[Congressional Record Volume 155, Number 90 (Tuesday, June 16, 2009)]
[Senate]
[Pages S6653-S6654]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED:
  S. 1276. A bill to require investment advisers to private funds, 
including hedge funds, private equity funds, venture capital funds, and 
others to register with the Securities and Exchange Commission, and for 
other purposes; to the Committee on Banking. Housing, and Urban 
Affairs.

[[Page S6654]]

  Mr. REED. Mr. President, today I introduce the Private Fund 
Transparency Act of 2009, which requires investment advisers to private 
funds, including hedge funds, private equity funds, venture capital 
funds, and others, to register with the Securities and Exchange 
Commission, SEC.
  The current financial crisis has reinvigorated my long-held concern 
that the regulation of hedge funds and other pooled investment vehicles 
should be improved to provide more information to regulators to help 
them address fraud and prevent systemic risk in our capital markets.
  Hedge funds and other private investment funds generally operate 
under exemptions in federal securities laws that recognize that not all 
investment pools require the same close scrutiny demanded of retail 
investment products like mutual funds. Hedge funds generally cater to 
more sophisticated investors who are responsible for ensuring the 
integrity of their own investments, and as a result are permitted to 
pursue somewhat riskier investment strategies. Indeed, these funds play 
an important role in enhancing liquidity and efficiency in the market, 
and subjecting them to fewer limitations on their activities has been 
and continues to be a reasonable policy choice.
  However, the existing regulatory regime for these funds has enabled 
them to operate largely outside the framework of the financial 
regulatory system even as they have become increasingly interwoven with 
the rest of the country's financial markets. As a result, there is no 
data on the number and nature of these firms or ability to calculate 
the risks they pose to America's broader economy. Over the past decade 
the SEC has recognized there are risks to our capital markets posed by 
some of these entities, and it has attempted to require at a minimum 
that advisers to these funds register under the Investment Advisers Act 
so that SEC staff can collect basic information from and examine these 
private pools of capital. The SEC's rulemaking in this area, however, 
was rejected by a federal court in 2006. As a result, without statutory 
changes, the SEC is currently unable to examine private funds' books 
and records or to take sufficient action when it suspects fraud. In 
addition, no regulator is currently able to collect information on the 
size and nature of hedge funds or other funds to identify and act on 
systemic risks that may be created by these pools of capital.
  The bill I introduce today is crafted carefully to eliminate these 
regulatory gaps without unnecessarily limiting the beneficial aspects 
of such pools. It would require all hedge fund and other investment 
pool advisers that manage more than $30 million in assets to register 
as investment advisers with the SEC. It would also provide the SEC with 
the authority to collect information from these entities, including 
information about the risks they may pose to the financial system. 
Finally, it authorizes the SEC to require hedge funds and other 
investment pools to maintain and share with other Federal agencies any 
information necessary for the calculation of systemic risk.
  The financial crisis is a stark reminder that transparency and 
disclosure are essential in today's marketplace. Improving oversight of 
hedge funds and other private funds is vital to their sustainability 
and to our economy's stability. These statutory changes will help 
modernize our outdated financial regulatory system, protect investors, 
and prevent fraud. I hope my colleagues will join me in improving the 
oversight of hedge funds and other private pools of capital by 
cosponsoring this legislation and supporting its passage.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1276

       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 ``Private Fund Transparency 
     Act of 2009''.

     SEC. 2. DEFINITION OF FOREIGN PRIVATE ADVISERS.

       Section 202(a) of the Investment Advisers Act of 1940 (15 
     U.S.C. 80b-2(a)) is amended by adding at the end the 
     following:
       ``(29) The term `foreign private adviser' means any 
     investment adviser who--
       ``(A) has no place of business in the United States;
       ``(B) during the preceding 12 months has had--
       ``(i) fewer than 15 clients in the United States; and
       ``(ii) assets under management attributable to clients in 
     the United States of less than $25,000,000, or such higher 
     amount as the Commission may, by rule, deem appropriate in 
     accordance with the purposes of this title; and
       ``(C) neither holds itself out generally to the public in 
     the United States as an investment adviser, nor acts as an 
     investment adviser to any investment company registered under 
     the Investment Company Act of 1940, or a company which has 
     elected to be a business development company pursuant to 
     section 54 of the Investment Company Act of 1940, and has not 
     withdrawn its election.''.

     SEC. 3. ELIMINATION OF PRIVATE ADVISER EXEMPTION; LIMITED 
                   EXEMPTION FOR FOREIGN PRIVATE ADVISERS.

       Section 203(b)(3) of the Investment Advisers Act of 1940 
     (15 U.S.C. 80b-3(b)(3)) is amended to read as follows:
       ``(3) any investment adviser that is a foreign private 
     adviser;''.

     SEC. 4. COLLECTION OF SYSTEMIC RISK DATA; ANNUAL AND OTHER 
                   REPORTS.

       Section 204 of the Investment Advisers Act of 1940 (15 
     U.S.C. 80b-4) is amended--
       (1) in subsection (a), by adding at the end the following: 
     ``The Commission is authorized to require any investment 
     adviser registered under this title to maintain such records 
     and submit such reports as are necessary or appropriate in 
     the public interest for the supervision of systemic risk by 
     any Federal department or agency, and to provide or make 
     available to such department or agency those reports or 
     records or the information contained therein. The records of 
     any company that, but for section 3(c)(1) or 3(c)(7) of the 
     Investment Company Act of 1940, would be an investment 
     company, to which any such investment adviser provides 
     investment advice, shall be deemed to be the records of the 
     investment adviser if such company is sponsored by the 
     investment adviser or any affiliated person of the investment 
     adviser or the investment adviser or any affiliated person of 
     the investment adviser acts as underwriter, distributor, 
     placement agent, finder, or in a similar capacity for such 
     company.''; and
       (2) adding at the end the following:
       ``(d) Confidentiality of Reports.--Notwithstanding any 
     other provision of law, the Commission shall not be compelled 
     to disclose any supervisory report or information contained 
     therein required to be filed with the Commission under 
     subsection (a). Nothing in this subsection shall authorize 
     the Commission to withhold information from Congress or 
     prevent the Commission from complying with a request for 
     information from any other Federal department or agency or 
     any self-regulatory organization requesting the report or 
     information for purposes within the scope of its 
     jurisdiction, or complying with an order of a court of the 
     United States in an action brought by the United States or 
     the Commission. For purposes of section 552 of title 5, 
     United States Code, this subsection shall be considered a 
     statute described in subsection (b)(3)(B) of such section 
     552.''.

     SEC. 5. ELIMINATION OF PROVISION.

       Section 210 of the Investment Advisers Act of 1940 (15 
     U.S.C. 80b-10) is amended by striking subsection (c).

     SEC. 6. CLARIFICATION OF RULEMAKING AUTHORITY.

       Section 211(a) of the Investment Advisers Act of 1940 (15 
     U.S.C. 80b-11) is amended--
       (1) by striking the second sentence; and
       (2) by striking the period at the end of the first sentence 
     and inserting the following: ``, including rules and 
     regulations defining technical, trade, and other terms used 
     in this title. For the purposes of its rules and regulations, 
     the Commission may--
       ``(1) classify persons and matters within its jurisdiction 
     and prescribe different requirements for different classes of 
     persons or matters; and
       ``(2) ascribe different meanings to terms (including the 
     term `client') used in different sections of this title as 
     the Commission determines necessary to effect the purposes of 
     this title.''.

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