But in November, six industry groups — the National Association of Private Fund Managers, Alternative Investment Management Association, American Investment Council, Loan Syndications and Trading Association, Managed Funds Association, and National Venture Capital Association — filed a brief in the 5th U.S. Circuit Court of Appeals in New Orleans, arguing the rule unlawfully restricts the longstanding, widely used business arrangements of private funds and their investors. The groups claimed the rule exceeds the SEC's statutory authority; that the agency failed to provide the public a meaningful opportunity to comment on the final rule; that it did not perform an adequate cost-benefit analysis; and that the rule is arbitrary, capricious and otherwise unlawful.
In a response filed Dec. 15, the SEC said that the groups lack standing to bring the case in the 5th Circuit and even if the court disagrees with that assertion, the case still fails on its merits.
"Congress authorized the commission to adopt the rules," the SEC said in its brief, referencing the Dodd-Frank Wall Street Reform and Consumer Protection Act. "The public had a meaningful opportunity to engage with the rulemaking. And the commission reasonably explained its decision to adopt the rules, reasonably assessed the rules' likely economic effects, and provided reasonable interpretations of the federal fiduciary duty imposed by the Advisers Act."
The SEC also said that it moderated the proposed rule package based on comments it received from the public and reiterated their importance.
"Private-fund investments 'are often opaque, and advisers do not frequently or consistently provide investors with sufficiently detailed information' to allow 'even sophisticated investors' to 'understand the fees and expenses they are paying, the risks they are assuming, and the performance they are achieving in return,'" the SEC said in its brief, citing text from the final rule.
