[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 344 Introduced in Senate (IS)]

111th CONGRESS
  1st Session
                                 S. 344

  To require hedge funds to register with the Securities and Exchange 
                  Commission, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 29, 2009

Mr. Grassley (for himself and Mr. Levin) introduced the following bill; 
which was read twice and referred to the Committee on Banking, Housing, 
                           and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To require hedge funds to register with the Securities and Exchange 
                  Commission, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Hedge Fund Transparency Act''.

SEC. 2. HEDGE FUND REGISTRATION REQUIREMENTS.

    (a) Definition of Investment Company.--Section 3(c) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3(c)) is amended--
            (1) by striking paragraph (1);
            (2) by striking paragraph (7);
            (3) by redesignating paragraphs (2) through (6) as 
        paragraphs (1) through (5), respectively; and
            (4) by redesignating paragraphs (8) through (14) as 
        paragraphs (6) through (12), respectively.
    (b) Additional Exemptions.--Section 6 of the Investment Company Act 
of 1940 (15 U.S.C. 80a-6) is amended--
            (1) in subsection (a), by adding at the end the following:
            ``(6)(A) Subject to subsection (g), any issuer whose 
        outstanding securities (other than short-term paper) are 
        beneficially owned by not more than 100 persons, and which is 
        not making and does not presently propose to make a public 
        offering of its securities.
            ``(B) For purposes of this paragraph and paragraph (7), 
        beneficial ownership--
                    ``(i) by a company shall be deemed to be beneficial 
                ownership by one person, except that, if the company 
                owns 10 percent or more of the outstanding voting 
                securities of the issuer, and is or, but for the 
                exemption provided for in this paragraph or paragraph 
                (7), would be an investment company, the beneficial 
                ownership shall be deemed to be that of the holders of 
                the outstanding securities (other than short-term 
                paper) of such company; and
                    ``(ii) by any person who acquires securities or 
                interests in securities of an issuer described in this 
                paragraph shall be deemed to be beneficial ownership by 
                the person from whom such transfer was made, pursuant 
                to such rules and regulations as the Commission shall 
                prescribe as necessary or appropriate in the public 
                interest and consistent with the protection of 
                investors and the purposes fairly intended by the 
                policy and provisions of this title, where the transfer 
                was caused by legal separation, divorce, death, or any 
                other involuntary event.
            ``(7)(A) Subject to subsection (g), any issuer, the 
        outstanding securities of which are owned exclusively by 
        persons who, at the time of the acquisition of such securities, 
        are qualified purchasers, and which is not making and does not 
        at that time propose to make a public offering of such 
        securities. Securities that are owned by persons who received 
        the securities from a qualified purchaser as a gift or bequest, 
        or in a case in which the transfer was caused by legal 
        separation, divorce, death, or any other involuntary event, 
        shall be deemed to be owned by a qualified purchaser, subject 
        to such rules, regulations, and orders as the Commission may 
        prescribe as necessary or appropriate in the public interest or 
        for the protection of investors.
            ``(B) Notwithstanding subparagraph (A), an issuer is exempt 
        under this paragraph if--
                    ``(i) in addition to qualified purchasers, 
                outstanding securities of that issuer are beneficially 
                owned by not more than 100 persons who are not 
                qualified purchasers, if--
                            ``(I) such persons acquired any portion of 
                        the securities of such issuer on or before 
                        September 1, 1996; and
                            ``(II) at the time at which such persons 
                        initially acquired the securities of such 
                        issuer, the issuer was exempt under paragraph 
                        (6); and
                    ``(ii) prior to availing itself of the exemption 
                provided by this paragraph--
                            ``(I) such issuer has disclosed to each 
                        beneficial owner that future investors will be 
                        limited to qualified purchasers, and that 
                        ownership in such issuer is no longer limited 
                        to not more than 100 persons; and
                            ``(II) concurrently with or after such 
                        disclosure, such issuer has provided each 
                        beneficial owner with a reasonable opportunity 
                        to redeem any part or all of their interests in 
