Earlier today, 5 June 2024, the US Fifth Circuit Court fully vacated the Private Fund Adviser Rules (PFAR) in a unanimous and highly anticipated decision curbing the Securities and Exchange Commission's authority to regulate private funds. Absent a successful appeal of the decision, the PFAR will not come into effect.
In its opinion, the Fifth Circuit held that, in adopting the PFAR, the SEC exceeded its regulatory authority set forth in Sections 206(4) and 211(h) of the Advisers Act. In particular, the Fifth Circuit noted, among other things, that the rulemaking authority under Section 206 requires the SEC to "define" fraudulent in connection with rulemakings under that authority, and that a "failure to disclose 'cannot be deceptive' without a 'duty to disclose,'" and further that the PFAR did not "fit within the statutory design." The Fifth Circuit's opinion, particularly with respect to the general antifraud provisions of Section 206(4) the Advisers Act, could give rise to challenges to other SEC rules that rely on similar authority and may have implications for future rulemaking adopted under Section 206.
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