The U.S. Treasury Department has proposed a bill that would require hedge funds, private equity firms and venture capital funds with more than $30 million in assets to register with the Securities and Exchange Commission. Clearly, with a bar that low, the law would affect the vast majority of firms in the country.
Registration with the SEC would mean more detailed reporting. Firms would have to periodically disclose their assets, leverage, credit risk, trading and investment practices and any financial information that could prove useful to the Federal Reserve. At the same time, the government would reserve the right to check in on firms at random times to make sure everything is in order and that records are being kept. The Obama administration and Treasury have been looking for ways to tighten the government’s hold on the venture capital and private equity communities for months.
All of the data collected would also be shared with the Financial Services Oversight Council, a new agency that the administration hopes to set up. Firms would also be required to share the information with their investors and prospective investors, creditors and others.
All of these rules are intended to prevent hedge fund and capital activity from disrupting the broader market, and also to expose conflicts of interest and cases of fraud before severe damage is done. Most large firms are already registered and subject to these regulations, but the bill could have sweeping implications for small and mid-size firms.
While the Private Equity Council expressed tepid support for the measure, it did say that it might have adverse consequences for small firms that can’t bear the additional administrative costs of record-keeping and reporting. A representative from the National Venture Capital Association was more strongly opposed, arguing that current Form D disclosures (less detailed forms filed with the SEC) are sufficient for smaller firms.
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