                        the issuer, notwithstanding any agreement to 
                        the contrary between the issuer and such 
                        persons, for the proportionate share of that 
                        person of the net assets of the issuer.
            ``(C) Each person that elects to redeem under subparagraph 
        (B)(ii)(II) shall receive an amount in cash equal to the 
        proportionate share of that person of the net assets of the 
        issuer, unless the issuer elects to provide such person with 
        the option of receiving, and such person agrees to receive, all 
        or a portion of the share of that person in assets of the 
        issuer. If the issuer elects to provide such persons with such 
        an opportunity, disclosure concerning such opportunity shall be 
        made in the disclosure required by subparagraph (B)(ii)(I).
            ``(D) An issuer that is exempt under this paragraph shall 
        nonetheless be deemed to be an investment company for purposes 
        of the limitations set forth in subparagraphs (A)(i) and (B)(i) 
        of section 12(d)(1) (15 U.S.C. 80a-12(d)(1) (A)(i) and (B)(i)) 
        relating to the purchase or other acquisition by such issuer of 
        any security issued by any registered investment company and 
        the sale of any security issued by any registered open-end 
        investment company to any such issuer.
            ``(E) For purposes of determining compliance with this 
        paragraph and paragraph (6), an issuer that is otherwise exempt 
        under this paragraph and an issuer that is otherwise exempt 
        under paragraph (6) shall not be treated by the Commission as 
        being a single issuer for purposes of determining whether the 
        outstanding securities of the issuer exempt under paragraph (6) 
        are beneficially owned by not more than 100 persons, or whether 
        the outstanding securities of the issuer exempt under this 
        paragraph are owned by persons that are not qualified 
        purchasers. Nothing in this subparagraph shall be construed to 
        establish that a person is a bona fide qualified purchaser for 
        purposes of this paragraph or a bona fide beneficial owner for 
        purposes of paragraph (6).''; and
            (2) by adding at the end the following:
    ``(g) Limitation on Exemptions for Large Investment Companies.--
            ``(1) In general.--An investment company with assets, or 
        assets under management, of not less than $50,000,000 is exempt 
        under subsection (a)(6) or (a)(7) only if that company--
                    ``(A) registers with the Commission;
                    ``(B) files an information form with the Commission 
                under paragraph (2);
                    ``(C) maintains such books and records as the 
                Commission may require; and
                    ``(D) cooperates with any request for information 
                or examination by the Commission.
            ``(2) Information form.--The information form required 
        under paragraph (1) shall be filed at such time and in such 
        manner as the Commission shall require, and shall--
                    ``(A) be filed electronically;
                    ``(B) be filed not less frequently than once every 
                12 months;
                    ``(C) include--
                            ``(i) the name and current address of--
                                    ``(I) each natural person who is a 
                                beneficial owner of the investment 
                                company;
                                    ``(II) any company with an 
                                ownership interest in the investment 
                                company; and
                                    ``(III) the primary accountant and 
                                primary broker used by the investment 
                                company;
                            ``(ii) an explanation of the structure of 
                        ownership interests in the investment company;
                            ``(iii) information on any affliation that 
                        the investment company has with another 
                        financial institution;
                            ``(iv) a statement of any minimum 
                        investment commitment required of a limited 
                        partner, member, or other investor;
                            ``(v) the total number of any limited 
                        partners, members, or other investors; and
                            ``(vi) the current value of--
                                    ``(I) the assets of the investment 
                                company; and
                                    ``(II) any assets under management 
                                by the investment company; and
                    ``(D) be made available by the Commission to the 
                public at no cost and in an electronic, searchable 
                format.''.

SEC. 3. IMPLEMENTING GUIDANCE AND RULES.

    (a) Forms and Guidance.--Not later than 180 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall 
issue such forms and guidance as are necessary to carry out this Act.
    (b) Rules.--The Securities and Exchange Commission may make a rule 
to carry out this Act.

SEC. 4. ANTI-MONEY LAUNDERING OBLIGATIONS.

