Author Archives: Jordan

About Jordan

Jordan is a Partner and Vice President at HedgeOp Compliance, LLC. He is in charge of the development, growth and marketing of HedgeOp's ComplianceTrak software. Prior to joining HedgeOp in March of 2003, Jordan worked at Euromoney Institutional Investor, Plc., as a Client Services Executive. While there, he worked with senior level executives in the New York and Canadian banking communities to plan and coordinate financial and legal training seminars. Jordan graduated with a B.S. in Applied Economics Management from Cornell University.

Regulators Change Model Privacy Form

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Eight federal regulators (including the SEC and CFTC) recently released a final version of a model privacy notice that will make it easier for consumers (i.e. investors/advisory clients) to understand how financial institutions collect and use personal information.

As way of background, the Gramm-Leach-Bliley Act contains a series of requirements governing the disclosure and use of non-public personal information by financial institutions.   The GLB Act requires the SEC (among others) to carry out the purposes of the provisions and establish standards for their application.  The SEC’s Reg S-P covers investment companies, broker/ dealers and registered investment advisers.  In 2006, the Financial Services Regulatory Relief Act of 2006 amended the GLB Act to require the applicable agencies to provide a succinct model form that allows consumers to easily compare the privacy practices of different financial institutions.

The initial proposed form was released in 2007 and after a comment and research period, a new model form has now been released. This new model form (there’s actually two versions–one with opt-out and one with no opt-out), which can be found here, provides a safe harbor for complying with the privacy rules.

Willkie Farr & Gallagher has a very nice summary of some of the other features and drawbacks of the new model privacy form.

Chris Dodd’s Senate Hedge Fund Bill

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Earlier this week, Senator Chris Dodd, Chairman of the Senate Banking Committee released the details of his sweeping regulatory reform bill.  Included in that bill was a provision for hedge fund registration.   This  follows the litany of proposed bills in both the House and Senate and the recent passing of a House bill by the Financial Services Committee.

The highlights of Senator Dodd’s bill is that it puts the threshold at $100 million AUM for mandatory registration (unlike the House bill which was $150M) and it exempts private equity and venture capital firms from registration although the ultimate decision of who will be exempted from registration will fall to the SEC.   The bill also imposes new record-keeping and disclosure requirements for firms that manage private funds.

With the House preparing to take up debate about their regulatory overhaul bill, and this bill marking the starting point in the Senate, we will hopefully have a better idea of exactly where the final bill will end up very soon.

Connecticut Hedge Fund Lunch Event

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If you find yourself in or around the Greenwich, CT area next week, Bowne & Co. along with HedgeOp Compliance and Hedge Connection are sponsoring a free hedge fund compliance lunch seminar: “Pending Regulations for Hedge Funds, With a Special Focus on Managing Your Compliance Program.”

The keynote speaker will be Arthur Laby, Associate Professor, Rutgers University School of Law – Camden and former SEC Assistant General Counsel.

You can find more information and register online, here.

Insider Trading – The Basics

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With all the recent attention on insider trading, I thought it would be useful to take a quick look at some of the basic concepts involved.

The term “insider trading” itself is not defined in the federal securities laws, but generally is used to refer to the use of material non-public information to trade in securities (whether or not one is an “insider”), or the communication of material non-public information to others.  Section 204A of the Investment Advisers Act requires that all investment managers adopt formal policies which forbid any member, officer, director or employee from “insider trading.”

Although not specifically defined, it is generally understood that the law prohibits:

  • trading by an insider, while in possession of material non-public information;
  • trading by a non-insider while in possession of material non-public information, where the information either was disclosed to the non-insider in violation of an insider’s duty to keep it confidential or was misappropriated; or
  • communicating material non-public information to others in breach of a fiduciary duty.

Next we’ll examine a few steps that advisers can take in order to minimize the risks of insider trading. Continue reading →

Details of H.R. 3818

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The House Committee on Financial Services released details of yesterday’s vote on H.R. 3818 (the “Kanjorski private adviser registration bill) on their website.  It looks like an amendment was originally proposed, but later withdrawn, to have the registration threshold at $500M.

