WASHINGTON (AP) – The Securities and Exchange Commission staff plans to recommend the agency tighten oversight of hedge funds – traditionally investment outlets for the wealthy that recently havelured small investors – by requiring them to be registered.

A staff report to be made public next week urges registration of the high-risk, largely unregulated funds, a move that would open their books to SEC examiners, a government official said Thursday. The official spoke on condition of anonymity.

SEC Chairman William Donaldson expressed concern about the $600 billion hedge fund industry last spring as the agency reviewed how they are operated and managed. The SEC has been investigating the funds since then, after seeing an increase in fraud among the 5,700 or so funds in the United States.

The agency has brought several enforcement cases.

In the latest move, a federal judge on Thursday granted the SEC’s request for a temporary restraining order to halt sales by Arizona-based Millennium Capital Hedge Fund. The judge also ordered a freeze on brokerage account assets.

Earlier this month, New York Attorney General Eliot Spitzer charged that a hedge fund gained unfair trading privileges at several big-name mutual fund companies in an illegal arrangement that possibly cost investors billions of dollars.

Hedge fund Canary Capital Partners LLC and its managers agreed to pay $30 million in restitution for profits generated from unlawful trading and a $10 million penalty.

In exchange for big-money investments, Spitzer said, several mutual funds bent the rules applied to most investors and allowed Canary to make after-hours trades and short-term “in and out” deals. Canary arranged to make such trades with several leading mutual fund families, including Bank of America’s Nations Funds, Banc One, Janus and Strong, Spitzer said.

The SEC issued an “investor alert” in February advising prospective investors to check out the background of hedge fund managers as well as the fees charged by funds.

Like mutual funds, the speculative hedge funds pool money from investors and invest it in various ways in an effort to get the highest return. Unlike mutual funds, they mostly are not registered with the SEC and therefore subject to few controls.

Investors in hedge funds don’t receive the full protection – such as disclosure of fund information – afforded other investments under federal and state securities laws.

To attract smaller investors, funds of hedge funds – which invest in several hedge funds rather than individual securities – have sprung up recently and offered lower minimum entry requirements than traditional hedge funds, such as $25,000 compared with $1 million. Some funds of hedge funds have registered with the SEC and are thereby required to provide prospectuses to investors and file semi-annual reports with the federal agency.

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On the Net:

“Investor alert” on SEC Web site: http://www.sec.gov/answers/hedge.htm

WASHINGTON (AP) – The Securities and Exchange Commission staff plans to recommend the agency tighten oversight of hedge funds – traditionally investment outlets for the wealthy that recently havelured small investors – by requiring them to be registered.

A staff report to be made public next week urges registration of the high-risk, largely unregulated funds, a move that would open their books to SEC examiners, a government official said Thursday. The official spoke on condition of anonymity.

SEC Chairman William Donaldson expressed concern about the $600 billion hedge fund industry last spring as the agency reviewed how they are operated and managed. The SEC has been investigating the funds since then, after seeing an increase in fraud among the 5,700 or so funds in the United States.

The agency has brought several enforcement cases.

In the latest move, a federal judge on Thursday granted the SEC’s request for a temporary restraining order to halt sales by Arizona-based Millennium Capital Hedge Fund. The judge also ordered a freeze on brokerage account assets.

Earlier this month, New York Attorney General Eliot Spitzer charged that a hedge fund gained unfair trading privileges at several big-name mutual fund companies in an illegal arrangement that possibly cost investors billions of dollars.

Hedge fund Canary Capital Partners LLC and its managers agreed to pay $30 million in restitution for profits generated from unlawful trading and a $10 million penalty.

In exchange for big-money investments, Spitzer said, several mutual funds bent the rules applied to most investors and allowed Canary to make after-hours trades and short-term “in and out” deals. Canary arranged to make such trades with several leading mutual fund families, including Bank of America’s Nations Funds, Banc One, Janus and Strong, Spitzer said.

The SEC issued an “investor alert” in February advising prospective investors to check out the background of hedge fund managers as well as the fees charged by funds.

Like mutual funds, the speculative hedge funds pool money from investors and invest it in various ways in an effort to get the highest return. Unlike mutual funds, they mostly are not registered with the SEC and therefore subject to few controls.

Investors in hedge funds don’t receive the full protection – such as disclosure of fund information – afforded other investments under federal and state securities laws.

To attract smaller investors, funds of hedge funds – which invest in several hedge funds rather than individual securities – have sprung up recently and offered lower minimum entry requirements than traditional hedge funds, such as $25,000 compared with $1 million. Some funds of hedge funds have registered with the SEC and are thereby required to provide prospectuses to investors and file semi-annual reports with the federal agency.

–=

On the Net:

“Investor alert” on SEC Web site: http://www.sec.gov/answers/hedge.htm