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The Securities and Exchange Commission is poised to adopt controversial hedge fund registration rules and to propose changes to quiet-period regulations for initial public offerings. Two actions, which are listed on the public agenda for the Tuesday commission meeting, represent a flurry of pre-election activity at the agency. The hedge fund proposal would force managers in the $1 trillion industry to register with the government and open their books to inspection. The measure is largely unchanged from the proposal the SEC introduced in July. That proposal was published on a split 3-2 commission vote. SEC Chairman William Donaldson and Democratic commissioners Roel Campos and Harvey Goldschmid supported the proposal, arguing that tighter oversight of the hedge fund industry would deter fraud and protect investors. Commissioners Paul Atkins and Cynthia Glassman, both Republicans, opposed the proposal, saying it would unnecessarily raise costs for hedge fund managers while doing little to prevent fraud. Onlookers close to the situation said the two will object to it again next week. The SEC also will propose altering the so-called quiet-period rules, which limit what companies may say in the 45 days before issuing stock. The agency is expected to provide guidance permitting pre-IPO companies to reveal basic information about the business and their management philosophy in media interviews or on their Web sites during the quiet period. Companies that take advantage of the rule changes must accept liability for any quiet-period statements. That means shareholders or the SEC could sue for fraud if a company makes a bad-faith projection or if historical data provided is inaccurate. SEC officials also are considering other quiet-period rule revisions. These include shortening the pre-IPO 45-day quiet period to 30 days and allowing companies making secondary and other follow-up stock offerings to disclose additional information. Larger, “seasoned” companies, meaning those that have been public for more than a year and have a stock market capitalization of greater than $75 million, are likely to have more flexibility than small public concerns in what they can disclose during the quiet period. The proposal will include other changes aimed at making it easier for public companies to raise money through the capital markets. For instance, the SEC will propose allowing companies to deliver prospectuses over the Internet rather than through the mail. Copyright �2004 TDD, LLC. All rights reserved.

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