II 

111TH CONGRESS 

1ST SESSION S. 344 

To require hedge funds to register with the Securities and Exchange 

Commission, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 29, 2009 

Mr. GRASSLEY (for himself and Mr. LEVIN) introduced the following bill; 

which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To require hedge funds to register with the Securities and 

Exchange Commission, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Hedge Fund Trans5 parency Act’’. 

6 SEC. 2. HEDGE FUND REGISTRATION REQUIREMENTS. 

7 (a) DEFINITION OF INVESTMENT COMPANY.—Sec8 tion 3(c) of the Investment Company Act of 1940 (15 

9 U.S.C. 80a–3(c)) is amended— 

10 (1) by striking paragraph (1); 


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1 (2) by striking paragraph (7); 

2 (3) by redesignating paragraphs (2) through 

3 (6) as paragraphs (1) through (5), respectively; and 

4 (4) by redesignating paragraphs (8) through 

5 (14) as paragraphs (6) through (12), respectively. 

6 (b) ADDITIONAL EXEMPTIONS.—Section 6 of the In7 vestment Company Act of 1940 (15 U.S.C. 80a–6) is 

8 amended— 

9 (1) in subsection (a), by adding at the end the 

10 following: 

11 ‘‘(6)(A) Subject to subsection (g), any issuer 

12 whose outstanding securities (other than short-term 

13 paper) are beneficially owned by not more than 100 

14 persons, and which is not making and does not pres15 ently propose to make a public offering of its securi16 ties. 

17 ‘‘(B) For purposes of this paragraph and para18 graph (7), beneficial ownership— 

19 ‘‘(i) by a company shall be deemed to be 

20 beneficial ownership by one person, except that, 

21 if the company owns 10 percent or more of the 

22 outstanding voting securities of the issuer, and 

23 is or, but for the exemption provided for in this 

24 paragraph or paragraph (7), would be an in25 vestment company, the beneficial ownership 


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1 shall be deemed to be that of the holders of the 

2 outstanding securities (other than short-term 

3 paper) of such company; and 

4 ‘‘(ii) by any person who acquires securities 

5 or interests in securities of an issuer described 

6 in this paragraph shall be deemed to be bene7 ficial ownership by the person from whom such 

8 transfer was made, pursuant to such rules and 

9 regulations as the Commission shall prescribe 

10 as necessary or appropriate in the public inter11 est and consistent with the protection of inves12 tors and the purposes fairly intended by the 

13 policy and provisions of this title, where the 

14 transfer was caused by legal separation, di15 vorce, death, or any other involuntary event. 

16 ‘‘(7)(A) Subject to subsection (g), any issuer, 

17 the outstanding securities of which are owned exclu18 sively by persons who, at the time of the acquisition 

19 of such securities, are qualified purchasers, and 

20 which is not making and does not at that time pro21 pose to make a public offering of such securities. Se22 curities that are owned by persons who received the 

23 securities from a qualified purchaser as a gift or be24 quest, or in a case in which the transfer was caused 

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1 voluntary event, shall be deemed to be owned by a 

2 qualified purchaser, subject to such rules, regula3 tions, and orders as the Commission may prescribe 

4 as necessary or appropriate in the public interest or 

5 for the protection of investors. 

6 ‘‘(B) Notwithstanding subparagraph (A), an 

7 issuer is exempt under this paragraph if— 

8 ‘‘(i) in addition to qualified purchasers, 

9 outstanding securities of that issuer are bene10 ficially owned by not more than 100 persons 

11 who are not qualified purchasers, if— 

12 ‘‘(I) such persons acquired any por13 tion of the securities of such issuer on or 

14 before September 1, 1996; and 

15 ‘‘(II) at the time at which such per16 sons initially acquired the securities of 

17 such issuer, the issuer was exempt under 

18 paragraph (6); and 

19 ‘‘(ii) prior to availing itself of the exemp20 tion provided by this paragraph— 

21 ‘‘(I) such issuer has disclosed to each 

22 beneficial owner that future investors will 

23 be limited to qualified purchasers, and that 

24 ownership in such issuer is no longer lim25 ited to not more than 100 persons; and 


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1 ‘‘(II) concurrently with or after such 

2 disclosure, such issuer has provided each 

3 beneficial owner with a reasonable oppor4 tunity to redeem any part or all of their in5 terests in the issuer, notwithstanding any 

6 agreement to the contrary between the 

7 issuer and such persons, for the propor8 tionate share of that person of the net as9 sets of the issuer. 

