Panel votes to regulate hedge funds

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By Anne Flaherty ASSOCIATED PRESS

The House Financial Services Committee voted on Tuesday to regulate for the first time hedge funds and other large pools of privately managed capital.

The bill, which received broad bipartisan support in a 67-1 vote, was aimed at shedding light on an elite group of investors that have so far escaped government oversight despite their hefty portfolios. The Obama administration has embraced the bill.

In one recent fraud case, the manager of a $7 billion hedge fund known as the Galleon Group was accused of conspiring with others to use insider information.

"In the last five years, there's been a significant change and a greater sophistication in the financial service industry than has ever happened in the history of mankind," said Rep. Paul E. Kanjorski, Pennsylvania Democrat, who sponsored the bill. "So we're going to have to change fast."

Tuesday's vote was the latest step by the panel to try to tighten the rules of the road for financial institutions blamed for contributing to the economic crisis. The committee already has approved legislation that would establish a Consumer Financial Protection Agency and regulate privately traded derivatives.

Under the latest bill, hedge funds would have to register with the SEC and be subject to disclosure requirements related to investors and creditors. They also would have to maintain records and potentially open their books to federal inspection.

Republicans were supportive of the plan, paving the way for a full House vote in coming weeks.

The bill tracks closely with a proposal made earlier this year by President Obama, although lawmakers included an exemption for venture capitalists.

The Obama administration has embraced a House bill that would give the government unprecedented power to seize bank holding companies teetering on the brink of collapse and stick their competitors with the bill.

Under a proposal by Rep. Barney Frank, Massachusetts Democrat, a council of regulators would be established to monitor financial firms regarded as so big and influential that their collapse could bring down the entire economy.

If the council determines that a firm has grown too big and dangerous, the Federal Reserve could step in to dismantle the company. Firms with more than $10 billion in assets would be responsible for covering the costs.