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Regulatory Alert: New Reporting Requirements under the Corporate Transparency Act

The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act of 2021, went into effect on January 1, 2024. The CTA is intended to increase corporate transparency and prevent bad actors from using “shell” companies to conduct illegal activities. Under the CTA, domestic and foreign “reporting comp…

Year-End Client Letter

It has been a choppy year for the investment management industry. High interest rates and recession fears weighed down fundraising and deal activity across asset classes, despite market gains. Meanwhile, the FTX fallout continued to loom large over the crypto community. Nonetheless, we have seen a rebound in new fund launches and…

Kevin Cott Discusses Closed-End Fund Structures

Kevin Cott joined the Alt Funds Network podcast to share his thoughts on closed-end fund structural considerations. Check it out here.

Kevin Cott Discusses SEC Crypto Enforcement Actions

Kevin Cott joined the Alt Funds Network podcast to share his thoughts on recent SEC crypto enforcement actions and the current regulatory landscape for digital asset fund managers. Check it out here.

Regulatory Alert: SEC Adopts New Rules for Private Fund Advisers

On August 23, 2023, the U.S. Securities and Exchange Commission (“SEC”) adopted new rules under the Investment Advisers Act of 1940 (“Advisers Act”) applicable to both SEC-registered and unregistered private fund advisers (“Rules”). Among other requirements, the Rules require registered private fund advisers to provide investors …

Ripple and Terraform: A Securities Law Framework for Crypto Begins to Take Shape

There has been a flurry of crypto enforcement news recently, including the Securities and Exchange Commission (“SEC”) suing two major crypto exchanges, Coinbase, Inc. and Binance Holdings Ltd. (“Binance”). The Coinbase and Binance lawsuits represent an existential threat to centralized crypto exchanges that, in part, hinges on wh…

Client Alert—Coinbase and Binance Lawsuits

On June 6, 2023, the U.S. Securities and Exchange Commission (“SEC”) brought a five-count civil complaint in New York federal court against Coinbase Inc. (“Coinbase”). The complaint alleges that Coinbase operates as an unregistered broker, exchange and clearing agency. The SEC asserts that Coinbase’s failure to register “deprive[s…

2023 SEC Exam Priorities: Key Takeaways for Investment Managers

Earlier this year, the Examination Division (“Division”) of the Securities and Exchange Commission (“SEC”) published its 2023 examination priorities (the “Report”). The Division publishes these priorities annually to provide industry insights and highlight areas it believes present possible risks to investors. The Report is based …

Client Alert—Silicon Valley Bank

Last Friday, Silicon Valley Bank (SVB) was abruptly closed and designated for receivership with the Federal Deposit Insurance Corporation (FDIC). The closure of the bank is notable because SVB had over $200 billion in deposits and was the financial institution of choice for startups, fintechs and their venture capital / private eq…

SEC Proposes Amendments to Custody Rule and Targets Digital Assets

On February 15, 2023, the SEC released Rule 223-1 (the “Safeguarding Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”), proposing amendments to Advisers Act Rule 206(4)-2 (the “Custody Rule”). The Safeguarding Rule would greatly broaden the reach of the Custody Rule and captures a wide range of assets, includin…

Section 1061 Updates to Partnership Agreements

In anticipation of the March 15, 2023, filing deadline for partnership tax returns, we recommend that clients assess whether their fund partnership agreements are current regarding the implications of Section 1061 of the Internal Revenue Code (Section 1061). Section 1061 largely took effect on January 1, 2022, and was introduced a…

Year-End Client Letter

As we turn the page on 2022, we would like to highlight the following legal, regulatory and business matters that may affect you or your clients heading into the new year. As always, feel free to reach out to us should you have any questions. Investment Advisers and Exempt Reporting AdvisersAnnual Amendment of Form ADV. Each regis…

Proposed Rule Changes for Private Fund Advisers

On February 9, 2022, the Securities and Exchange Commission (SEC) proposed new rules (Proposed Rules) under the Investment Advisers Act of 1940 (Advisers Act) that, if adopted, would significantly impact private fund advisers. Below is a high-level summary of the Proposed Rules and their potential impact on affected advisers. Annu…