10 ‘‘(C) Each person that elects to redeem under 

11 subparagraph (B)(ii)(II) shall receive an amount in 

12 cash equal to the proportionate share of that person 

13 of the net assets of the issuer, unless the issuer 

14 elects to provide such person with the option of re15 ceiving, and such person agrees to receive, all or a 

16 portion of the share of that person in assets of the 

17 issuer. If the issuer elects to provide such persons 

18 with such an opportunity, disclosure concerning such 

19 opportunity shall be made in the disclosure required 

20 by subparagraph (B)(ii)(I). 

21 ‘‘(D) An issuer that is exempt under this para22 graph shall nonetheless be deemed to be an invest23 ment company for purposes of the limitations set 

24 forth in subparagraphs (A)(i) and (B)(i) of section 

25 12(d)(1) (15 U.S.C. 80a–12(d)(1) (A)(i) and (B)(i)) 


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1 relating to the purchase or other acquisition by such 

2 issuer of any security issued by any registered in3 vestment company and the sale of any security 

4 issued by any registered open-end investment com5 pany to any such issuer. 

6 ‘‘(E) For purposes of determining compliance 

7 with this paragraph and paragraph (6), an issuer 

8 that is otherwise exempt under this paragraph and 

9 an issuer that is otherwise exempt under paragraph 

10 (6) shall not be treated by the Commission as being 

11 a single issuer for purposes of determining whether 

12 the outstanding securities of the issuer exempt 

13 under paragraph (6) are beneficially owned by not 

14 more than 100 persons, or whether the outstanding 

15 securities of the issuer exempt under this paragraph 

16 are owned by persons that are not qualified pur17 chasers. Nothing in this subparagraph shall be con18 strued to establish that a person is a bona fide 

19 qualified purchaser for purposes of this paragraph 

20 or a bona fide beneficial owner for purposes of para21 graph (6).’’; and 

22 (2) by adding at the end the following: 

23 ‘‘(g) LIMITATION ON EXEMPTIONS FOR LARGE IN24 VESTMENT COMPANIES.— 


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1 ‘‘(1) IN GENERAL.—An investment company 

2 with assets, or assets under management, of not less 

3 than $50,000,000 is exempt under subsection (a)(6) 

4 or (a)(7) only if that company— 

5 ‘‘(A) registers with the Commission; 

6 ‘‘(B) files an information form with the 

7 Commission under paragraph (2); 

8 ‘‘(C) maintains such books and records as 

9 the Commission may require; and 

10 ‘‘(D) cooperates with any request for infor11 mation or examination by the Commission. 

12 ‘‘(2) INFORMATION FORM.—The information 

13 form required under paragraph (1) shall be filed at 

14 such time and in such manner as the Commission 

15 shall require, and shall— 

16 ‘‘(A) be filed electronically; 

17 ‘‘(B) be filed not less frequently than once 

18 every 12 months; 

19 ‘‘(C) include— 

20 ‘‘(i) the name and current address 

21 of— 

22 ‘‘(I) each natural person who is a 

23 beneficial owner of the investment 

24 company; 


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1 ‘‘(II) any company with an own2 ership interest in the investment com3 pany; and 

4 ‘‘(III) the primary accountant 

5 and primary broker used by the in6 vestment company; 

7 ‘‘(ii) an explanation of the structure 

8 of ownership interests in the investment 

9 company; 

10 ‘‘(iii) information on any affliation 

11 that the investment company has with an12 other financial institution; 

13 ‘‘(iv) a statement of any minimum in14 vestment commitment required of a limited 

15 partner, member, or other investor; 

16 ‘‘(v) the total number of any limited 

17 partners, members, or other investors; and 

18 ‘‘(vi) the current value of— 

19 ‘‘(I) the assets of the investment 

20 company; and 

21 ‘‘(II) any assets under manage22 ment by the investment company; and 

23 ‘‘(D) be made available by the Commission 

24 to the public at no cost and in an electronic, 

25 searchable format.’’. 


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1 SEC. 3. IMPLEMENTING GUIDANCE AND RULES. 

2 (a) FORMS AND GUIDANCE.—Not later than 180 

3 days after the date of enactment of this Act, the Securities 

4 and Exchange Commission shall issue such forms and 

5 guidance as are necessary to carry out this Act. 

6 (b) RULES.—The Securities and Exchange Commis7 sion may make a rule to carry out this Act. 

8 SEC. 4. ANTI–MONEY LAUNDERING OBLIGATIONS. 

9 (a) PURPOSE.—It is the purpose of this section to 

10 safeguard against the financing of terrorist organizations 

11 and money laundering. 

