by T. GormanPosted on Posted in SECActions

On Friday August 18, the SEC announced that on August 7, the US Attorney for the District of Massachusetts charged a hedge fund advisor with thirteen counts of mail and wire fraud for his actions as the managing partner of Groundswell Partners LLC, the General Partner and management company of Groundswell Capital LP, a quantitative systematic hedge fund.  [U.S. v. Mark R. Conway, 06-CR-10236-PBS (D. Mass.)] (LR-19807) http://sec.gov/news/digest/2006/dig081806.txt  In 2005, the SEC brought an enforcement action against the same advisor based on allegations similar to those in the indictment. Litigation Release No. 19460 http://sec.gov/litigation/litreleases/lr19460.htm  What is noteworthy about this announcement is not the criminal or civil enforcement action.  These cases are just the most recent in a line of enforcement actions involving hedge funds.  Rather the more interesting question is why the SEC reached out – or perhaps overreached is a better term – to issue its hedge fund rules that became effective last February.  Those rules were struck down recently by the D.C. Circuit in Goldstein v. S.E.C., No. 04-1434 (June 23, 2006), prompting many funds to de-register or consider de-registering with the Commission.  Additionally, in response to an ABA request for a no-action letter, the SEC staff has been forced to clarify how the rules apply to funds that choose to remain registered and for those that elect to de-register.  http://www.sec.gov/divisions/investment/noaction/aba081006.pdf
Nevertheless, SEC Chairman Cox recently testified before congress that post Goldstein the Commission will continue to bring enforcement actions against hedge funds and hedge fund advisors who violate the antifraud, civil liability and other provisions of the federal securities laws. Indeed, the Chairman declared that “[h]edge funds are not, should not be, and will not be unregulated.” See Testimony Concerning the Regulation of Hedge Funds, Chairman Christopher Cox, July 25, 2006 http://www.sec.gov/news/testimony/2006/ts072506cc.htm  In view of the SEC’s past and current enforcement efforts why the hedge fund stretch last February? If the current provisions in the federal securities laws backed by a string of civil and criminal enforcement actions are not sufficient, surely the SEC knows how to approach Congress rather than take unauthorized regulatory action.

by T. GormanPosted on Posted in SECActions

It has become increasing popular to complain that SOX expanded the liability of corporate directors and federalized portions of what was previously state law.  In a recent speech SEC Commissioner Roel C. Campos disputed this point in comments that should be welcomed by corporate directors.  In a speech entitled “How to be an Effective Board Member” delivered to the HACR Program on Corporate Responsibility in Boston, Commissioner Campos stated that “[t]his concern [that SOX increased legal duties and responsibilities of directors] is unwarranted.  There have not been any new or different theories or standards of liability imposed on directors in the aftermath of Sarbanes Oxley by Commission or SRO rules.  The bottom line is – if directors act reasonably and in good faith, they will be protected from liability.”  Commissioner Campos went on to note that “[t]he situations where directors have to be worried about an SEC action against them are where they act very unreasonably and in bad faith.” (emphasis added). See Speech by SEC Commissioner: How to be an Effective Board Member, Commissioner Roel C. Campos, August 15, 2006, http://sec.gov/news/speech/2006/spch081506rcc.htm