Rule Released Prohibiting Fraud on Investors in Pooled Investment Vehicles On August 3, the Securities and Exchange Commission issued its release announcing the adoption of Rule 206(4)-8 under the Investment Advisers Act.

The rule makes it a “fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of Section 206(4) of the Act for any investment adviser to a pooled investment vehicle to (i) [m]ake any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, to any investor or prospective investor in the pooled investment vehicle; or (ii) [o]therwise engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in the pooled investment vehicle.” The term “pooled investment vehicle” includes funds that rely on Section 3(c)(1) and 3(c)(7) to avoid regulation as investment companies.

The rule is intended to clarify, in light of the decision in Goldstein v. SEC, the Commission’s ability to bring enforcement actions under the Investment Advisers Act against advisers who defraud investors or prospective investors, as opposed to a fund itself, which the Court in Goldstein said is the adviser’s “client.”

The effective date of the rule is September 10.

http://sec.gov/rules/final/2007/ia-2628.pdf