SEC Embarrassed and Shamed Again

"The petition for review is granted, and the Hedge Fund Rule is vacated and remanded."

Thus is the the arrogant, illogical, and over-reaching Securities and Exchange Commission of the William Donaldson era smacked down yet again for arbitrariness. Here is the WSJ's take. Here and here are the original posts from deep within the "Now Batting for Pedro Borbon..." archives. Here is the actual opinion.

Bottom line: the SEC pulled some major shenanigans, namely changing the meaning of what constituted "a client" from its well-understood, long-standing definition to another meaning that allowed it to proceed to regulate hedge funds. The court signals its view early in the opinion, "[i]f Congress employs a term susceptible of several meanings, as many terms are, it scarcely follows that Congress has authorized an agency to choose any one of those meanings." The court further notes, in a footnote on page 10, the inconsistency of the SEC that maintains a different view of the meaning of "client" for a different purpose. You have to read the whole opinion to get a sense of just how nutty the SEC's reasoning was, and thus how arrogant they were to pursue the regulatory regime.

Thank you Phil Goldstein, citizen hero saving us from arbitrary governmental regulation, and let's hope that current Chairman Chris Cox takes the lesson and walks away from this regulatory gambit.