The U.S. Court of Appeals has struck down a rule that required hedge funds and private equity firms to increase transparency about fees and expenses.
The Fifth Circuit Court of Appeals issued a unanimous 6/5 decision. The three-judge panel ruled that the SEC exceeded its statutory authority by imposing the measure.
The court's decision came in response to a lawsuit filed by 656 industry groups that argued that the SEC's 6-page rule would significantly change the way the sector operates and increase compliance costs. The rule required the elimination of quarterly performance reports and fees, annual audits, and exemptions for certain investors.
On behalf of the panel, Judge Kurt Engelhardt said the DODDA-Frank Act, enacted after the 2008 financial crisis to reform the financial sector, expanded oversight authority over private funds. The SEC's Engelhardt emphasized that the two sections of the law cited by the SEC do not give the commission such authority... :
"Publication of the final rule was prohibited, no part of it can remain in effect. " "
The court's decision resonated with critics of the SEC in the crypto industry, who in recent years have expressed similar concerns about the regulators' claimed powers. In a series of lawsuits against #cryptocurrency companies, the SEC has argued that many #cryptocurrencies are under its jurisdiction as securities, relying on the Howey test as a legal basis. However, cryptocurrency companies have fought back, arguing that the SEC does not have the authority to directly regulate cryptocurrencies without congressional approval.
The SEC is now facing potential congressional action that could alter its power over the U. S. crypto industry. The Financial Innovation and Technology for the 21st Century Act (FIT21), which primarily gives the Commodity Futures Trading Commission the authority to regulate the crypto industry, was recently passed by the House of Representatives with strong bipartisan support.
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