2 April 2003

Basic Hypothetical

Suppose the Congress enacts the “Hedge Fund Risk Reduction Act of 2003” (“HFRRA” or “Hifra”)

The statute says, among other things:

Ҥ 1 This statute pre-empts or repeals any other federal or state law that purports to regulate Hedge Funds

“§ 2 Hedge Funds are those investment funds that have fewer than 100 investors and were not subject to the registration requirements of the Investment Company Act on 1 April 2003.”

“§ 3 Every Hedge Fund shall register with the Securities and Exchange Commission (“the Commission”), disclosing:

(a)   total assets under management

(b)  names and addresses of investors in the fund

(c)   investment strategies followed by the fund

(d)  the fund’s performance for the last eight quarters

“§ 4 The Commission may investigate compliance with § 3, and determine after an appropriate hearing any claims of violation.

“§ 5 When the Commission finds that a violation has occurred and that the violation was intentional, the United States Attorney for the district in which the Hedge Fund has its principal offices shall prosecute the officers of the Hedge Fund and those officers shall be imprisoned for 10-20 years.”