Business

‘SHORT’ ATTACK MAY SPUR HEDGE FUNDS TO SUE

As the Securities and Exchange Commission continues its assault on short sellers, hedge funds are discussing legal action to challenge Chairman Chris Cox’s recent moves – just as funds in the UK are considering lawsuits against their government regulator.

Since Friday, Cox has enacted a hodgepodge of emergency rules in an effort to give struggling Wall Street firms time to recover from their recent battering, including a widespread ban on shorting of financial stocks, and requiring hedge funds to disclose what they short.

That has prompted debate in the hedge fund world about what, if anything, might be done to temper efforts they say hurts good players along with the bad. Talk of legal action is still in the discussion stage, and no lawsuit may emerge.

“There are just a lot of questions right now,” said an industry insider.

To be sure, some influential players are strongly opposed to the idea. A lawsuit, they say, would only further fuel animosity toward the secretive group – or worse, push Cox to take more dramatic measures, like seeking congressional authority over the industry.

Time is another deterrent. The SEC’s ban on shorting is slated to end on Oct. 2.But may be extended. The UK ban, by contrast, ends in January.

Industry trade groups that have been opposed to some of the SEC’s recent actions, such as the Coalition of Private Investment Companies and the Managed Funds Association, say they currently have no plans to sue the SEC.

Some people say action could come from Phil Goldstein of Bulldog Investors, a hedge fund manager who successfully challenged the SEC several years ago on plans to require the industry to register with it. Goldstein didn’t return requests for comment.

Late Sunday, Cox gave the stock exchanges the green light to add companies to the short list as they see fit, which has resulted in dozens more stocks being banned, including General Motors, General Electric and Legg Mason.

The SEC is also requiring an array of investors to describe their bets under oath as part of a hunt for manipulators.