This is a reminder for all managers of private funds to consult their counsel about representations that counsel may recommend adding to the private funds’ subscription agreements so that the managers may accurately report information about their private fund investors on Form PF. The information on Form PF will not be publicly available, but will be used to assist the Financial Stability Oversight Council in its assessment of systemic risk in the U.S. financial system. Continue reading
On 4/26/12, House Financial Services Committee Chairman Spencer Bachus (R-LA) and Rep. Carolyn McCarthy (D-NY) introduced legislation to amend the Investment Advisers Act of 1940 (the “Advisers Act”) to authorize one or more self-regulatory organizations (SROs) for investment advisers, to be funded by membership fees. Generally, NIAA membership would be required only for investment advisers conducting business with retail customers; investment advisers to private funds would be among the advisers exempt from the NIAA membership requirement. As such, under the proposal, private fund advisers would be exempt from the NIAA membership requirement. Continue reading
Significant changes are imminent for the methods that may be used by private funds to market their products. Congress has approved the bi-partisan HR 3606, the Jumpstart Our Business Startups (JOBS) Act, which President Obama is expected to sign in the near future. The JOBS Act includes a provision of great interest to our private fund adviser clients: the easing of the general solicitation and general advertising ban in private offerings under Securities Act of 1993 Regulation D Rule 506 and the application of that amendment to other federal securities laws. Also included is a provision raising the threshold for an issuer’s registration under the Securities Exchange Act of 1934 (the “Exchange Act”) from 500 “holders of record” to 2,000. Continue reading
The Securities Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) (collectively, the “Commissions”) recently issued Proposed Identity Theft Red Flags Rules (“Proposed Rules”) requiring certain of their regulated entities to put identity theft prevention programs (“Programs”) in place, similar to Fair Credit Reporting Act (“FCRA”) rules adopted in 2007 (the “2007 Rules”) by the Federal Trade Commission (“FTC”) and other federal financial regulatory agencies. The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred authority over certain parts of the FCRA to the SEC and CFTC, respectively, for entities regulated by those Commissions. The deadline for comments is May 7, 2012. Continue reading
The Securities and Exchange Commission (the “SEC”) has issued a Final Rule on investment adviser performance compensation, adopting amendments to Investment Advisers Act of 1940 (“Advisers Act”) Rule 205-3, the “performance fee rule.” The Final Rule was published in the Federal Register on Wednesday, February 22, 2012 and the amendments are effective on May 22, 2012. Advisers should review their advisory contracts and fund offering documents prior to the May 22, 2012 effective date to confirm that these documents reflect the amendments, subject to any applicable transition provision (described below). Continue reading
The Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (OCIE) recently released a National Examination Risk Alert titled “Strengthening Practices for Preventing and Detecting Unauthorized Trading and Similar Activities.”
The Risk Alert is addressed to both broker-dealers and investment advisers. Carlo di Florio, Director of OCIE, suggested that firms consider the observations in the Risk Alert “as they review their compliance and supervisory controls to detect and deter unauthorized trading” and other unauthorized activities. As the SEC has repeatedly stated, a firm must set the tone from the top and create a culture of compliance. OCIE recommends involving management and non-management personnel in the efforts. Continue reading
As discussed in our previous post, as a result of the Final Rule issued by the Commodity Futures Trading Commission (the “CFTC”) on February 9th, certain private fund managers that trade directly or indirectly in commodities and/or futures will need to reconsider their status as commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”). Note that when the CFTC and the Securities and Exchange Commission (“SEC”) finalize the definition of “swap” (on the SEC’s Implementation Schedule for the first half of 2012 and expected in the next few months), pool operators trading in non-security based swaps will fall within with the definition of “commodity pool operator” and, in the absence of any applicable exemption, will be required to register.
The Final Rule, published in the Federal Register on Friday, February 24, 2012, is generally effective on April 24, 2012 and alters the registration, compliance and reporting obligations for CPOs and CTAs. In particular, the Final Rule’s rescission of the section 4.13(a)(4) exemption will require advisers that have relied upon that exemption (historically, advisers to Section 3(c)(7) private funds) to determine if there is another exemption upon which they may rely. Continue reading
Congratulations to all newly registering investment advisers that have submitted their Forms ADV Part 1A and Part 2A via the Investment Adviser Registration Depository (“IARD”) in anticipation of the March 30, 2012 deadline! The Securities and Exchange Commission (“SEC”) generally has up to 45 days after receipt of the Form ADV to declare the registration effective and generally will notify an adviser via email once its registration is declared effective. Registrations may be declared effective at any time during that 45-day period. An adviser can also check on IARD under the heading “Registration/Reporting Status” to see if its registration has been declared effective.
Below is a review and reminder of certain of the annual regulatory requirements that may be applicable to investment advisers. This is not intended to be an exhaustive list of SEC regulatory requirements and does not cover state-specific requirements. In particular, it should be noted that the below information does not address any regulatory filings or reports required by the Internal Revenue Service, Department of the Treasury (such as TIC forms) or the Commodity Futures Trading Commission (“CFTC”). We expect to release future articles on other required regulatory filings. The information below is for informational purposes only and is not legal advice. Continue reading
On January 18, 2012, the Securities and Exchange Commission (the “SEC”) issued a No-Action letter (the “2012 ABA Letter”) to the American Bar Association (the “ABA”), Business Law Section, providing guidance as to when certain entities affiliated with a registered investment adviser would be permitted to rely on the registered investment adviser’s registration, and would not be required to register separately as investment advisers under the Investment Advisers Act of 1940 (the “Advisers Act”). The 2012 ABA Letter confirms the SEC’s guidance on these issues in Question and Answer G.1. of its December 8, 2005 letter addressed to the ABA’s Subcommittee on Private Investment Entities and responds to additional related questions. Question and Answer G.1. is referred to as the “2005 ABA Letter” and is further described below. The continued applicability of the 2005 ABA Letter had been called into question by the amendments resulting from the repeal of the section 203(b)(3) private adviser exemption under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Continue reading
HedgeOp would like to take the opportunity to highlight recent enforcement actions brought by the SEC Enforcement Division’s Asset Management Unit and remind all about the importance of implementing a thorough compliance program and of maintaining a robust culture of compliance.