As the bill makes its way through the rest of the House and then Senate, it will be interesting to watch how the details related to: AUM threshhold, inclusion of offshore and venture funds, etc change.

If you need a refresher about the steps for a bill to become a law, take a look at this classic video.

Form ADV – The Basics

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All registered investment advisers must file a Form ADV with the SEC and update it as necessary.   In this brief educational post, we discuss some of the basics about the Form ADV and the important compliance issues that all registered managers should know about.

The Form ADV has two parts:

  • Part 1 - This online form discloses general information about the Manager and its key personnel (e.g., disciplinary history, number of clients, assets under management, custody issues, identity of Chief Compliance Officer, etc.).  Form ADV Part 1 is filed electronically via the IARD system, is publicly available and must be updated on an annual basis.
  • Part II – This part discloses the Manager’s services, fees, privacy policies, proxy voting procedures, brokerage practices, conflicts, and investment strategies.  Part II serves as the brochure that MUST be provided to potential clients prior to entering into an advisory services agreement and it must also be offered to clients on an annual basis.  The Part II is not regularly submitted to the SEC and is not publicly available.  It should be noted however that the SEC has released a proposed rule that WOULD result in significant changes to ADV Part II.  If adopted, ADV Part II would become “ADV Part 2”, would be electronically filed via the IARD system, and would require a “plain English” format. Continue reading →

CFTC and SEC Try To Live In Harmony

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We’ve previously highlighted the joint meetings that the SEC and CFTC held earlier this fall to discuss a coordinated approach between the two regulators.    It seems like these meetings have born some fruit, as last week the two agencies jointly issued their report identifying the areas where their respective regulatory regimes differ and outlining actions to harmonize those differences.   You can read the full report and bask in the harmony here.

Hedge Fund Manager Charged with Insider Trading

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Last week’s big enforcement news was that Galleon Group founder, Raj Rajaratnam, was charged  with insider trading in the stocks of several companies, including Advanced Micro Devices, Clearwire and Akamai, earning millions of dollars in the process.

Federal prosecutors for the Southern District of New York accused Raj Rajaratnam with illegally obtaining and trading on information on these companies, which also included Polycom, Hilton Hotels, Google and People Support. He has been charged with four counts of conspiracy and eight counts of securities fraud. Others charged by prosecutors include Rajiv Goel, an executive Intel Capital, the venture capital arm of Intel, and Anil Kumar, an executive at McKinsey & Company.

You can view the full complaint here.

According to FINalternatives, this is just the tip of the Insider-Trading Iceberg:

Other hedge fund managers are among those expected to be charged, according to Bloomberg News, the result of a two-year-long investigation. Among those likely to be charged are individuals who came up during the surveillance of Rajaratnam, which included wiretaps. Authorities are also being helped by at least three former Rajaratnam colleagues, including California-based hedge fund managers Ali Far and Choo Beng Lee, according to The Wall Street Journal.

Implementing Money Movement Controls

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It is a smart business decision for all investment managers to formally require that all movements of money be authorized by the signature of two senior officers of the manager. This will not require that checks are signed by two individuals, but that the authorization to sign a check or commence a wire transfer will require a written authorization by two senior officers or executives. This requirement should be adopted as a control mechanism in a manager’s compliance manual. Continue reading →

SEC Releases Draft Strategic Plan

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The SEC recently released a draft of it’s Strategic Plan for 2010-2015.  The plan includes drafts of the SEC’s mission, vision, values, strategic goals, major initiatives, and performance metrics for fiscal years 2010 through 2015.  They are accepting comments to the plan and are asking that all comments be submitted no later than November 16, 2009.  You can download the draft Plan here and send all comments to: strategicplan@sec.gov.

After a very tough year for the SEC, the Plan is an interesting read and is a good follow up to OCIE Director John Walsh’s comments about some of the initiatives that SEC’s Office of Compliance Inspections and Examinations is taking.