Securities and Exchange Commission chairman Christopher Cox told the Senate Banking Committee Tuesday that current hedge fund regulations are “inadequate” and that the legislature may need to provide avenues to provide improved oversight of the $1.2 trillion industry.
“The commission stated when we adopted the hedge fund rule in 2004, that its then-current program of hedge fund regulation was inadequate,” Cox said during the meeting. “I believe that is once again the case.”
The SEC was dealt a blow last month in its efforts to maintain stricter controls on the hedge fund industry when a federal appeals court struck down a SEC rule requiring hedge funds to register with the commission and submit to random inspections.
Regulators have voiced increasing concern for the power hedge funds have in financial markets and the growing number of frauds discovered.
Seeing its assets double in only the past five years, some funds, including Bayou Group, Manhattan Investment Fund, Lancer Group, and Philadelphia Alternative Asset Management have collapsed leaving investors to deal with massive losses.
In the past four and a half years, the SEC has pursued 90 enforcement cases against hedge funds, a sharp increase from the four brought in 2001.
Cox told the committee that the SEC is looking for alternatives that could restore parts of the rule and withstand litigation.