On July 11, the Securities and Exchange Commission adopted Rule 206(4)-8 under the Investment Advisers Act. The 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. A pooled investment vehicle includes any investment company and any company that would be an investment company but for the exclusions in Section 3(c)(1) or 3(c)(7) of the Investment Company Act.

The new antifraud rule applies to all investment advisers to pooled investment vehicles (e.g., hedge funds, private equity funds, venture capital funds, and mutual funds) regardless of whether the adviser is registered under the Advisers Act. The new rule will apply to all communications with investors, including periodic reports, and not just to communications in connection with the purchase or sale of a security, as would be the case under Securities Exchange Act Rule 10b-5. However, the rule does not provide for a private right of action.

The new rule is largely in response to uncertainty created by the decision of the D.C. Court of Appeals in Goldstein v. SEC. In that case, the Court held that an adviser’s client is the fund itself, not the individual investors. The new rule will take effect 30 days after its publication in the Federal Register.