Fifth Circuit Vacates Private Fund Advisor Rule

In early June, the US Court of Appeals for the Fifth Circuit vacated the entire set of recently adopted Private Fund regulations. This package of rules, adopted by the Securities and Exchange Commission (SEC), would have required private funds to issue quarterly statements, conduct audits, restrict certain activities, disclosure of certain fee arrangements, among other new requirements. The petition was brought by several private fund industry groups which called the Commission’s rulemaking efforts an overreach under the Investment Advisers Act of 1940 and the Dodd Frank Act. While noting the exponential growth of the private fund sector, the Fifth Circuit Court noted that private funds were specifically exempt from certain requirements of the Investment Company Act of 1940. The Commission has several options to challenge the ruling of the Fifth Circuit. It could request an en banc rehearing (a hearing of all active, non-recused Fifth Circuit judges) or seek review by the Supreme Court. Additionally, the Commission could repropose some or all of the private funds rules and rely on a different legal authority.

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