The SEC voted unanimously to adopt a new antifraud rule under the Investment Advisers Act of 1940 that clarifies its ability to bring enforcement actions under the Advisers Act.

The new rule will make it a fraudulent, deceptive, or manipulative act, practice, or course of business for an investment adviser to a pooled investment vehicle to make false or misleading statements to, or otherwise to defraud, investors or prospective investors in that pool. The rule will apply to all investment advisers to pooled investment vehicles, regardless of whether the adviser is registered under the Advisers Act.

Significantly for the mutual fund industry, a pooled investment vehicle under the new rule will include any investment company and any company that would be an investment company but for the exclusions in Sections 3(c)(1) or 3(c)(7) of the 1940 Act.

Thus, mutual funds will be subject to a new rule approved by the SEC that prohibits fraud in hedge funds and other private investment pools. The mutual fund industry, which has pushed the SEC to adopt hedge fund regulations similar to those governing mutual funds, had argued against being subject to the rule.

The rule will take effect 30 days after its publication in the Federal Register, which usually takes about a week after rules have been approved by the commission.

Please click http://www.sec.gov/news/digest/2007/dig071207.txt to access the press release announcing the adoption of the final rule.