In an August 10, 2006 no-action letter to the American Bar Association Subcommittee on Private Investment Entities, the Securities and Exchange Commission staff granted no-action relief to investment advisers to hedge funds wishing to deregister following the decision of Goldstein v. SEC, 451 F.3d 873 (D.C. Cir., 2006). The Goldstein decision vacated Rule 203(b)(3)-2 under the Investment Advisers Actof 1940, which required hedge fund advisers to treat hedge fund investors as “clients” for purposes of determining the availability of the 14 client exemption from registration under section 203(b)(3).

In the no-action letter, the SEC stated that it would not recommend enforcement action against an investment adviser that registered as a result of 203(b)(3)-2 and that withdraws from registration in reliance on the Section 203(b)(3) exemption without regard to whether the adviser (i) held itself out generally to the public while it was registered, and/or (ii) had more than 14 clients while registered (counting each private fund as a single client).

Investment advisers that qualify for the Section 203(b)(3) exemption and are currently registered and wish to deregister in reliance on the no-action letter must withdraw their registration with the SEC no later than February 1.