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The Securities and Exchange Commission on Tuesday tackled two critical initiatives, adopting rules requiring hedge funds to register with the agency and proposing to expand what companies may say to investors as they prepare to go public In moving to ease restrictions on companies planning initial public offerings, the SEC would allow executives to provide basic information about their business and management philosophy in media interviews or on their Web sites during the 30-day “quiet-period” preceding the IPO. 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 bad-faith evaluations or if historical data it provides is inaccurate. Securities industry lobbyists had urged the SEC to permit pre-IPO companies to provide detailed earnings estimates and other forward-looking information during the quiet period. But SEC corporate finance chief Alan Beller, the main architect behind the quiet-period measure, said there are too few “checks and balances” to help investors interpret statements made by companies planning IPOs. Larger “seasoned” companies, meaning those with a market capitalization of at least $750 million and that have been public for more than a year, would have even more flexibility than small public concerns in what they can disclose during the quiet period. Large public companies could advertise stock offerings on television provided they take legal responsibility for any commercials and file relevant information related to an ad with the agency. Big companies also could file a shelf offering stating the kinds of securities they plan to offer, although they would be barred from detailing share price information. The SEC plans within weeks to release the full 400-page quiet-period proposal. Concerned parties will have 75 days to file comments with the agency before commissioners vote on it. In contrast to the quiet-period changes, which had broad support within the SEC, agency commissioners were divided over the hedge fund proposal, which would force fund managers in the $870 billion industry to register with the government and open their books to inspection. The measure, which is largely unchanged from the proposal the SEC introduced in July, passed on a 3-2 vote by commissioners. SEC Chairman William Donaldson, a Republican appointee, aligned with Democratic commissioners Roel Campos and Harvey Goldschmid to adopt the plan, arguing that tighter oversight of the hedge fund industry would deter fraud and protect investors. Republican commissioners Cynthia Glassman and Paul Atkins dissented, saying that mandatory registration would raise costs for hedge fund managers, burden SEC staffers and do little to prevent fraud. “There will be a huge learning curve,” Atkins said. Yet all five commissioners agreed that the agency needs more information about the number of hedge funds operating in the U.S. and the size of their assets. Paul Roye, who heads the SEC’s Division of Investment Management, defended the hedge fund rule. Although some opponents of the plan said hedge fund information is available from the Commodities Futures Trading Commission and the Treasury Department, Roye said that would result in a complicated “patchwork” of data. “It would introduce a level of complexity that we don’t need,” Roye said. Roye said the agency will require hedge fund managers who manage securities and who are registered with the CFTC also must sign up with the agency. Hedge fund advisers who manage commodities and futures, but do not manage securities, will be exempt from SEC registration. Copyright �2004 TDD, LLC. All rights reserved.

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