“Securities and Exchange Commission Chairman William Donaldson plans a ‘long, hard look’ at hedge funds and could seek to impose new rules on the huge and lightly regulated industry,” writes Deborah Solomon in today’s Wall Street Journal.

“Mr. Donaldson said allegations of hedge funds wielding ‘undue influence’ in the market and concerns about smaller, unsophisticated investors buying into funds are ‘too important to leave unexamined.’ “

“‘ We need more information, more data, more discussion and more understanding of the techniques’ that hedge funds are using, Mr. Donaldson said Monday in a speech here to the National Association for Business Economics. Hedge funds are investment pools, mainly for the wealthy, that make big bets on global stocks, bonds and other markets, often using steep leverage and other techniques that mutual funds can’t.”

“As part of its effort, the SEC will hold public hearings on hedge funds in May. Mr. Donaldson said the agency plans to invite hedge-fund investors and managers to meet with the commission and discuss growing concerns about the industry.”

“Tackling the fund industry would be Mr. Donaldson’s first big move since taking the helm of the SEC more than two months ago.”

“The SEC began looking at the industry’s practices under former chairman Harvey Pitt, but the issue has gained steam in recent months because of some high-profile blowups of hedge funds. New York Attorney General Eliot Spitzer’s growing interest in policing the funds has also prompted the SEC to stay focused on the issue. While the SEC doesn’t regulate hedge funds, it can still go after individual funds and managers for fraud. Last year, the agency brought 12 civil cases against hedge-fund managers, up from five in 2001.”

“In comments after his speech, Mr. Donaldson said one of his main concerns is that ‘hedge-fund techniques in the marketplace may be acting to the detriment of public investors.’ One of those techniques is short-selling, which many hedge funds use to profit from a drop in a stock’s price by selling borrowed shares and buying them back at a cheaper price.”

“The staff plans to present its findings to Mr. Donaldson in the next week, according to people familiar with the matter, but isn’t likely to propose any recommendations or rules until after the May hearing.”