12 (b) IN GENERAL.—An investment company that re13 lies on paragraph (6) or (7) of section 6(a) of the Invest14 ment Company Act of 1940 (15 U.S.C. 80a–6(a) (6) and 

15 (7)), as amended by this Act, as the basis for an exemp16 tion under that Act shall establish an anti-money laun17 dering program and shall report suspicious transactions 

18 under subsections (g) and (h) of section 5318 of title 31, 

19 United States Code. 

20 (c) RULEMAKING.— 

21 (1) IN GENERAL.—The Secretary of the Treas22 ury, in consultation with the Chairman of the Secu23 rities and Exchange Commission and the Chairman 

24 of the Commodity Futures Trading Commission, 

25 shall, by rule, establish the policies, procedures, and 

26 controls necessary to carry out subsection (b). 


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1 (2) CONTENTS.—The rule required by para2 graph (1)— 

3 (A) shall require that each investment 

4 company that receives an exemption under 

5 paragraph (6) or (7) of section 6(a) of the In6 vestment Company Act of 1940 (15 U.S.C. 

7 80a–6(a) (6) and (7)), as amended by this Act, 

8 shall— 

9 (i) use risk–based due diligence poli10 cies, procedures, and controls that are rea11 sonably designed to ascertain the indentity 

12 of and evaluate any foreign person (includ13 ing, where appropriate, the nominal and 

14 beneficial owner or beneficiary of a foreign 

15 corporation, partnership, trust, or other 

16 foreign entity) that supplies or plans to 

17 supply funds to be invested with the advice 

18 or assistance of such investment company; 

19 and 

20 (ii) be subject to section 5318(k)(2) of 

21 title 31, United States Code; and 

22 (B) may incorporate elements of the pro23 posed rule for unregistered investment compa24 nies published in the Federal Register on SepVerDate Nov 24 2008 04:12 Jan 30, 2009 Jkt 079200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S344.IS S344

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1 tember 26, 2002 (67 Fed. Reg. 60617) (relat2 ing to anti–money laundering programs). 

3 (3) PUBLICATION DATE.—The Secretary of the 

4 Treasury, shall— 

5 (A) propose the rule required by this sub6 section not later than 90 days after the date of 

7 enactment of this Act; and 

8 (B) issue the rule required by this sub9 section in final form not later than 180 days 

10 after the date of enactment of this Act. 

11 (d) EFFECTIVE DATE.—Subsection (b) shall take ef12 fect 1 year after the date of enactment of this Act, wheth13 er or not a final rule is issued under subsection (c), and 

14 the failure to issue such rule shall in no way affect the 

15 enforceability of this section. 

16 SEC. 5. TECHNICAL CORRECTIONS. 

17 (a) SECURITIES ACT OF 1933.—Section 3(a) of the 

18 Securities Act of 1933 (15 U.S.C. 77c(a)) is amended— 

19 (1) in paragraph (2)— 

20 (A) by striking ‘‘section 3(c)(3)’’ and in21 serting ‘‘section 3(c)(2)’’; and 

22 (B) by striking ‘‘section 3(c)(14)’’ and in23 serting ‘‘section 3(c)(12)’’; 


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1 (2) in paragraph (4), by striking ‘‘section 

2 3(c)(10)(B)’’ and inserting ‘‘section 3(c)(8)(B)’’; 

3 and 

4 (3) in paragraph (13), by striking ‘‘section 

5 (3)(c)(14)’’ and inserting ‘‘section 3(c)(12)’’. 

6 (b) SECURITIES EXCHANGE ACT OF 1934.—The Se7 curities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 

8 is amended— 

9 (1) in section 3(a) (15 U.S.C. 78c(a))— 

10 (A) in paragraph (12)(A)— 

11 (i) in clause (iii), by striking ‘‘section 

12 3(c)(3)’’ and inserting ‘‘section 3(c)(2)’’; 

13 (ii) in clause (v), by striking ‘‘section 

14 3(c)(10)(B)’’ and inserting ‘‘section 

15 3(c)(8)(B)’’; and 

16 (iii) in clause (vi), by striking ‘‘section 

17 3(c)(14)’’ and inserting ‘‘section 3(c)(12)’’; 

18 (B) in paragraph (12)(C), by striking ‘‘sec19 tion 3(c)(14)’’ and inserting ‘‘section 3(c)(12)’’; 

20 and 

21 (C) in paragraph (54)(A)— 

22 (i) in clause (ii), by striking ‘‘exclu23 sion from the definition of investment com24 pany pursuant to section 3(c)(7)’’ and inVerDate Nov 24 2008 04:12 Jan 30, 2009 Jkt 079200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S344.IS S344

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1 serting ‘‘exemption under section 6(a)(7)’’; 

