In May of 2007, New Jersey Assemblyman Neil M. Cohen introduced Assembly Bill No. 4216, which included hedge funds as "merchandise" under New Jersey's Consumer Fraud Act ("CFA"). The bill, as amended to date, defines "hedge fund" as "a privately offered investment vehicle that pools the contributions of its investors in order to invest in a variety of asset classes, such as securities, futures, contracts, options, bonds, and currencies." If passed in its current form, this bill would subject every privately placed pooled investment vehicle (including privately placed investment vehicles commonly referred to as hedge funds, venture capital funds and private equity funds), having an office or investors in New Jersey to one of the toughest consumer protection laws in the United States.
The CFA was designed to protect New Jersey consumers, as well as residents of other states who deal with New Jersey sellers, from acts (or omissions) of deception, fraud or falsity in connection with the sale and advertisement of merchandise and real estate. New Jersey's Office of Consumer Protection exercises oversight responsibility with respect to the CFA. In addition to vesting the Attorney General with enforcement and regulatory power, the CFA provides for a private cause of action with mandatory treble damages in situations where a consumer demonstrates an ascertainable loss. The Attorney General, on the other hand, need not demonstrate an ascertainable loss to find a violation of the CFA. While Assemblyman Cohen's bill was introduced with little fanfare, its potential impact looms large for New Jersey hedge funds and hedge funds with New Jersey investors as it imposes strict burdens, demands and liability in addition to those already present in the current regulatory scheme governing such funds.
Since Assemblyman Cohen introduced this bill, Lowenstein Sandler PC's Investment Management Practice Group, in conjunction with the Managed Funds Association and other industry representatives, have engaged Assemblyman Cohen and his peers in private discussions in an effort to educate the bill's supporters on the alternative investment industry (and to re-examine the bill in light of existing federal and state laws, rules and regulations governing hedge funds and their operations).
The bill proposed by Assemblyman Cohen is currently in committee. Recently, however, the New Jersey Senate introduced proposed legislation (Senate Bill No. 1053) identical to the bill proposed by Assemblyman Cohen. The New Jersey Senate has scheduled a hearing on Monday, March 10, 2008, to publicly discuss its bill.
As it has before, Lowenstein Sandler PC's Investment Management Practice Group, in conjunction with the Managed Funds Association and other industry representatives, is actively seeking to educate the proponents of the Senate's counterpart bill on the alternative investment industry and the potentially harmful effects of the passage of this bill in its current form. Representatives of Lowenstein Sandler PC's Investment Management Practice Group, among others, will be present to testify at the New Jersey Senate's committee meeting as to such potentially harmful effects, as well as existing laws, rules and regulations that already protect hedge fund investors. Of course, Lowenstein Sandler PC's efforts will continue well beyond the committee's adjournment.