Year-End Client Letter

As we turn the page on 2021, we would like to highlight the following legal, regulatory and business matters that may affect you or your clients heading into the new year. As always, feel free to reach out to us should you have any questions. Investment Advisers and Exempt Reporting Advisers Annual Amendment of Form ADV. Each regi…

Regulatory Alert: SEC Expands Definition of Accredited Investor

On August 26, 2020, the U.S. Securities and Exchange Commission (“SEC”) adopted amendments to the definition of “accredited investor” under the Securities Act of 1933. As previously covered, the amendments expand the definition of an accredited investor in an effort to more effectively identify institutional and individual investo…

SEC Approves Modernizing Amendments to Accredited Investor Definition

On August 26, 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to the definition of “accredited investor” under the Securities Act of 1933 (the “Act”). The SEC proposed the amendments on December 18, 2019 in an effort to more effectively identify institutional and individual investors that have the …

SEC Proposes Updates to Accredited Investor Definition

On December 18, 2019, the U.S. Securities and Exchange Commission (the “SEC”) issued a press release highlighting proposed amendments to the definition of an “accredited investor” under the Securities Act of 1933 (the “Act”). We expect private fund managers to embrace the proposed changes, as the amendments seek to permit more inv…

Issues for US Managers Trading on Offshore Cryptocurrency Derivative Exchanges

For US digital assets fund managers that want to trade on offshore cryptocurrency derivative exchanges, a significant challenge is that such exchanges are often limited to non-US persons or “eligible contract participants” (ECPs) to avoid US commodities regulations. Similarly, many offshore non-derivative exchanges and issuers of …

Private Lending Funds: When is a note a security?

window.dataLayer = window.dataLayer || []; function gtag(){dataLayer.push(arguments);} gtag(‘js’, new Date()); gtag(‘config’, ‘UA-149346694-1’); With significant growth in the hard money lending industry in recent years, many sponsors of private lending funds have requested guidance regarding whether the underlying loa…

Qualified Opportunity Zones Update

On April 17, 2019, the IRS and the Treasury Department released proposed regulations (“Proposed Regulations”) regarding new tax incentives for investments in qualified opportunity zones (“QOZs”) and qualified opportunity funds (“QOFs”). The Proposed Regulations build upon the initial guidance from the first round of regulations re…

ICOs: Non-US Persons and Investor Eligibility Considerations

As blockchain continues to evolve as a disruptive technology, the regulatory environment surrounding initial coin offerings (ICOs) by companies issuing digital tokens to investors remains uncertain and subject to much debate. As a result, many companies issuing ICOs are shunning US investors altogether to avoid US securities laws….

US Treasury Report: Potential Implications for Private Placements, Exempt Offerings and Finders

The U.S. Department of the Treasury released a report this month outlining issues and recommendations in U.S. Capital Markets that the Treasury hopes will promote economic growth while maintaining investor protection. The Treasury report discussed measures that may facilitate the public offering and IPO process, as well as steps t…

SEC Cyber Unit: Impact on Initial Coin Offerings and Cryptocurrency Fund Managers

In July, we discussed the SEC’s assertion that an Initial Coin Offering (ICO) could constitute a securities offering, subject to the SEC’s jurisdiction and compliance with federal and state securities law. Last week, the SEC issued a press release announcing its creation of the Cyber Unit, a new enforcement initiative that will im…

SEC Risk Alert: Advertising Compliance Issues for Investment Advisers

The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) recently issued a risk alert concerning compliance issues with Rule 206(4)-1) of the Investment Advisers Act of 1940 (the “Advertising Rule”). The Advertising Rule is frequently a point of emphasis during OCIE examinations of investment advisers, as well as exami…

Starting a Cryptocurrency Fund: Digital Asset Storage Methods

Given the rise of cryptocurrency hedge funds and other investment products, Bitcoin and cryptocurrency fund managers are having to make decisions regarding optimal storage methods to suit their particular needs when holding and trading cryptocurrencies and other blockchain assets. Unlike securities or futures held in custody of a …

Starting a Cryptocurrency Fund: Valuation Considerations

It is critical for fund managers and accounting professionals to have up-to-date valuations on investments when accepting capital contributions from new and existing investors. While valuation metrics for the broad majority of securities and futures products are well-developed, cryptocurrencies and other blockchain technologies pr…

