In testifying, former SEC Commissioner Dan Gallagher, a Republican, said that even with lower legal private equity fund disclosures, the market would demand transparency by their operators.
“All investors in a given private fund are sophisticated enough and possess enough bargaining power to ensure adequate disclosure and other protections as a condition of their investment,” said Gallagher, currently president of Patomak Global Partners.
Barbara Roper, the director of investor protection at the Consumer Federation of America, balked at a provision that would prohibit the SEC from applying the regulator’s rules on misleading advertising to private funds.
“The bill directs the SEC not to do something we have asked them to do,” said Roper in an e-mail. “A general prohibition against fraud has never been sufficient to prevent misleading claims, particularly with regard to performance claims.”
Another skeptic is Jennifer Taub, a Vermont Law School professor who warned at the hearing that the bill would allow private equity funds to hide their tracks.
She claimed the word “private” in “private funds is misleading since one-quarter of private equity is held by public pension funds.