    (a) Purpose.--It is the purpose of this section to safeguard 
against the financing of terrorist organizations and money laundering.
    (b) In General.--An investment company that relies on paragraph (6) 
or (7) of section 6(a) of the Investment Company Act of 1940 (15 U.S.C. 
80a-6(a) (6) and (7)), as amended by this Act, as the basis for an 
exemption under that Act shall establish an anti-money laundering 
program and shall report suspicious transactions under subsections (g) 
and (h) of section 5318 of title 31, United States Code.
    (c) Rulemaking.--
            (1) In general.--The Secretary of the Treasury, in 
        consultation with the Chairman of the Securities and Exchange 
        Commission and the Chairman of the Commodity Futures Trading 
        Commission, shall, by rule, establish the policies, procedures, 
        and controls necessary to carry out subsection (b).
            (2) Contents.--The rule required by paragraph (1)--
                    (A) shall require that each investment company that 
                receives an exemption under paragraph (6) or (7) of 
                section 6(a) of the Investment Company Act of 1940 (15 
                U.S.C. 80a-6(a) (6) and (7)), as amended by this Act, 
                shall--
                            (i) use risk-based due diligence policies, 
                        procedures, and controls that are reasonably 
                        designed to ascertain the indentity of and 
                        evaluate any foreign person (including, where 
                        appropriate, the nominal and beneficial owner 
                        or beneficiary of a foreign corporation, 
                        partnership, trust, or other foreign entity) 
                        that supplies or plans to supply funds to be 
                        invested with the advice or assistance of such 
                        investment company; and
                            (ii) be subject to section 5318(k)(2) of 
                        title 31, United States Code; and
                    (B) may incorporate elements of the proposed rule 
                for unregistered investment companies published in the 
                Federal Register on September 26, 2002 (67 Fed. Reg. 
                60617) (relating to anti-money laundering programs).
            (3) Publication date.--The Secretary of the Treasury, 
        shall--
                    (A) propose the rule required by this subsection 
                not later than 90 days after the date of enactment of 
                this Act; and
                    (B) issue the rule required by this subsection in 
                final form not later than 180 days after the date of 
                enactment of this Act.
    (d) Effective Date.--Subsection (b) shall take effect 1 year after 
the date of enactment of this Act, whether or not a final rule is 
issued under subsection (c), and the failure to issue such rule shall 
in no way affect the enforceability of this section.

SEC. 5. TECHNICAL CORRECTIONS.