DOL Fiduciary Rule: Impact on Hedge Fund Managers

Background On June 9, 2017, the Department of Labor (“DOL”) effected a new regulation  expanding the definition of a “fiduciary” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and Section 4975 of the Internal Revenue Code of 1986 (“Code”) (the “Fiduciary Rule”). Prior to the publication of the Fiduciary Rule, …

Cryptocurrency Fund Managers: SEC Update

On Tuesday evening the SEC issued a significant report for cryptocurrency fund managers, announcing its determination that blockchain tokens offered and sold by an organization called The DAO were securities, subject to federal regulation. In its report, the SEC analyzed whether The DAO, Slock.it UG (a German corporation), Slock.i…

Regulation CF Update

Last Year, we discussed the SEC’s most recent attempt to implement Title III of the Jumpstart Our Business Startups Act (JOBS Act) through the establishment of a new rule, Regulation Crowdfunding (Regulation CF). Regulation CF became effective on May 16, 2016, and this February the SEC released a white paper outlining Regulation …

Hedge Fund Marketing Practices: Checking in on Rule 506(c)

The overwhelming majority of hedge funds and private equity funds rely on an exemption from registration found in Rule 506 under Regulation D of the Securities Act. Prior to September 2013, Rule 506 was restrictive in that it required hedge fund managers to establish a pre-existing relationship with investors and placed a firm pro…

Regulation A+ Update

In our last update concerning Regulation A, we discussed the SEC’s revamp of Regulation A, referred to as Regulation A+. Regulation A was originally intended to act as a middle ground between private placement offerings and registered public offerings. However, Regulation A was rarely used due to the high cost of compliance relati…

Guest Post: SEC to Examine Compliance with Whistleblower Provisions

As even casual followers of SEC enforcement actions are aware, whistleblower provisions under Dodd-Frank remain a hot-button topic among investment advisers and the investing public in general–the SEC awarded over $57 million to 13 whistleblowers during the 2016 fiscal year, which is more than in all previous years combined. In l…

Intrastate Crowdfunding Update

On October 26, 2016, the Securities and Exchange Commission (“SEC”) adopted final rules regarding intrastate crowdfunding offerings. The final rules amend Securities Act Rule 147 to update the safe harbor protections under Section 3(a)(11) of the Securities Act, so that issuers may continue to use state law exemptions that are con…

Year-End Compliance Alert for Investment Managers

As we approach the final quarter of 2016, we would like to take this opportunity to remind you of the following legal, regulatory and compliance obligations that may apply to certain investment managers heading into 2017. Investment Advisers and Exempt Reporting Advisers Annual Amendment of Form ADV.  Each registered investment ad…

Alert: SEC Increases Qualified Client Threshold

On June 14, 2016, the Securities and Exchange Commission (“SEC”) issued an order (“Order”) increasing the dollar amount of the net worth threshold in Rule 205-3 under the Investment Advisers Act of 1940 from $2,000,000 to $2,100,000. Rule 205-3 provides an exemption from the prohibition on performance-based compensation where the …

Regulation Crowdfunding Takes Effect on May 16, 2016

On October 30, 2015, the Securities and Exchange Commission (SEC) adopted the final rules implementing Title III of the Jumpstart Our Business Startups Act (JOBS Act), known as “crowdfunding.” These rules take effect on May 16, 2016. As that deadline approaches, companies, investors and intermediaries seeking to take advantage of …

Year-End Compliance Alert for Investment Managers

With 2015 coming to a close, we would like to take this opportunity to remind you of key legal, regulatory and compliance obligations that may apply to you or your clients heading into 2016. As always, please contact us should you have any questions or require assistance with respect to any of the following matters. Investment Adv…

Guest Post: Starting Your Hedge Fund

As any hedge fund manager will attest, choosing the right service providers for your fund will be critical to your fund’s success. For many fund managers—particularly managers launching their first funds—hiring an experienced hedge fund consultant to serve as an independent resource and sounding board during the fund formation pro…

Regulation A+ Update: Final Rules

When we last wrote about Regulation A, the SEC had released its proposed rules amending the securities registration exemption to expand its availability to larger offerings. On March 25, 2015, the SEC adopted its final rules amending Regulation A. The final rules are substantially similar in form to the proposed rules, and the ame…

