On July 13, 2009, the U.S. Court of Appeals for the Third Circuit affirmed a district court decision holding that Equity Financial Group – a “feeder fund” that invested in underlying funds that traded commodities, but that did not itself trade commodities – along with its president and sole shareholder and lawyer violated the Commodity Exchange Act (CEA) by failing to register as a commodity pool operator (CPO) and engaging in other fraudulent conduct.  The case, which appears to be one of first impression, confirms a view long held by the Commodity Futures Trading Commission (CFTC): that investors in commodity markets are exposed to the same risk whether they invest directly or indirectly, and thus direct and indirect investors are entitled to the same degree of regulatory protection.  See, e.g., “Michigan Couple Ordered to Pay More Than $3.1 Million for ‘Private Hedge Fund’ Fraud,” Hedge Fund Law Report, Vol. 1, No. 9 (Apr. 29, 2008).  For hedge fund managers, the decision’s impact may be mitigated by various exceptions from CPO registration that may be available to them; those exceptions are discussed more fully below.  However, hedge funds that are required to register and elect not to take advantage of an exception or are not eligible for an exception are well advised to review the obligations that registration as a CPO entails.  These obligations include, among others, disclosure, record keeping and operating requirements.  See “Should Hedge Funds Register as Commodity Pool Operators?,” Hedge Fund Law Report, Vol. 2, No. 26 (Jul. 2, 2009).  This article details the factual background and legal analysis in the Equity Financial Group case; discusses exclusions and exemptions from CPO registration that generally are available to hedge fund managers; addresses whether managed accounts are a viable means of structuring around the holding in the Equity Financial Group case; and highlights various consequences of CPO registration.