Mr Cox wants tougher advertising rules for high risk funds

Securities and Exchange Commission (SEC) chairman Christopher Cox made the call during testimony to the Senate.

It comes just weeks after a federal court overturned new SEC rules to oversee the high-risk industry.

Concerns have been voiced about the lack of transparency as well as the huge growth experienced by hedge funds.

Under the SEC's original proposals, set out in 2004, hedge funds would have to register with the agency - a move that would automatically force them to open their books to the watchdog.

Mr Cox told the Senate Banking Committee that he had not ruled out appealing against the June court ruling.

Risk worries

He added that without regulation "the potential for retail investors to be harmed by hedge fund risk" was a serious concern.

"The growth in hedge fund fraud that we have seen accompany the growth in hedge funds implicates the very basic responsibility of the SEC to protect investors from fraud, unfair dealing and market manipulation," he added.

Hedge funds, which traditionally catered to the very wealthy sector of society, are becoming increasingly popular among ordinary investors.

But Mr Cox told Senators: "These are not investments for Mom and Pop."

He called for limits on people or couples investing in hedge funds to be tightened.

Currently, investors must have assets worth $1m (�543,000), but Mr Cox wants this to rise to $1.5m.

The SEC chief also called for tougher rules on marketing materials.

Fraud

The number of fraud actions launched by the SEC against hedge funds has increased from four cases in 2001 to more than 60.

Under the charges, the SEC claims a total of $1bn has been defrauded from investors.

In recent years, the high risk investment vehicles are believed to have doubled their total assets, which are now though to be worth more than $1 trillion.

Mr Cox's demands for regulation may face an uphill struggle as Federal Bank chief Ben Bernanke has said he believes free market discipline, rather than constricting rules, are the best way to regulate hedge funds.