On August 23, 2023, the U.S. Securities and Exchange Commission (“SEC”) implemented heavily anticipated private fund reforms (the “Private Funds Rules” or the “Rules”) promulgated under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Although the Rules are far less “mandate-driven” than those originally proposed in February 2022, the Rules nevertheless impose significant disclosure (and in some cases, operational) requirements that all …
Newly Created “Capital Acquisition Broker” Rule Reduces Regulatory Burdens on Some Broker-Dealers
By Greg Caramenico and Lauren Mack On August 18th, the Securities and Exchange Commission (“SEC”) approved a Financial Industry Regulatory Authority Inc. (“FINRA”) rule that establishes less burdensome regulations for “Capital Acquisition Brokers” (“CABs”), which are a subclass of broker-dealers that engage only in limited activities. CABs can elect to be governed by the new rules by converting their current FINRA membership or by submitting a new …
Debate Over Accredited Investor Definition Gaining Momentum
Discussions surrounding the accredited investor definition have crescendoed of late, demonstrating a sharp divide in opinion among regulators. On one side lies the North American Securities Administrators Association (“NASAA”), the lobbying group that represents the state securities administrators. The NASAA published a comment letter on the definition on May 25, 2016, evidencing a highly conservative approach.[1] The group relies on investor protection concerns in calling …
SEC Staff Issues Report and Recommendations in Connection with Changes to the Accredited Investor Standard
By William Kelly and Simon Riveles On December 18, the SEC staff issued a report summarizing its review of the accredited investor definition. The report offers historical and current analyses of the definition, evaluates relevant comments on and suggested modifications to the definition, and considers alternative approaches under federal and state securities laws for identifying financially sophisticated investors. The report concludes with SEC staff recommendations …
SEC Unanimously Approves Regulation A+ Rules
On Wednesday March 25th, 2015, the Securities & Exchange Commission (SEC) unanimously adopted amendments to Regulation A. Due to its low dollar threshold and failure to preempt state blue sky laws, Regulation A has heretofore been a little utilized exemption from registration for certain smaller offerings by private companies. The amendments, mandated by Title IV of the JOBS Act, and commonly known as Regulation A+, …
Simon Riveles, Chairman of the HFA’s Regulatory and and Government Advisory Board, Comments on Impact of Raising Accredited Investor Net Worth Requirements by the SEC
On October 7, 2014, The Hedge Fund Association (“HFA”), an international not-for-profit organization representing the interests of investors, hedge funds and service providers, has submitted a comment letter, which can be found at HFA-SEC-Comment-Letter, to the U.S. Securities and Exchange Commission’s (SEC) as the regulatory agency considers proposed changes to the definition of an “accredited investor” under Rule 501 of Regulation D. On behalf of the …
SEC Considers Change to Accredited Investor Standard
Under the Dodd-Frank Act of 2010, the Securities and Exchange Commission (the “SEC”) is required to examine the definition of “accredited investor” every four years to determine if it should be modified. Under the current standard, a natural person qualifies as an “accredited investor” for purposes of participating in a Rule 506 offering if he or she has earned at least $200,000 in annual income in each …
SEC issues Investor Alert: 10 Red Flags that a Private Placement May be Fraudulent or a Scam
August 2014 Earlier this month, the Securities & Exchange Commission’s (the “SEC” or “Commission”) Office of Investor Education and Advocacy released a list of ten red flags investor’s should be wary of when evaluating a private offering. Under the securities law, sales of securities in a fund, a company or other issuer that have not been registered with the SEC are not subject to the …
SEC Issues New Guidelines on Social Media Use
By Masha Goncharova and Simon Riveles In response to growing interest among investment advisers to communicate to clients through social media, the SEC staff has been establishing new informal guidelines on proper social media use. New parameters set forth this spring limit the scope of client testimonials and now allow advisers to provide required cautionary legends via hyperlinks, making it easier to communicate on platforms …
Simon Riveles Panelist at the Infovest21 Seminar Entitled “Regulatory Update for Hedge Funds and Funds of Funds”
On June 3, 2014, Infovest21, an information provider to hedge fund investors, managers, funds of funds, and service providers, sponsored a seminar at the Cornell Club in New York entitled “Regulatory Update for Hedge Funds and Funds of Funds.” The seminar featured an expert panel comprised of Simon Riveles of Riveles Law Group, Jillian Timmermans of compliance consulting firm, Cordium, and Gene DaCosta of …
