Problems with SEC regulating hedge funds?

In August I blogged about hedge funds, the risky investment vehicles for rich people which have received a lot of scrutiny following the collapse of the Bayou Group after alleged massive fraud.

Hedge funds weren't strictly regulated before, but that may be about to change: A few weeks ago the new SEC chief, Christopher Cox, told the Wall Street Journal he intends to implement rules that would give more government oversight over hedge funds. One of the main points of the new rules would be to have hedge fund managers register with the SEC as investment advisers by Feb. 1.

However, there is some controversy about the rules. Significantly, it's not certain they'll prevent Bayou-type frauds. Additionally, and senior executives within the SEC are apparently opposed to the rules, owing to budgetary and staffing issues within the SEC, and a view that the rules may be difficult to apply to the complex and unique trading schemes hedge funds employ.