WASHINGTON Prominent Republican Senator Richard Shelby accused billionaire investor George Soros of hypocrisy on Wednesday for evading new hedge fund regulations he once publicly backed.
Soros recently said he would return money to outsider investors and only manage his own family's funds to escape the Securities and Exchange Commission's new hedge fund adviser registration rules.
"It appears that Mr. Soros talked up financial reform only to sell it short," Shelby told Reuters in a statement. "Don't be surprised to see his fellow Wall Street financiers follow suit. They'll use their political clout and legal muscle to sidestep Dodd-Frank, while their smaller competitors and businesses take the hit."
By giving back investors' money -- which is a small slice of the roughly $25 billion Soros oversees -- Soros is taking advantage of an exemption in a recently approved SEC rule required by the Dodd-Frank Act.
The exemption allows family offices not only to avoid the registration requirements, but also to dodge a greater disclosure burden that requires big fund managers to turn over confidential data to help the SEC police systemic risk.
A spokesman for Soros Fund Management declined to comment.
Soros has been a staunch Democratic Party supporter who was among the earliest big-name supporters of President Barack Obama's presidential bid.
Shelby's statement on Wednesday referred specifically to testimony Soros provided to Congress in November 2008 in which he said: "The entire regulatory framework needs to be reconsidered, and hedge funds need to be regulated within that framework."
When pressed for details by lawmakers, Soros said he believed some hedge funds pose systemic risk and should be required to report additional information to regulators.
NOT SO FAST
Soros joins a growing list of fund managers who have recently revamped their businesses in the face of fresh regulation. Stanley Druckenmiller, Soros' long-time deputy who helped engineer the firm's winning bet against the British pound in 1992, returned money as did Chris Shumway, who was mentored by another industry great, Julian Robertson. Earlier this year, Carl Icahn did the same.
The exemption was included in Dodd-Frank largely based on the philosophy that family offices do not pose risks to other investors and that the SEC should not be involved in policing financial disputes among family members or regulating people managing their own money. Prior to its inclusion in Dodd-Frank, family offices relied on other legal exemptions to avoid adviser registration.
Soros Fund Management could still be swept into systemic risk reporting requirements similar to those proposed by the SEC because it is currently registered as a commodity pool operator with the Commodity Futures Trading Commission.
Dodd-Frank requires the CFTC to also adopt reporting requirements for the large commodity funds it oversees.
It is unclear whether many other hedge fund advisers will also take advantage of the family office exemption. To do so, those advisers would need to be wealthy enough to not have to rely on funds from clients.
Still, a survey released recently by Infovest21 found that about 56 percent of managers expect others will also decide to return client money and convert into family offices.
(Reporting by Sarah N. Lynch; editing by Andre Grenon)