BREAKING NEWS
July 12, 2007
Panel Targets Hedge Funds
Skeptical of a totally free market, U.S. lawmakers delve into the risks posed by the unregulated entities
WASHINGTON - Members of Congress on Wednesday had a message of caution for the booming, unregulated hedge fund industry: Proceed with care, because lawmakers are increasingly willing to clamp down to ensure integrity in the marketplace.

"I don't think anybody can be confident that all's entirely well here," said Rep. Barney Frank (D-Mass.), chairman of the House Committee on Financial Services. "It's a matter of concern."

Frank later told reporters he might introduce legislation this year that would require hedge funds to save various documents, such as trading records and e-mail, that could be of use to law enforcement officials in cases of fraud.

Also Wednesday, the Securities and Exchange Commission approved a rule affirming its ability to sue hedge funds for fraud. The SEC action followed a legal decision that tossed out a previous SEC rule requiring the funds to register with the agency and provide certain information.

"This rule will give the commission an important tool to help us police this market to deter misconduct," SEC Chairman Christopher Cox said.

The developments underscored growing fears that private investment pools such as hedge funds could spread instability throughout the financial markets. As warning signs, lawmakers cited the ongoing woes involving mortgage-based securities, the recent bailout of two hedge funds by Bear Stearns Cos. and an ill-fated investment by San Diego County's retirement fund in the Amaranth Advisors hedge fund.

In February, the President's Working Group on Financial Markets contended that the free market would be the most effective form of discipline and rejected calls for new rules that would require hedge funds to operate more transparently, under federal oversight.

Lawmakers pointed out that the meltdowns of the Amaranth and Bear Stearns funds occurred against the backdrop of a healthy financial system. In different ways, they asked: What would happen if such problems arose at a time of financial instability?
Los Angeles Times