Private Funds Industry Sues SEC Over New Disclosure Rules 

Six alternative asset management industry groups have united to file a lawsuit against the Securities and Exchange Commission in the US Court of Appeals for the Fifth Circuit over the regulator’s recently approved private fund advisor rule, which would require more disclosures of fees and expenses as well as annual audited financial statements for private equity and hedge funds. 

The Managed Funds Association (MFA), the National Association of Private Fund Managers (NAPFM), the National Venture Capital Association (NVCA), the American Investment Council (AIC), the Alternative Investment Management Association (AIMA), and the Loan Syndications & Trading Association (LSTA) have all joined the fight. 

The lawsuit, filed on September 1, contends that the new disclosure regulations, which also prevent groups from providing preferential treatment to investors, will “hamper the jobs, innovation, and other benefits private funds bring to the economy.” 

“The SEC has overstepped its statutory authority and core legislative mandate, leaving us no choice but to litigate,” said MFA president and CEO Bryan Corbett. 

The groups argue that the restrictions go beyond the SEC’s authority under the Investment Advisers Act of 1940, as well as going against the regulator’s stated objective of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. 

“If the Rule takes effect, it will discourage competition, harm investors, reduce returns, stifle innovation, and impose costly burdens on funds of all sizes,” said Drew Maloney, President and CEO of the AIC. 

The SEC vigorously supports the new rules, claiming that they are consistent with the agency’s mandate of protecting investors and guaranteeing financial market stability. 

Gibson, Dunn & Crutcher is handling the case on behalf of the industry groups.