Subject: SEC Regulatory Initiatives Under the JOBS Act: Title I Reopening American Capital Markets to Emerging Growth Companies
From: Bernard S. Sharfman

April 25, 2012

Dear SEC Staff,

One indirect or unintentional benefit of the 500 shareholder rule was helping to keep a lid on how much hedge funds could raise in primary capital. Now that this limit is being raised to 2000, it would appear that many more hedge funds have the ability to grow very large in size, especially if they leverage their capital like Long-Term Capital Management (LTCM) did in structuring Long Term Capital Portfolio. If so, I believe the Congress and President Obama has just put into place the foundation for the creation of many more nodes of systemic risk. This statutory change is quite baffling given that we just went through a financial crisis where we all became very aware of how systemic risk generated by the financial sector can bring down our economy as well as the economies of other countries. I guess our federal government has forgotten how LTCM almost created a major financial crisis back in the late 1990s. Perhaps I am missing something, but it appears that Congress needs to revise the law so that the increase in shareholder limits does not apply to hedge funds unless other safeguards are put into place that limits an increase in potential systemic risk.

Best regards,

Bernard S. Sharfman