The U.S. Securities and Exchange Commission (SEC) has issued emergency guidance on hedge funds after announcing that it would not appeal a court decision striking down its registration order.

The SEC’s guidance, issued Thursday, said that the more than 2,500 hedge fund advisers who had already registered will not be penalized for following the invalidated rule, which called for performance data only since February 2005, Reuters reported. Funds that are not registered have to show much longer data histories.

Also, the rule said funds-of-funds, or a fund that invests in hedge funds, had a more-generous 180 days to send audited financial statements to investors. According to the guidance, advisers who remain registered will still have about half a year to deliver those documents.

"This is a very helpful letter because it restores protective provisions of the rule," said Elizabeth Fries, a partner at the Boston law firm Goodwin Procter.

The guidance comes in light of an announcement last week that the SEC would not appeal a June ruling of the U.S. Court of Appeals in Washington that blocked enforcement of a rule that hedge-fund managers register with the SEC and submit to audits. Attorneys for hedge fund advisers had argued that the SEC relied on an arbitrary definition of a client to tighten rules on hedge funds.

“Since the appellate court's decision was based on multiple grounds and was unanimous, further appeal would be futile and would simply delay and distract from our goal of advancing investor protection," SEC Chairman Christopher Cox said in an Aug. 7 statement.

Hedge funds are investment partnerships, using uncommon investment strategies, which are not heavily regulated. According to Bloomberg, hedge fund managers hold tremendous influence over financial markets, accounting for roughly 30 percent of U.S. equity trading volume, even though they hold just 5 percent of all U.S. assets under management.

Last week, a Seattle hedge fund for the third time became the focus of a Senate subcommittee for its work with allegedly abusive tax shelters. The subcommittee said the Quellos Group helped six rich clients hide $2 billion in taxes through its fund-of-funds business.

The Internal Revenue Service is auditing the firm as a tax shelter promoter, which could lead to civil penalties or a Justice Department investigation, the New York Times reported.