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    Dec. 9, 2008

Valuation and Confidentiality Concerns in Secondary Market Trading of Hedge Fund Interests

Amid the “perfect storm” of decreasing liquidity and increasing redemption requests, secondary markets for hedge funds interests have emerged an efficient forum for reconciling the goals of investors and managers.  But secondary markets for hedge funds interests, like any markets, are not without complications.  We explain how secondary markets address two of the thorniest issues in trading of hedge fund interests: valuation and confidentiality.

Who Should Regulate Energy Markets?

The FERC’s administrative case against defunct hedge fund manager Amaranth Advisors and certain of its managed funds and traders, along with an action arising out of similar facts brought by the CFTC in federal district court in New York, have raised important questions for U.S. energy regulation: which agency is responsible for ensuring that traders do not cross the line from legal speculation into illegal price manipulation?  If two or more agencies share that responsibility, how are those agencies supposed to coordinate their activities?  Answers to these questions can have a profound effect on hedge funds that trade commodities or commodity derivatives.

Revised Short Sale Reporting Requirements May Still Go Too Far

As part of its continued effort to monitor and understand short selling, the SEC decided in October to extend until August 1, 2009 short sale and position reporting requirements first enacted in an emergency order issued on September 18.  The agency intends to use the information in reports to craft and evaluate regulation.  Hedge funds, however, have been nearly unanimous in their opposition to short reporting.  In this second part of a two-part series, we explain the background, content and practical implications of the new short sale rules, and the likely future course of rulemaking on the topic.

Regulating Credit Default Swaps as Insurance: Gone, But Not Forgotten

Although New York State Insurance Superintendent Eric R. Dinallo decided to “delay indefinitely” his plan to regulate an important chunk of the credit default swaps (CDS) market as insurance contracts, the agency’s original policy proposal may well be used as a blueprint in wider efforts by federal regulators to reform the CDS market.  We explain the mechanics of the proposal and detail provisions that may reappear in future legislation or regulation.

SEC Accuses Investment Adviser of Failing to Disclose Conflict of Interest

On September 24, 2008, the SEC filed a complaint in a Los Angeles federal district court accusing WealthWise, LLC, an investment adviser, and its owner and principal, Jeffrey A. Forrest, with fraud for failing to disclose a material conflict of interest with a hedge fund it recommended its clients invest in.  The case is a reminder of the need to fully disclose all fee sharing arrangements.

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