Nov. 10 (Bloomberg) -- The U.S. Securities and Exchange Commission will propose rules next month raising asset requirements for investing in hedge funds after Amaranth Advisors LLC lost $6.5 billion on bad natural gas trades.

The changes will be proposed to the SEC's five commissioners at a December meeting in Washington, Chairman Christopher Cox said in an interview today. He didn't specify how the agency might limit the pool of hedge-fund investors.

``We're going to make it very clear that hedge funds are risky investments that are not for mom and pop by fencing it off with higher standards to accrediting investors,'' Cox said in an interview today.

Hedge funds are open to individuals with at least $1 million in assets or at least $200,000 in income for the past two years, and also institutions like insurance companies, mutual funds and pension funds. Since the September collapse of Greenwich, Connecticut-based Amaranth, lawmakers have become increasingly concerned that a hedge fund meltdown could put pension fund investments at risk.

Cox said the SEC will also propose a new hedge-fund anti- fraud rule at the December meeting. Hedge funds are private pools of capital that allow managers to participate substantially in the gains of the money invested.

Pension-Fund Exposure

Senate Finance Committee Chairman Charles Grassley has asked Cox and Treasury Secretary Henry Paulson to figure out ways to boost transparency in the $1.3 trillion hedge-fund industry, which is largely unregulated. Grassley said in an Oct. 16 letter that ``hedge-fund investments could put the retirement security of American workers in jeopardy.''

A federal appeals court in June shot down rules requiring hedge funds to register with the SEC. The agency wanted funds to report their size, number of employees and types of clients, and submit to random inspections.

The SEC this week accused a California hedge fund manager of cheating 18 investors, including senior citizens, out of $5 million. The agency said Edward Ehee persuaded people to invest in funds that had ceased operating, using the money for mortgage and car payments.

Cox said in the wide-ranging interview that control of Congress by Democrats shouldn't impede efforts to revise the Sarbanes-Oxley corporate governance law. At a Dec. 13 public meeting, the SEC will propose new guidelines to help companies and auditors interpret the law in a way that saves time and money, he said.

``This is a hugely bipartisan issue,'' Cox said. ``The concerns that we've heard expressed on behalf of investors and small companies, and on behalf of the marketplace in general, have come roundly from Democrats and Republicans.''

Cox, a Republican, said the SEC may soon bring another enforcement case for stock-option backdating. Lawmakers have questioned whether the agency has enough resources to investigate a scandal that has touched more than 100 companies.

The SEC restricted hiring in 2006 because it had to close a $48.7 million budget gap triggered by cost overruns in building a new headquarters in Washington and improving leased sites in other cities. Cox said he expects the Democrats who now control Congress to be receptive to the agency's budget requests.

``I'm sure if budget conditions allow it we'll receive all the funding that we need,'' he said.

To contact the reporters on this story: Margaret Popper in New York at mpopper1@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: November 10, 2006 13:08 EST