Starting February 1, the Securities and Exchange Commission
will have its hands full in its brand new role as hedge fund
overseer under Rule 203(b)(3)-2 of the Investment Advisers Act
of 1940. Despite all the focus on the SEC, don't forget about
another set of regulators: state securities commissioners.
While state regulators are much lower profile than the SEC,
they have a critically important role to play in regulating
hedge funds and protecting investors.
The securities industry has long complained about state
regulation, saying that it is a quagmire of more than 50
different conflicting laws. It would be so much easier to have
just the SEC oversee financial firms, the argument goes.
However, many states are in a better position to know the
local lay of the land than the D.C.-based SEC. The state
financial regulators, either the securities or banking
departments, may raise the...