Compliance Avenue

Last month, the Department of Labor (DOL) adopted an amendment to Prohibited Transaction Exemption (PTE) 84-14.  The amendment introduces new conditions that QPAMs must meet in order to stay within the QPAM exemption when managing assets of a qualified plan that is sponsored by the QPAM or sponsored by an affiliate of the QPAM.  It is important to note that the new conditions will apply when the QPAM is directly managing the assets of the affiliated plan or when the QPAM is managing an investment fund in which the affiliate plan has invested.  Read the rest of this entry »

As reported by FINAlternatives, the New York Legislature managed—finally—to pass the last piece of the state’s very late budget without increasing taxes on hedge fund managers who work in the state but live elsewhere.

This is a follow up on our July 21 blog post reporting that the SEC announced approval for amendments to Form ADV Part II – now officially renamed “Part 2″), which  (among other things) will require advisers to make their brochures publicly available via electronic filing, and will change the format of the brochure from its current “check the box” approach to a more narrative, “plain English” approach.

On July 28, the SEC published the Adopting Release along with the revised Form ADV Part 2 .  More on the specific disclosure items contained within the new Part 2 will be discussed on upcoming blogs.

On July 14, the SEC voted unanimously to issue a concept release seeking public comment on the U.S. proxy system and asking whether rule revisions should be considered to promote greater efficiency and transparency.

The SEC’s concept release, as described in the Fact Sheet published with the SEC’s announcement, focuses on the accuracy and transparency of the voting process, the manner in which shareholders and corporations communicate, and the relationship between voting power and economic interest.

There will be a 90-day public comment period for the concept release after it is published in the Federal Register.

“The proxy is often the principal means for shareholders and public companies to communicate with one another, and for shareholders to weigh in on issues of importance to the corporation,” said SEC Chairman Mary L. Schapiro during the SEC’s Open Meeting on July 14.

“To result in effective governance, the transmission of this communication between investors and public companies must be timely, accurate, unbiased, and fair.”

Democrats just overcame their last major procedural hurdle to the Wall Street reform legislation becoming law. By a vote of 60-38, the Senate passed cloture and ended debate on the final version of the Dodd-Frank bill.

Moderate Republicans Olympia Snowe, Susan Collins, and Scott Brown voted with the Democrats. Liberal Democrat Russ Feingold voted with the Republicans, on the grounds that the bill won’t be effective. That clears the way for a final vote on passage — majority rules threshold — scheduled this afternoon shortly after 2:00 pm.

Technip to Pay $338 Million to Settle SEC and DOJ Charges; Brings Total Sanctions Against Joint Venture Partners to $917 Million

The Securities and Exchange Commission today announced a settlement with Technip for multiple violations of the Foreign Corrupt Practices Act (FCPA).  The SEC alleged that Technip, a global engineering, construction and services company based in Paris, France, was part of a four-company joint venture that bribed Nigerian government officials over a 10-year period in order to win construction contracts in Nigeria worth more than $6 billion. The SEC also charged that Technip engaged in books and records and internal controls violations related to the bribery.

For a copy of the complaint click here.

As reported by FINalterntives, hedge funds in Europe—and around the world—have won a reprieve from the European Union’s proposed alternative investment regulations after negotiations over them broke down.

Spain, which holds the rotating presidency of the EU, has abandoned hopes that a deal between the 27 EU governments and the European Parliament, both of which must approve the directive. So the member of the Parliament responsible for the bill has cancelled a vote on the measure, tabling the bill until September.

For previous Compliance Avenue posts on this topic, see:

EU Governments Back Tougher Hedge Fund Rules (posted May 19, 2010)

EU Hedge Fund Rules Stalled Amid UK Opposition (posted March 17, 2010)

As part of the final compromise that led the House and the Senate reach a last-minute late night deal on the financial reform fill, an agreement was reached on one of the most controversial issues:  the so-called Volcker Rule, which was originally designed to bar bank holding companies from owning, sponsoring or investing in hedge funds and private equity funds, and from engaging in proprietary trading.

Banks would still be barred from proprietary trading—the other tenet of the Volcker rule—with some exceptions.   The conference committee changed the language to provide more specific limits on proprietary trading, distinguish some forms of hedging from other derivatives trading and to provide explicit conditions for insurers, which are often organized as bank holding companies, to conduct trading normally used for their businesses.

But the compromise—reached after 15 hours of negotiation—will allow bank holding companies to engage in the other three activities the original Volcker rule sought to prohibit — the owning, sponsoring or investing in hedge funds and private equity funds –  albeit with restrictions.

Banks will be be allowed to hold on to their alternative investment businesses, and will even be permitted to invest in them, but only in a limited amount. Specifically, in a deal reportedly brokered by Treasury Sec. Timothy Geithner, the new form of the rule also allows banks to invest in hedge funds and private equity funds, but would limit these investments to  no more than 3 percent of a firm’s Tier I Capital. Volcker had opposed even a small allowance for bank sponsorship of funds.

News that they’ll be able to keep their hedge funds and private equity funds was welcomed by the banking industry.

However, the banking industry, and the hedge fund industry in particular, did NOT welcome the news that lawmakers plan to make them pay the costs of the new regulations. To offset the cost of the bill, the conference committee altered the bill early Friday morning to include a last-minute proposal from Rep. Barney Frank (D-Mass.), the head of the House Financial Services Committee.  The bill, which was approved on party lines in a conference of House and Senate lawmakers, would raise up to $19 billion in fees on big banks, hedge funds and other financial institutions.  The fee would be collected by the Federal Deposit Insurance Corporation and be placed in an account at the Treasury Department. The money would be held for 25 years and then could be used only to offset the debt.

This last minute alternation could impact the potentially crucial vote of Sen. Scott Brown (R-Mass.).  In a statement made on Friday, Brown warned that he had not yet decided to support the bill, expressing concern about the fees added to the bill early Friday morning to help pay for the cost of the legislation.

“I’ve said repeatedly that I cannot support any bill that raises taxes,” Brown said.

For related Compliance Avenue posts on this topic, see:

Banks Worry As Volcker Rule Looms (posted June 18, 2010)

Volcker Rule May Survive (posted June 15, 2010)

At approximately 5:39 a.m. on Friday morning, after a 20-hour marathon of negotiations, the House-Senate conference committee reached a final agreement to reconcile competing versions of the financial regulatory bill.

The agreement was reached once the final issues on derivatives trading and the Volcker Rule were resolved with the approval of proposals requiring banks and their parent companies to segregate much of their derivative activities and to restrict trading by banks for their own benefit.

The committee members voted on a party-line vote, with the House conferees voting 20-11 to approve the bill, and the Senate conferees voting 7-5 to approve. The agreement cleared the way for both houses of Congress to vote on the full financial regulatory bill next week.

As reported this morning by Reuters private equity news correspondent Andy Sullivan, Democrats are aiming for a final bill on financial reform by this evening; however, given that lawmakers have waited until the final, frantic hours to sort out the most controversial provisions in the bill, negotiations aiming to resolve differences between versions of passed by the House and the Senate in a final session could last deep into the night.

Among the most controversial provisions still to be resolved:

Read the rest of this entry »