2 and 

3 (ii) in clause (vii), by striking ‘‘section 

4 3(c)(2)’’ and inserting ‘‘section 3(c)(1)’’; 

5 (2) in section 3(g) (15 U.S.C. 78c(g)) by strik6 ing ‘‘section 3(c)(14)’’ each place that term appears 

7 and inserting ‘‘section 3(c)(12)’’; and 

8 (3) in section 12(g)(2) (15 U.S.C. 78l(g)(2))— 

9 (A) in subparagraph (D), by striking ‘‘sec10 tion 3(c)(10)(B)’’ and inserting ‘‘section 

11 3(c)(8)(B)’’; and 

12 (B) in subparagraph (H), by striking ‘‘sec13 tion 3(c)(14)’’ and inserting ‘‘section 3(c)(12)’’. 

14 (c) INVESTMENT COMPANY ACT OF 1940.—The In15 vestment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) 

16 is amended— 

17 (1) in section 2(a)(51) (15 U.S.C. 80a– 

18 2(a)(51))— 

19 (A) in subparagraph (A)(i), by striking 

20 ‘‘excepted under section 3(c)(7)’’ and inserting 

21 ‘‘exempt under section 6(a)(7)’’; and 

22 (B) in subparagraph (C)— 

23 (i) by striking ‘‘that, but for the ex24 ceptions provided for in paragraph (1) or 

25 (7) of section 3(c), would be an investment 


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1 company (hereafter in this paragraph re2 ferred to as an ‘excepted investment com3 pany’)’’ and inserting ‘‘that is exempt 

4 under paragraph (6) or (7) of section 6(a) 

5 (hereafter in this paragraph referred to as 

6 an ‘exempt investment company’)’’; 

7 (ii) by striking ‘‘section 3(c)(1)(A)’’ 

8 and inserting ‘‘section 6(a)(6)(B)(i)’’; and 

9 (iii) by striking ‘‘excepted’’ each place 

10 that term appears and inserting ‘‘any ex11 empt’’; 

12 (2) in section 6 (15 U.S.C. 80a–6)— 

13 (A) in subsection (a)— 

14 (i) in paragraph (2), by striking ‘‘sec15 tion 3(c)(1)’’ and inserting ‘‘section 

16 6(a)(6)’’; and 

17 (ii) in paragraph (5)(A)(iv), by strik18 ing ‘‘that would be an investment company 

19 except for the exclusions from the defini20 tion of the term ‘investment company’ 

21 under paragraph (1) or (7) of section 3(c)’’ 

22 and inserting ‘‘that is exempt under para23 graph (6) or (7) of section 6(a)’’; and 

24 (B) in subsection (f), by striking ‘‘excluded 

25 from the definition of an investment company 


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1 by section 3(c)(1)’’ and inserting ‘‘exempt 

2 under section 6(a)(6)’’; 

3 (3) in section 7(e) (15 U.S.C. 80a–7(e)), by 

4 striking ‘‘section 3(c)(10)(B)’’ and inserting ‘‘section 

5 3(c)(8)(B)’’; and 

6 (4) in section 30 (15 U.S.C. 80a–29) in each of 

7 subsections (i) and (j), by striking ‘‘section 

8 3(c)(14)’’ each place that term appears and insert9 ing ‘‘section 3(c)(12)’’. 

10 (d) INVESTMENT ADVISERS ACT OF 1940.—The In11 vestment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.) 

12 is amended— 

13 (1) in section 203(b) (15 U.S.C. 80b–3(b))— 

14 (A) in paragraph (4) by striking ‘‘section 

15 3(c)(10)’’ each place that term appears and in16 serting ‘‘section 3(c)(8)’’; and 

17 (B) in paragraph (5), by striking ‘‘section 

18 3(c)(14)’’ and inserting ‘‘section 3(c)(12)’’; and 

19 (2) in section 205(b) (15 U.S.C. 80b–5(b))— 

20 (A) in paragraph (2)(B), by striking ‘‘sec21 tion 3(c)(11)’’ and inserting ‘‘section 3(c)(9)’’; 

22 and 

23 (B) in paragraph (4), by striking ‘‘ex24 cepted from the definition of an investment 


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1 company under section 3(c)(7)’’ and inserting 

2 ‘‘exempt under section 6(a)(7)’’. 

3 (e) INTERNAL REVENUE CODE OF 1986.—Section 

4 851(a)(2) of the Internal Revenue Code of 1986 (relating 

5 to the definition of regulated investment company) is 

6 amended by striking ‘‘section 3(c)(3)’’ and inserting ‘‘sec7 tion 3(c)(2)’’. 

Æ 


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