General Solicitation May Trigger State Investment Adviser Registration in Certain States

Simon Riveles Advertising, Compliance, General Solicitation, Investment Adviser Registration, Private Fund Exemption

Background As a consequence of the Jumpstart Our Business Startups Act (“JOBS Act”), beginning September 23, 2013, managers of private funds will be permitted to advertise and solicit the general public in an effort to raise capital for their private fund. While the requirements for investment adviser registration vary from state to state, Florida, Indiana, Louisiana, Michigan, Ohio, Pennsylvania, and Tennessee provide an exemption to …

Private Placements under FINRA Scrutiny

Simon Riveles Broker Dealer Exemption, Broker Dealer Registration, Compliance, FINRA, FINRA Rule 5123, Private Placement, Uncategorized

Peter Tyson and Simon Riveles The Financial Industry Regulatory Authority (“FINRA”) announced in its Annual Regulatory and Examination Priorities Letter from January 11, 2013 that it would prioritize policing private placements in 2013. Of particular concern to FINRA is enhancing its risk-based supervision of the private placement market, and addressing inadequate disclosures and due diligence procedures, which can mislead and/or harm investors. FINRA’s announcement is …

SEC Proposes Amendments to Rule 156 following repeal of the ban on General Solicitation under Rule 506

Simon Riveles Advertising, False and Misleading Communication, General Solicitation, Hedge Funds, Reg D Rule 506, Rule 156

By Peter Tyson and Simon Riveles Following the SEC’s adoption of amended Rule 506, the SEC has proposed amendments to Rule 156 of the Securities Act of 1933 to extend the rule’s interpretive guidance on sales literature to private funds.  The proposed amendments to Rule 156 reflect the SEC’s concerns regarding fraudulent and misleading sales literature, the incidence of which could increase given the adoption …

SEC Repeals the Ban on General Solicitation under Rule 506

Simon Riveles Accredited Investor, Advertising, General Solicitation, Reg D Rule 506, SEC

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

Simon Riveles SEC, Uncategorized, Whisteblower

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 …

The Impact of the AIFM Directive on Marketing Non-EU Funds by Non-EU Fund Managers

Simon Riveles AIFMD, European Union

OVERVIEW By Peter Tyson and Simon Riveles On 22 July 2013, the EU directive on alternative investment fund managers (AIFMD) will take effect in each European Union (EU) Member State. The AIFMD establishes an authorization regime as well as a rulebook for managing and marketing alternative investment funds (AIFs) by alternative investment fund managers (AIFMs) within the EU. In addition to retaining the private placement …

Recent FINRA Anti-Money Laundering Actions against Member Firms

Simon Riveles Anti-Money Laundering, FINRA

Recent penalties imposed by the Financial Industry Regulatory Authority (FINRA) against three companies that failed to implement adequate procedures to detect money laundering demonstrate the agency’s continued attention on anti-money laundering (AML) compliance programs. FINRA levied a total of $900,000 in sanctions and suspensions against Atlas One Financial Group (“Atlas”), Firstrade Securities (“Firstrade”), and World Trade Financial Corporation (WFTC) in addition to four executives associated …

SEC and CFTC Establish Identity Theft Detection and Prevention Guidelines

Simon Riveles CFTC, Cyber-security, Identity Theft, SEC

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

Simon Riveles Dodd-Frank, Regulation Fair Disclosure, SEC, Social Media

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

Simon Riveles Broker Dealer Registration, Crowdfunding, Jobs Act, SEC

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.

Simon Riveles Custody Rule, Investment Advisers, SEC

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 …

Private Equity Funds Compliance Lapses Lead to SEC Sanctions

Simon Riveles Compliance, Private Equity Fund, SEC

By Ryan Finn and Simon Riveles On March 11th, the SEC announced two decisions involving private equity firms that demonstrate its commitment to emphasizing the important role of compliance in preventing and detecting possible violations of the securities laws.  Although these cases dealt specifically with the activities of private equity firms, the issues raised by the SEC’s decisions were broad enough to be relevant and …

FINRA Outlines 2013 Regulatory Priorities

Simon Riveles Cyber-security, FINRA, FINRA Rule 5123, Hedge Funds, Private Placement, Uncategorized

In keeping with its prior year practice, on January 11, 2013, FINRA (the “Agnecy”) issued a Examination Priorities Letter to member firms highlighting the areas of the industry it intends to focus particular attention and resources. These areas include market regulation, business conduct, insider trading, financial and operational concerns. Market Regulation As computer based trading continues to capture an increasingly large segment of the market, …

SEC Names Acting Enforcement Director

Simon Riveles SEC

On January 31, the SEC announced that George Canellos will serve as Acting Director for the Division of Enforcement. Mr. Canellos currently is the Deputy Director of that division, and effective February 8, 2013, will fill the director role vacated by the departing Robert Khuzami. Mr. Canellos was appointed Deputy Director in June 2012 and, according to the release, has been instrumental in developing the …

The JOBS Act: Important Questions Remain Unresolved For Private Funds

Simon Riveles CFTC, General Solicitation, Hedge Funds, Jobs Act

On August 29, 2012, the SEC proposed rules implementing the Jumpstart Our Business Startups Act’s (JOBS) eliminating the long-standing ban on general solicitation and general advertising for certain exempt securities offerings. The proposal would require (1) all purchasers of securities sold in such offerings to be accredited investors and (2) that issuers take reasonable steps to verify that their purchasers are accredited investors. The proposed …

BVI Business Company Act Amendments Go Into Effect

Simon Riveles BVI, BVI Business Company Act, Offshore Hedge Fund

The British Virgin Islands is the world’s most popular offshore corporate domicile with over 450,000 companies established and active in the jurisdiction. On October 15, 2012, a wide ranging amendment to the BVI Business Companies Act (the “BC Act”) went into effect. The BC Act implements a number of regulatory changes meant streamline registration and approval process and ensure that the BVI’s maintains its attractiveness …

FACTA’s Impact on Offshore and Domestic Hedge Funds

Simon Riveles FACTA, IRS

The Foreign Account Tax Compliance Act (“FACTA”) was enacted by Congress in 2010 as part of the HIRE Act and will become effective January 1, 2013. The legislation is a new cornerstone in the U.S. government’s long standing campaign to crack down on Americans who hide assets in overseas accounts to avoid U.S. income taxes. FACTA applies to virtually all non-U.S. funds making investments in …

FINRA Rule 5123 Becomes Effective December 3, 2012

Simon Riveles Accredited Investor, FINRA Rule 5123, Private Placement, Reg D Rule 506

On September 5, 2012, FINRA issued a regulatory notice informing its members that Rule 5123, approved by the SEC in June, will become effective December 3, 2012. The rule requires that FINRA registered broker-dealers provide a notice filing to FINRA within 15 days of making a private placement of securities to certain classes of investors. The notice filing will consist of the private placement memorandum …

SEC Settles with Adviser for Failure to Disclose

Simon Riveles Disclosure, SEC

On September 6, 2012, the Securities and Exchange Commission (“SEC”) issued an Order imposing fines, penalties and disgorgement of more than $1.1 million on Focus Point, an investment adviser, and its affiliates for violations of the Investment Advisers Act and Investment Company Act. The Order indicates that the SEC intends to enforce its investment adviser regulations, particularly where undisclosed conflicts of interest exist between advisers …