SEC’s Power to Regulate Hedge Funds Dealt Blow by Appeals Court

The Securities and Exchange Commission’s loss in court over new restrictions on hedge funds and private equity firms casts a cloud over its other plans on artificial intelligence and climate change.

The SEC based its authority for the private fund disclosure rules, vacated this week by the US Court of Appeals for the Fifth Circuit, on a section of the Dodd-Frank Act. Congress passed that legislation in the wake of the 2008 financial crisis to protect ordinary investors.

The appeals court, which has a reputation for being business-friendly, said the SEC can’t rely on that section to dictate sales practices ...