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Hedge funds leverage Texas office to challenge SEC regulations

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Hedge funds have been using the Texas office of the National Association of Private Fund Managers, a group focused on challenging SEC rules, for strategic access to the Fifth US Circuit Court of Appeals in New Orleans, according to a report by Bloomberg. 

The NAPFM’s Texas address at 301 Commerce Street covers Louisiana, Mississippi and Texas, claiming to represent firms with over $600bn in net AUM as of July 2023. The organisation counts Simon Lorne, Vice Chairman, Chief Legal Officer at Millennium Management and Isaac Haas, General Counsel at HBK Capital Management as members, according to lawsuit filings seen by Bloomberg. 

A Harvard Law School study revealed that 80% of challenges to SEC rules were filed in the Fifth Circuit. 

Steve Vladeck, a Georgetown University law professor, told Bloomberg: “It’s hard to imagine a friendlier forum for those challenges at this particular moment.” 

Earlier this month, the Fifth Circuit saw two Trump appointees and one George W Bush appointee unanimously strike down SEC rules requiring hedge funds to disclose quarterly fees and expenses. 

The decision is seen as a blueprint for future challenges against SEC regulations as well as a setback for SEC chairman Gary Gensler’s agenda, who has been vocal about the risks AI poses to the financial sector. The SEC has yet to announce whether it will appeal. 

NAPFM, alongside other trade groups, is also challenging SEC rules on short-selling disclosures and high-speed trading. Additionally, a new digital assets trade group, Crypto Freedom Alliance of Texas, is suing over SEC oversight. 

Brad Caswell of Linklaters said: “This is not the first. It will not be the last. This is bigger than just this rule.” 

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