As part of a broader effort by the US Securities & Exchange Commission (SEC) to increase transparency around hedge fund investing and reduce risk in the financial system, the spotlight has fallen on the activities of funds engaging in litigation financing investments. In a proposal last week, the SEC would require hedge funds and private investment advisors to confidentially disclose their litigation funding activities and spending.
Analysis by Bloomberg Law highlights that there has been a lack of transparency around the extent of hedge fund involvement in the litigation funding industry, even for regulators. However, the new rules would ensure that funds would have to report what portion of their capital was dedicated to litigation financing efforts. This reporting would not be made public.
Bloomberg reports that there will certainly be pushback from both hedge funds and Republican officials, who have long fought against any national disclosure regulation. However, this may not deter the SEC, as Scott Masciana, partner at Holland & Knight, points out that as the industry continues to grow, it will become increasingly difficult to escape further oversight from regulators.