On September 1, 2023, the Managed Funds Association along with a consortium of private equity and hedge fund trade groups filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), contending that the Commission had exceeded its given statutory authority by implementing new advisement rules specially for private funds. This litigation was lodged at the United States Court of Appeals for the Fifth Circuit, using 5 U.S.C. §§ 702–704, 706, 15 U.S.C. § 80b–13(a) and the Federal Rule of Appellate Procedure 15(a) as the litigating instruments paving way for a review of the fresh regulations formulated by the SEC.
The SEC’s newly established rules concerning private fund advisement played a key role in triggering the lawsuit from the industry’s major associations and trade groups. The legal representatives of the litigating parties argue that in proclaiming and enforcing these new rules, the SEC has moved beyond the bounds of its legally sanctioned authority, thus sparking profound implications for the overarching legal and regulatory framework for private funds.
The lawsuit represents an important juncture in the enduring dialogue and points of contention between the private funds industry and regulatory agencies. The main point of criticism tackled by the industry representatives centers around the seemingly unilaterally enforced regulations by the SEC without due process of legislative approval, suggesting an overreach of their discretionary authority.
The SEC has yet to comment or formally respond to this lawsuit. The outcome of this case will not only impact the relations between the private funds industry and the SEC but also potentially recalibrate the regulatory landscape for private funds advisement.