Fifth Circuit Strikes Down the Private-Fund Rule
The U.S. Fifth Circuit Court of Appeals, sitting in New Orleans, ruled that the Securities and Exchange Commission overstepped its authority when it adopted a rule requiring private funds to disclose financial arrangements and fee structures to investors.
The court found the agency exceeded its statutory mandate. The rule would have subjected private funds to additional administrative burden that, in the court's view, went beyond what the SEC is empowered to impose.
Background on the Rule
The rule traced to the post-Dodd-Frank regulatory push that began in 2015. Its stated purpose was to increase transparency around fee structures and help investors understand the economics of the private-fund arrangements they were entering.
Industry Reaction
The decision is a meaningful win for the private-fund industry, which had argued the SEC's mandate did not extend to the scope of disclosure contemplated by the rule. The ruling continues a broader trend of courts pushing back on federal agency authority beyond textual statutory grants.
Implications
Auditors and compliance professionals advising private-fund sponsors should note that the anticipated disclosure framework will not take effect as written. Investor-facing fee transparency remains a commercial and contractual matter rather than a regulatory mandate at the federal level for the foreseeable future.