Recent SEC Developments Wilkie Farr & Gallagher LLP -Washington, DC

On Dec 27, 2006, the Securities and Exchange Commission (SEC) proposed a new rule under Section 206(4) of the Investment Advisers Act of 1940 (Advisers Act) to specifically prohibit fraud by investment advisers, both registered and unregistered, on investors in pooled investment vehicles. The SEC further noted that Rule 206(4)-8, unlike Rule 10b-5 under the Securities Exchange Act of 1934, would expansively prohibit any fraudulent action toward investors and not exclusively in connection with the purchase or sale of securities. One impact on advisers to registered investment companies may be to change the traditional standard of care which the board of a registered investment company and adviser have negotiated, consistent with the requirements of the 1940 Act, because Rule 206(4)-8 creates liability for mere negligence instead of gross negligence. The SEC sought comments on all aspects of the proposed rule. The comment period ended Mar 9, 2007 and provided the first reaction to the possible impact of the new anti-fraud rule.