The

Securities and Exchange Commission

may have lost a battle last week, but not necessarily its war to regulate hedge funds. Now it has the support of some members of the Congress.

On Thursday, three congressmen introduced in the House a bill that would authorize the SEC to require the registration of hedge funds as investment advisers.

The act would amend the Investment Advisors Act of 1940. More importantly, it would re-establish the authority of the SEC to regulate hedge funds, a power the commission gave itself in a controversial rule enacted in 2004 but overturned last week by a federal court.

The bill was introduced by Rep. Barney Frank (D., Mass.); Rep. Michael Capuano (D., Mass.); and Rep. Paul Kanjorski (D., Pa.)

"We introduced the bill in reaction to the court decision," Capuano said in an interview with

TheStreet.com

. "The bill would enable the SEC to gather information about hedge funds and to do exactly what they were doing" before the court decision.

Capuano said that the bill may not necessarily pave the way for legislation on hedge funds, although it's a first step in that direction. Its main purpose would be to give lawmakers more information on a little-known industry.

"We don't know the true impact of hedge funds on the economy," he said. "And I hate making decisions so important without empirical data. We have to have information so we can make thoughtful decisions in the future."

With the SEC registration rule overturned by the court, the question remains: Will hedge funds remain largely unregulated as they are now? Or will Congress or the states step in? The bill is unlikely to be embraced by the hedge fund community. What is clear is that efforts to regulate hedge funds are far from dead, as

reported here.

Capuano says that some hedge fund managers who are worried about the increasing role played by the states may welcome the proposal. In his testimony on Wednesday before the Senate Judiciary Committee, Richard Blumenthal, the attorney general for the state of Connecticut with a reputation for toughness, said that state enforcement agencies should be given the power to ensure "aggressive investigation and enforcement" in regard to hedge funds.

"Some people in hedge funds would prefer federal oversight rather than state by state oversight," says Capuano. "I don't think that anybody who cares about the industry would argue that it's a good thing to have 50 states regulating hedge funds."

A repeat of the 1998 Long Term Capital Management crisis would be "much more negative today," than it was then, says the congressman. "Because today, hedge funds are getting much bigger players and are opening doors to smaller and less sophisticated investors." In 1998, the implosion of that hedge fund precipitated a global financial crisis.

Capuano concludes that the SEC oversight will help Congress decide whether to regulate or not. "I am not interested in regulating and protecting a few billionaires," he says. "If the empirical data comes back confirming some of my suspicions, some minimal degree of federal oversight will be necessary."

The timing of this bill also may help the SEC decide what to do next. The SEC has 90 days before it can appeal last week's court decision to the Supreme Court. "I applaud those congressmen for introducing this bill. It's very timely," says Darren Sherman, a former SEC official and now CEO of Regulatory Advisory Services, a New York-based management consulting firm focused on regulatory and compliance matters. "The SEC may not need to go to the Supreme Court now that they have the support of the Congress."

A spokesman at the SEC did not have an immediate comment. A spokeswoman at the Managed Funds Association, the hedge fund lobby group, did not return a call seeking comment.