Advisory
On June 5, 2024, the U.S Court of Appeals for the Fifth Circuit fully vacated a rule adopted by the U.S Securities and Exchange Commission (SEC) aimed at regulating private fund advisers. The Court agreed that the SEC exceeded its statutory authority in adopting the rule.
The SEC adopted the Private Fund Rule in August 2023 to enhance transparency and protect investors of private funds. The rule introduced several significant regulatory changes, including:
The Quarterly Statement Rule
The Private Fund Audit Rule
The Adviser-Led Secondaries Rule
Books and Records Rule Amendments
Compliance Rule Amendments
The SEC believed these measures would help mitigate fraud and ensure fair practices within the private fund industry.
Fifth Circuit Court of Appeals’ Decision
A three-judge panel for the Fifth Circuit agreed with the industry's perspective, stating that the SEC overstepped its statutory authority. The Court found that the SEC did not have the authorization to implement the Private Fund Rule, resulting in the entire rule being vacated. Therefore, all the regulatory requirements imposed by the SEC’s rule have been removed, relieving private fund advisers from these additional compliance obligations.
The ruling leaves the future of private fund regulation uncertain, as the SEC contemplates its next steps.
For more information or to speak with an expert regarding how we can assist you with the updated SEC regulations, please contact Brandon Caroprese at bcaroprese@caroprese.com or via telephone at 973-475-8090. The above information was sourced directly from the SEC’s public announcement.
