Court by tingeyinjurylawfirm is licensed under Unsplash

Today, the U.S. Court of Appeals for the Fifth Circuit vacated a final rule issued by the Securities and Exchange Commission (SEC), which would have unlawfully regulated private funds like public funds (e.g., mutual funds). The court found the final rule to go beyond the SEC’s statutory remit. The rule was another example of the executive branch circumventing elected officials in Congress to pursue a big-government political agenda. 

Private funds are fundamentally different from public funds. Private funds solicit investment from institutional investors, such as pension funds and endowment funds. These investors are considered “accredited” by the SEC and thus do not need the same regulatory protection as retail/individual investors who invest in mutual funds. 

Americans for Tax Reform organized a coalition comment letter opposing the rule prior to its finalization. If the rule had taken effect, it would have significantly hampered investment in small businesses. According to an EY report, in 2022, small businesses made up about 85% of all private equity-backed businesses.

For additional background on the arguments made in the case, click here

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