    (a) Securities Act of 1933.--Section 3(a) of the Securities Act of 
1933 (15 U.S.C. 77c(a)) is amended--
            (1) in paragraph (2)--
                    (A) by striking ``section 3(c)(3)'' and inserting 
                ``section 3(c)(2)''; and
                    (B) by striking ``section 3(c)(14)'' and inserting 
                ``section 3(c)(12)'';
            (2) in paragraph (4), by striking ``section 3(c)(10)(B)'' 
        and inserting ``section 3(c)(8)(B)''; and
            (3) in paragraph (13), by striking ``section (3)(c)(14)'' 
        and inserting ``section 3(c)(12)''.
    (b) Securities Exchange Act of 1934.--The Securities Exchange Act 
of 1934 (15 U.S.C. 78a et seq.) is amended--
            (1) in section 3(a) (15 U.S.C. 78c(a))--
                    (A) in paragraph (12)(A)--
                            (i) in clause (iii), by striking ``section 
                        3(c)(3)'' and inserting ``section 3(c)(2)'';
                            (ii) in clause (v), by striking ``section 
                        3(c)(10)(B)'' and inserting ``section 
                        3(c)(8)(B)''; and
                            (iii) in clause (vi), by striking ``section 
                        3(c)(14)'' and inserting ``section 3(c)(12)'';
                    (B) in paragraph (12)(C), by striking ``section 
                3(c)(14)'' and inserting ``section 3(c)(12)''; and
                    (C) in paragraph (54)(A)--
                            (i) in clause (ii), by striking ``exclusion 
                        from the definition of investment company 
                        pursuant to section 3(c)(7)'' and inserting 
                        ``exemption under section 6(a)(7)''; and
                            (ii) in clause (vii), by striking ``section 
                        3(c)(2)'' and inserting ``section 3(c)(1)'';
            (2) in section 3(g) (15 U.S.C. 78c(g)) by striking 
        ``section 3(c)(14)'' each place that term appears and inserting 
        ``section 3(c)(12)''; and
            (3) in section 12(g)(2) (15 U.S.C. 78l(g)(2))--
                    (A) in subparagraph (D), by striking ``section 
                3(c)(10)(B)'' and inserting ``section 3(c)(8)(B)''; and
                    (B) in subparagraph (H), by striking ``section 
                3(c)(14)'' and inserting ``section 3(c)(12)''.
    (c) Investment Company Act of 1940.--The Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.) is amended--
            (1) in section 2(a)(51) (15 U.S.C. 80a-2(a)(51))--
                    (A) in subparagraph (A)(i), by striking ``excepted 
                under section 3(c)(7)'' and inserting ``exempt under 
                section 6(a)(7)''; and
                    (B) in subparagraph (C)--
                            (i) by striking ``that, but for the 
                        exceptions provided for in paragraph (1) or (7) 
                        of section 3(c), would be an investment company 
                        (hereafter in this paragraph referred to as an 
                        `excepted investment company')'' and inserting 
                        ``that is exempt under paragraph (6) or (7) of 
                        section 6(a) (hereafter in this paragraph 
                        referred to as an `exempt investment 
                        company')'';
                            (ii) by striking ``section 3(c)(1)(A)'' and 
                        inserting ``section 6(a)(6)(B)(i)''; and
                            (iii) by striking ``excepted'' each place 
                        that term appears and inserting ``any exempt'';
            (2) in section 6 (15 U.S.C. 80a-6)--
                    (A) in subsection (a)--
                            (i) in paragraph (2), by striking ``section 
                        3(c)(1)'' and inserting ``section 6(a)(6)''; 
                        and
                            (ii) in paragraph (5)(A)(iv), by striking 
                        ``that would be an investment company except 
                        for the exclusions from the definition of the 
                        term `investment company' under paragraph (1) 
                        or (7) of section 3(c)'' and inserting ``that 
                        is exempt under paragraph (6) or (7) of section 
                        6(a)''; and
                    (B) in subsection (f), by striking ``excluded from 
                the definition of an investment company by section 
                3(c)(1)'' and inserting ``exempt under section 
                6(a)(6)'';
            (3) in section 7(e) (15 U.S.C. 80a-7(e)), by striking 
        ``section 3(c)(10)(B)'' and inserting ``section 3(c)(8)(B)''; 
        and
            (4) in section 30 (15 U.S.C. 80a-29) in each of subsections 
        (i) and (j), by striking ``section 3(c)(14)'' each place that 
        term appears and inserting ``section 3(c)(12)''.
    (d) Investment Advisers Act of 1940.--The Investment Advisers Act 
of 1940 (15 U.S.C. 80b-1 et seq.) is amended--
            (1) in section 203(b) (15 U.S.C. 80b-3(b))--
                    (A) in paragraph (4) by striking ``section 
                3(c)(10)'' each place that term appears and inserting 
                ``section 3(c)(8)''; and
                    (B) in paragraph (5), by striking ``section 
                3(c)(14)'' and inserting ``section 3(c)(12)''; and
            (2) in section 205(b) (15 U.S.C. 80b-5(b))--
                    (A) in paragraph (2)(B), by striking ``section 
                3(c)(11)'' and inserting ``section 3(c)(9)''; and
                    (B) in paragraph (4), by striking ``excepted from 
                the definition of an investment company under section 
                3(c)(7)'' and inserting ``exempt under section 
                6(a)(7)''.
    (e) Internal Revenue Code of 1986.--Section 851(a)(2) of the 
Internal Revenue Code of 1986 (relating to the definition of regulated 
investment company) is amended by striking ``section 3(c)(3)'' and 
inserting ``section 3(c)(2)''.
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