On January 29, Senators Levin and Grassley introduced legislation entitled the Hedge Fund Transparency Act of 2009, which would require hedge funds to register under the Investment Company Act of 1940 (the “Investment Company Act”). This bill is a revised version of the bill Senator Grassley introduced in the 110th Congress.

The bill is a response to the 2006 decision by the D.C. Circuit Court of Appeals decision which overturned an SEC regulation requiring hedge advisers to register under the Investment Advisers Act of 1940 (the “Advisers Act”). However, unlike that regulatory effort by the SEC aimed at hedge fund advisers, this bill would require the hedge funds themselves to register under the Investment Company Act. If passed, this bill would ensure the SEC’s authority to require such registration. Additionally, this version of the bill would require hedge funds to establish anti-money laundering programs and to report suspicious transactions.

Specifically, hedge funds with more than $50 million in assets would be required to register with the SEC, maintain books and records that the SEC may require and cooperate with SEC information requests and examinations. Additionally, funds would have to electronically file annual information forms with the SEC that include the names of investors, an explanation of the ownership interests in the investment company, information on affiliate entities, the minimum investment amount required by each investor, the name of the fund’s primary broker and the current value of the fund’s assets.

Hedge funds with less than $50 million in assets would not be required to register. However, such funds would still be required to establish anti-money laundering programs and to report suspicious transactions.

Hedge funds would remain exempt from many of the other obligations under the Investment Company Act. However, the bill gives the SEC the authority it needs to impose additional regulatory obligations if necessary.