SEC Launches New Group Focused on Private Equity & Hedge Funds
By Simon Riveles and Simon Cooke According to a report by Reuters, the U.S. Securities and Exchange Commission (“SEC”) has formed a group dedicated to examine private equity funds and hedge funds (the “Group”). The Group will focus on how these funds value their assets, disclose their fees and communicate with investors. The Group is co-chaired by Igor Rozenblit and Marc Wyatt. Mr. Rozenblit, both …
SEC Moves to Update Regulation A
By Kathryn Dachille and Simon Riveles December 18, 2013, the SEC voted to propose amendments to Regulation A that would allow offerings of up to $50 million in any twelve month period (“Tier 2 offerings”), as mandated by Title IV of the JOBS Act (so called Regulation A+”). While Tier 2 offerings would be subject to significant additional requirements, such as the provision of audited …
Proposed Crowdfunding Rules Available for Public Comment
On October 23, 2013, the SEC released a set of proposed rules under the JOBS Act (the “Act”), which would permit emerging growth companies (EGC’s) to offer and sell securities through crowdfunding platforms. In their current form, the proposed rules closely resemble the original parameters outlined in Section III of the Act, the section from which the crowdfunding provision was born. The rules will be …
SEC Monitoring the Use and Market Impact of General Solicitation
At the Managed Funds Association Outlook 2013 Conference, held on October 18, 2013, SEC Chair Mary Jo White delivered a speech emphasizing the importance of transparency in the hedge fund industry. Chair White highlighted that the JOBS Act, which allows private funds to participate in the general solicitation, increases the responsibility of private funds to be open and honest with potential clients and regulators. Chair …
SEC Repeals the Ban on General Solicitation under Rule 506
On July 10, 2013, the Securities and Exchange Commission (the “Commission”) adopted amendments to Rule 506 of Regulation D (“Rule 506(c)”) implementing changes mandating by the Jumpstart Our Business Startups Act (“JOBS Act”). Rule 506(c) permits an issuer to engage in general solicitation or general advertising[1] in offering and selling of securities under Rule 506 provided such issuer reasonably believes and takes “reasonable steps” to …
SEC Shows Commitment to Whistleblower Program Following Second-Ever Whistleblower Award
By Peter Tyson and Simon Riveles On June 12 2013, the Securities and Exchange Commission (SEC) issued its second-ever whistleblowing award to three anonymous tipsters who helped the SEC enforce an action for fraud against Locust Offshore Management, LLC and its CEO, Andrey Hicks. Two of the tipsters provided information to the SEC regarding the fraudulent offer and sale of shares in the Locust Offshore …
SEC and CFTC Establish Identity Theft Detection and Prevention Guidelines
By Ryan Finn and Simon Riveles In an effort to reduce the ever-increasing threat of identity theft, the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) (together, the “Commissions”) recently adopted the Identity Theft Red Flag Rule ( or Regulation “S-ID”). Broadly speaking, S-ID requires entities regulated by the Commissions that maintain “transaction accounts” to develop and implement a written identity …
SEC Provides Guidelines for Use of Social Media in Compliance with Regulation Fair Disclosure
By Ryan Finn and Simon Riveles In the age of Facebook, Twitter and LinkedIn, companies and their executives are increasingly using social media to interact with customers, investors and the public. This rapid change in the way public companies disseminate information has presented challenges for the Securities and Exchange Commission (the “SEC” or the “Commission”) in its application of Regulation FD (Fair Disclosure), which requires …
SEC Grants “Accredited Crowdfunding” Platforms Relief from Broker Dealer Registration
By Ryan Finn and Simon Riveles In two recent no action letters the SEC granted exemptive relief from broker dealer registration to crowdfunding sites on the basis that the platforms received carried interest rather than transaction base compensation. Although the SEC made it clear that the no-action letters were to be narrowly construed to the specific facts of each case, some commentators extrapolated that the …
SEC Sees Deficiencies in “Custody Rule”: Warns Clients to be Vigilant.
The Securities and Exchange Commission (the “Commission”) recently issued an Investor Bulletin with guidelines on compliance with its “custody rule” for investment advisers. While the rule is designed to enhance safeguards over client assets, clients still need to be aware of the specific steps taken by their advisers to comply with the rule. Custody relates to the holding of client funds or securities, directly or …
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