Texas Passes Crowdfunding Exemption

While the comprehensive set of crowdfunding regulations (“Regulation Crowdfunding”) proposed by the Securities and Exchange Commission (“SEC”) pursuant to Title III of the JOBS Act remain pending, several states have begun to take the matter of equity crowdfunding into their own hands. Texas is the most recent state to take the in…

Year-End Compliance Alert

With 2014 coming to a close, we would like to take this opportunity to remind you of key legal, regulatory and compliance obligations that may apply to you as you transition into 2015. Investment Advisers and Exempt Reporting Advisers Annual Amendment of Form ADV.  Each registered investment adviser (“RIA”) and exempt reporting ad…

General Overview of Swap Transactions

Over the past few years the jurisdictional interplay between the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) has been significantly overhauled. One question we continue to receive from clients on this front is the potential regulatory implications under both agencies of investin…

Regulation A+

Overview of Regulation A On December 18, 2013, the SEC proposed rules to amend Regulation A, pursuant to Title IV of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Regulation A, adopted as a rule in 1936, was meant to assist small businesses with capital formation under the then-newly created securities regulato…

FATCA Update

Overview The Foreign Account Tax Compliance Act (“FATCA”) – part of the Hiring Incentives to Restore Employment Act – introduced a number of new withholding and reporting rules to address tax evasion by U.S. citizens and companies. The rules affect foreign financial institutions (“FFIs”), including, but not limited to, brokerage f…

JOBS Act Update: The Equity Crowdfunding Improvement Act of 2014

When we last wrote on the new rules permitting equity crowdfunding, the comment period had recently closed. To date, however, there is no sign of when the final rules will be issued or what changes (if any) will be made from the proposed rules. Additionally, a recent event has made investors even more eager for the final crowdfund…

JOBS Act Update: CFTC Grants Exemptive Relief Permitting General Solicitation and Advertising

Background On July 10, 2013, the SEC approved Rule 506(c) in compliance with the Jumpstart Our Business Startups Act (the “JOBS Act”) to permit, to an extent, general solicitation and general advertising for certain Regulation D offerings (previously addressed here).  However, thus far Rule 506(c) has been rarely used in the marke…

JOBS Act Update: Proposed Crowdfunding Rules Nearer to Adoption

As final rules permitting equity-based crowdfunding draw near, we have seen issuers and market intermediaries ramp up efforts to develop platforms able to take advantage of the imminent rule changes. Consider SolarCity, for example, the largest installer of rooftop solar systems in the US. Recently SolarCity purchased Common Asset…

Jobs Act Update: SEC Approves Final Rules Removing the General Solicitation and Advertising Ban for Private Offerings

On July 10, 2013, the Securities and Exchange Commission (“SEC”) approved final rules pursuant to the Jumpstart our Business Startups Act (“JOBS Act”) that remove the ban on general solicitation and advertising practices for certain private offerings made in reliance on Rule 506 under Regulation D of the Securities Act. After taki…

California: An Illustrative Example of Dodd-Frank’s Impact upon Investment Advisers at the State Level

Although most investment advisers are aware of the adjusted thresholds for federal and state registration under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), one of the ongoing challenges for advisers is complying with registration requirements at the state level, especially as state regulat…

Financial Transaction Tax

In the wake of the 2010 Flash Crash, which saw the Dow plunge nearly 9% in roughly five minutes, several political and regulatory officials in the United States and Europe called for a “financial transaction tax” (“FTT”)[1] to discourage high frequency trading. While the likelihood of the United States or the European Union implem…

Presence Exams

As part of its initiative to increase oversight of investment advisers pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), the Securities and Exchange Commission (“SEC”) recently released a memorandum outlining increased scrutiny for newly registered advisers[1] through “Presence Exams…

JOBS Act Update: Senator Levin Throws a Curve

As mandated by Congress pursuant to Section 201 of the Jumpstart our Business Startups Act (“JOBS Act”), the Securities and Exchange Commission (“SEC”) recently released its proposed rules to eliminate the prohibition against general solicitation and advertising in connection with offerings and sales pursuant to Rule 506 under Reg…

