MFA, NAPFM, AIMA, AIC, LSTA, and NVCA requested the SEC withdraw the Predictive Data Analytics (PDA), Outsourcing, and Cybersecurity proposals given the Fifth Circuit’s decision to vacate the Private Fund Adviser (PFA) rule. The PFA decision found that neither section 211(h) nor section 206(4) of the Investment Advisers Act grants the SEC the rulemaking authority over private fund advisers and their investors.
The letter uses the court’s PFA ruling to explain how the SEC exceeded its authority in promulgating the three rules:
- Section 211(h) does not give the SEC the authority to force private funds to comply with the PDA, Outsourcing, or Cybersecurity proposals. The court held that section 211(h) only applies to “retail customers.”
- Section 206(4) does not give the SEC the authority to promulgate the Outsourcing or Cybersecurity proposals for private funds. The court held that the SEC cannot adopt rules under the guise of preventing fraud “that affect [the] internal governance structure of private funds.” Both the Outsourcing and Cybersecurity proposals affect the internal governance structure of private funds, and the SEC cannot articulate how the proposals prevent fraud, invalidating the SEC’s use of 206(4) authority.
