New York (HedgeCo.Net) – Two senators are pushing for greater regulation of hedge funds, introducing legislation that would call on the U.S. government to oversee them.

Michigan Senator Carl Levin, a Democrat, and Iowa Senator Charles Grassley, a Republican, passed the legislation on Thursday, amidst a much broader attempt by President Barack Obama to vamp up the entire regulatory system.  It also comes at a time when the administration is still in talks over how to distribute the remaining $350 billion in the Troubled Asset Relief Program.

“We need to regulate firms that are big enough to destabilize our economy if they fail," said Levin.  "It’s time to subject financial heavyweights like hedge funds to federal regulation and oversight to protect our investors, markets and financial system."

The overhaul of the regulatory system is intended to restore faith in an economy that has been  shaken by fear.  In addition to tighter regulation of hedge funds, the broader plan will include greater oversight of mortgage lenders and credit rating agencies.

Regulation of hedge funds has long been a debate in the financial world.  While some push for greater transparency, hedge funds have taken the defensive, saying that they provide plenty of transparency to their clients, with performance reports and other data usually available via a secure website.  However, the collapse of many major hedge funds along with the handful of fraud cases has forced the government to try again.

The closest that hedge funds have come to regulation was when they were required to register as investment advisors with the U.S. Securities and Exchange Commission.  That requirement was overturned in 2006.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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Times Online – Hedge funds were accused by MPs yesterday of gambling against the taxpayer when they bet that the share prices of British banks would fall.

Appearing before the Treasury Select Committee, four leading hedge fund managers were told by John McFall, the committee’s chairman: “You’re snubbing the public; not only that, but you’re making shedloads of money.”

The hedge fund heavyweights — Paul Marshall, of Marshall Wace, Douglas Shaw, of BlackRock, Chris Hohn, of TCI, and Stephen Zimmerman, of NewSmith Capital Partners — came under particular attack over the practice of short-selling, only a day after it emerged that Paulson & Co, a renowned American hedge fund, had made an estimated £270 million in profits from betting against Royal Bank of Scotland (RBS) , which is majority-owned by the State.

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Tags: blackrock, british-banks, chris-hohn, douglas shaw, heavyweights, hedge-fund-managers, john mcfall, marshall wace, mdash, newsmith capital partners, paul marshall, rbs, royal-bank-of-scotland, share prices, stephen zimmerman, tci, treasury select committee