sophisticated investors” who are assumed to perform reasonable due diligence prior to investing in private funds.
Background:
In August 2023, the commission issued final rules for private investment funds. Included in these rules were major changes to the regulation of private funds including:
- The preferential treatment rule
- The restricted activities rule
- The quarterly statement rule
- The adviser-led secondaries rule
- The audit rule
It also included amendments to compliance procedures and practices.
This rule was an attempt to regulate a rapidly expanding industry. The commission believed that this rule would be helpful in better regulating the industry and potentially minimize fraud.
Industry groups raised concern about the rule that the commission had exceeded its rulemaking authority. Various industry groups, including the American Investment Council and the Managed Funds Association, filed suit a few days after the rule was adopted.
We are reviewing the court’s decision and will continue to provide updates following any further developments or actions by the commission.
The full impact of this decision is to be determined and an attorney should be consulted to understand any legal ramifications.
Related services
Our solutions are tailored to each client’s strategic business drivers, technologies, corporate structure, and culture.
Receive CohnReznick insights and event invitations on topics relevant to your business and role.
This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.