JOBS Act Update: SEC Releases Proposed Rules

As previously discussed here and here, on April 5, 2012, President Obama signed into law the Jumpstart our Business Startups Act (“JOBS Act”). Notably, the JOBS Act tasks the Securities and Exchange Commission (“SEC”) with removing the prohibition against general solicitation and general advertising in offerings and sales pursuant…

JOBS Act update

(Note: This post was originally circulated on August 1, 2012.) As previously discussed, on April 5, 2012 President Obama signed into law the Jumpstart our Business Startups Act (“JOBS Act”), marking a dramatic shift in the private fund marketing landscape. Notably, the JOBS Act tasks the Securities and Exchange Commission (“SEC”) …

JOBS Act Interview

We were recently interviewed by Mercenary Trader regarding our thoughts on the JOBS Act and its potential impact on the overall hedge fund community (we have been tracking the development of the proposed legislation since late 2011). Pending the release of final SEC rules implementing the changes, the legislation will significantl…

Investment Adviser Registration Requirements in 2012

As previously discussed, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) significantly altered the jurisdictional boundaries between federal and state registration of investment advisers.  Although most advisers seem to be familiar with the adjusted registration thresholds, there is still some …

Access to Capital for Job Creators Act

In early November, the House of Representatives passed four bills aimed to help small companies raise capital.  The legislation received overwhelming bipartisan support, in large part due to legislators’ framing of the package as pro-jobs creation. Of note, the package includes H.R. 2940, the Access to Capital for Job Creators Act…

Form PF

As part of the ongoing effort to provide greater transparency to the investment management industry in the wake of the financial crisis of 2008, earlier this year the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) proposed Rule 204(b)-1 under the Investment Advisers Act of 1940.  S…

Regulation D

Hedge funds are typically structured as private placements in order to avoid registering their interests under the Securities Act of 1933 (“Securities Act”).  In particular, Section 4(2) of the Securities Act exempts from registration transactions not involving any public offering.  However, the availability of the Section 4(2) ex…

Commodity Pool Operator and Commodity Trading Advisor Registrations

Pursuant to the Commodity Exchange Act (“CEA”), advisers who utilize futures contracts, options on futures or retail off-exchange forex contracts in their trading programs are generally required to register as a commodity pool operator (“CPO”) and/or commodity trading advisor (“CTA”), as appropriate, unless they qualify for an ava…

Form D

Each issuer of securities relying on an exemption from registration pursuant to Regulation D under the Securities Act of 1933 must file Form D with the Securities and Exchange Commission (“SEC”), as well as each state in which the issuer accepts an investor.  Form D is required with respect to any private offering, including inter…

Investment Adviser Registration

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), Congress passed the Private Fund Investment Advisers Registration Act of 2010 (“Act”).  The Securities and Exchange Commission (“SEC”) recently adopted rules to implement the Act that will significantly impact many private fund manager…

State Blue Sky Regulation

At the federal level, sales of securities are subject to the Securities Act of 1933 (“Securities Act”) and the SEC rules enacted thereunder.  Sales of securities are also regulated at the individual state level under state securities laws, often called “Blue Sky” laws.  Each state’s respective Blue Sky laws apply to offers and sal…

Offshore Funds

Although they continue to grow in popularity, there are still some general misconceptions regarding the nature and use of offshore hedge funds.  This article addresses the various reasons for organizing offshore funds, the most common jurisdictions for offshore funds and the typical structure of offshore funds. Reasons for Organiz…

SEC Order Raises Performance Fee Thresholds

On July 12, 2011, the Securities and Exchange Commission (“SEC”) approved an order (“Order”) increasing the dollar amount thresholds necessary for an investor to qualify as a “qualified client” under Rule 205-3 under the Investment Advisers Act of 1940 (“Advisers Act”).  A “qualified client” is currently defined under Rule 205-3 a…

Incubator Funds

What is an incubator fund? An incubator fund is a cost-effective fund alternative for managers who prefer to gradually transition to a full-fledged hedge fund.  The key difference between a full-fledged hedge fund and an incubator fund is that the incubator fund is typically capitalized solely with the manager’s own assets.  Becau…

How to Start a Hedge Fund

Starting a hedge fund can seem like a daunting process for first time fund managers.  In practice, forming a hedge fund is a relatively straightforward process, provided the manager has a reasonable understanding of the steps involved to successfully launch a fund.  This article summarizes the hedge fund formation process from inc…