AIC Joins Lawsuit Against SEC for Unlawful Private Fund Advisers Rule that Harms Small Businesses, Investors, and the Economy

Maloney: “The SEC has exceeded its own authority, defied Congressional design for private funds and advisers to those funds, and imposed significant new and unneeded burdens on private capital that fuels thousands of small businesses.” 

WASHINGTON, D.C. — Today, Drew Maloney, President and CEO of the American Investment Council (AIC) announced that the AIC is joining a lawsuit, along with NAPFM, NVCA, MFA, AIMA, and LSTA against the Securities and Exchange Commission (SEC) regarding the agency’s Private Fund Advisers final rulemaking.  The Commission’s attempt to restructure the business arrangements of private funds is unlawful, unwarranted, and ultimately harmful to investors.  

“After careful consideration, we have decided to pursue litigation against the SEC for its unlawful Private Fund Advisers Rule. The SEC has exceeded its own authority, defied Congressional design for private funds and advisers to those funds, and imposed significant new and unneeded burdens on private capital that fuels thousands of small businesses.  If the Rule takes effect, it will discourage competition, harm investors, reduce returns, stifle innovation, and impose costly burdens on funds of all sizes,” said Drew Maloney.  

On April 25, 2022, the AIC originally submitted a comment letter to the SEC that noted:

“The cumulative effect of these unnecessary changes will be to stifle a particularly vibrant sector of the financial services industry – saddling it with unjustified burdens and constraints. Entrepreneurialism will be curbed, together with the contributions that private-equity-backed companies make to the U.S. economy. The blow will fall particularly hard on new market entrants and small fund sponsors, which are more likely to be women- or minority-owned than larger private equity firms but often lack the resources to implement these requirements. Efficiency, competition, and capital formation will all be impaired.”


Private fund investors are among the largest and most sophisticated in the world, and Congress has long recognized that they do not require the type of exhaustive regulatory requirements the Commission is now imposing.  For good reason:  The Commission’s new Rule would curb the entrepreneurialism, flexibility, and investment returns that make private funds an increasingly attractive option for the world’s most sophisticated investors.  In imposing these new requirements, the SEC has exceeded its statutory authority and violated the requirements for agency rulemaking in multiple ways.  The Commission does not have the authority to step in and “federalize” private contracts between sophisticated individuals, and subject private funds to the exact type of prescriptive regulation from which Congress exempted them. 

Accordingly, a broad and unprecedented coalition of business groups in the private funds space has filed suit in the U.S. Court of Appeals for the Fifth Circuit, asking the Court to set aside the Rule as exceeding the agency’s statutory authority and as arbitrary, capricious, and otherwise unlawful.

The National Association of Private Fund Managers, National Venture Capital Association, Managed Funds Association, Alternative Investment Management Association, and the Loan Syndications and Trading Association are also joining the lawsuit. The coalition will be represented by Gene Scalia and Helgi Walker of Gibson Dunn. Please click here for a press kit from Gibson Dunn with more information.

Please click here for a What They Are Saying document with quotes about how the Private Fund Advisers Rule “is Unjustified, Unlawful, Harmful to Investors & the Economy,” including:

The rulemaking is ahistorical, unjustified, unlawful, impractical, confusing, and harmful. Accordingly, I cannot support it. . . The rule will impede the ability of the marketplace to serve unique needs. An investor trying to negotiate particular terms, or a company seeking funding from a specialized venture capital fund will find it more difficult in the new regime.” – SEC Commissioner Hester Peirce

The Commission relies on questionable statutory authority, fails to consider the aggregate impact of the multitude of rules promulgated since 2022 affecting investment advisers, and dismisses warnings that it will have a disparate impact on smaller advisers, including those that are minority- and women-owned.” – SEC Commissioner Mark Uyeda

“Over the years we have seen a decline in public companies that everyday Americans can invest in. SEC Chair Gensler should be improving our public markets to help families save and build wealth rather than repeatedly overreaching and harming private markets and economic growth.” – Rep. Steve Scalise (R-LA)

“Once again, Chair Gensler’s SEC is exceeding its statutory authority to impose onerous and costly mandates—this time on private funds. By applying a framework designed for retail funds used by everyday investors to private funds, this rule fails to acknowledge the differences between these markets. Instead of pursuing this one-size-fits-all approach, the SEC should be working to strengthen our public markets and create new opportunities for all investors to save and build wealth through our private markets—just like Republicans have done with our capital formation agenda. I urge the SEC to rescind this ill-advised rule, which is a thinly veiled attempt to dictate private fund management.” – Rep. Patrick McHenry (R-NC)

“I remain concerned about the adverse impact these rules will have on diverse-owned and emerging funds across the country. The new rules have far-reaching implications and if they move forward, they will threaten access to capital, discourage competition, and undermine diversity in the private funds industry.” – NAIC President Bob Greene