Will Dems help the SEC rein in hedge funds?

This year, the SEC was defeated in its attempt to regulate the hedge fund industry. In fact, the federal agency's proposals were fairly innocuous. But the hedge funds have the resources to hire the best attorneys, who were able to fight off even this feeble effort.

But with the Democrats sweeping Congress, there may now be change. One of the ideas: increase the minimum financial requirements for investors to participate in hedge funds. (Keep in mind that these have not been changed since the early 1980s.)

In the meantime, the SEC is beginning to use its powers to crack down on wrong-doing in the hedge fund sector. Today, the SEC filed charges against Edward S. Ehee, who manages Viper Capital (hey, with a name like that, shouldn't investors be a little concerned?). The allegation is that he took about $5 million from 18 investors. The investors were not institutions, but individuals. In fact, one person invested her life savings in the fund.

True, even with regulation, such scams will continue. But that's also the case with other investments that are regulated.

Of course, regulation may take some time. So if you are approached to invest in a hedge fund, make sure you do your own due diligence.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Financial Statemet. He also has a blog at www.taulli.com.