451 F.3d 873 (2006)
- Upon concluding that its regulatory program for hedge fund advisers was inadequate, the SEC promulgated the Hedge Fund Rule, which specified that for purposes of § 203(b)(3) (15 U.S.C.S. § 80b-3(b)(3)) of the Investment Advisers Act of 1940, 15 U.S.C.S. § 80b-1 et seq., you must count as clients the shareholders, limited partners, members, or beneficiaries of the fund. 17 C.F.R. § 275.203(b)(3)-2(a).
- The court found that even if the Advisers Act did not foreclose the SEC's equation of "client" with "investor", the interpretation fell outside the bounds of reasonableness where the SEC's interpretation came close to violating the plain language of the statute since § 206 (15 U.S.C.S. § 80b-6) of the Advisers Act made it unlawful for any investment adviser, registered or not, to engage in any transaction, practice, or course of business which operated as a fraud or deceit upon any client or prospective client, and the SEC could not explain why "client" should mean one thing when determining to whom fiduciary duties were owed, and something else entirely when determining whether an investment adviser had to register under the Act.
- Therefore, the Rule was an arbitrary rule.
The petition for review was granted, and the Hedge Fund Rule was vacated and remanded.
Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials