On June 5, 2024, the Louisiana-based Fifth U.S. Circuit Court of Appeals unanimously voted to vacate the Securities and Exchange Commission’s (SEC) Private Ruling issued in August of 2023, stating the SEC exceeded its authority.
The ruling would have required private funds of SEC-registered advisors to issue cumbersome quarterly statements, undergo annual audits, and restrict certain investor tailored activities.
Several groups challenged the ruling by saying the industry would face some $500 million in annual compliance costs. The groups that challenged the ruling included the:
- Managed Funds Association (MFA)
- American Investment Council (AIC)
- National Association of Private Fund Managers (NAPFM)
- National Venture Capital Association (NVCA)
- Alternative Investment Management Association (AIMA)
- Loan Syndications and Trading Association (LSTA)
Judge Kurt Engelhardt, a member of the U.S. Court of Appeals for the Fifth Circuit, rejected the SEC’s claim that the 2010 Dodd-Frank law gave the Commission the authority to impose such a ruling. “By congressional design, private funds are exempt from federal regulation of their internal governance structure,” wrote Engelhardt. He further stated the provision referenced by the SEC as granting the authority “has nothing to do with private funds.”
An SEC spokesperson stated that the Commission is reviewing the decision and will determine the next steps. To better understand what this means for you and your private funds, reach out a member of our team.
