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 …

SEC Issues Proposed Rule on Lifting Ban on General Solicitation under Rule 506 Offerings

Simon Riveles General Solicitation, Jobs Act

On August 29, 2012, the SEC voted, by a 4-1 margin, to issue a proposed rule (“proposed rule”) that would eliminate the current ban on general solicitation and general advertising (collectively “General Solicitation”) under Rule 506 and Rule 144A of the 1933 Securities Act. New rule 506(c) of Reg. D is the first rule proposed for implementing the Jumpstart Our Business Startup Act (the “JOBS …

SEC Approves New FINRA Member Communication Rules

Simon Riveles Advertising, FINRA, SEC

In April, the SEC approved a significant revamping of FINRA rules regarding member communications with the public (the “New Rules”). The rule changes are a culmination of a multi-year effort by FINRA to update, harmonize and consolidate various NASD rules and interpretations regarding communication and advertising rules. New Communication Categories One of the most significant changes brought about by the New Rules is the consolidation …

Rhode Island Adopts Private Fund Adviser Exemption to State IA Registration

Simon Riveles Hedge Funds, Private Fund Exemption, Uncategorized

Rhode Island joins a growing list of states that have adopted, or propose to adopt, rules or orders providing a state level private fund adviser exemption to investment adviser registration. These states include California, Colorado, Indiana, Maine, Massachusetts, Michigan, Virginia and Wisconsin. The Rhode Island exemption, effective May 17, 2012, provides managers to private funds, such as hedge and private equity funds, with an exemption …

MFA Provides Recommendations on Implementation of JOBS Act

Simon Riveles General Solicitation, Jobs Act

In a letter to the SEC, dated May 4, 2012, the Managed Futures Association (“MFA”), a hedge fund industry advocacy group, made several recommendations to the Commission regarding implementation of the repeal of the ban on general solicitation under the JOBS Act (the “Act”), particularly ways in which the Act can better be harmonized with existing securities laws.  Passed in early April, 2012, the Act …

Publicly Traded Hedge Funds Continue to Disappoint

Simon Riveles Hedge Funds, Publicly Traded Hedge Fund

On Tuesday, the London based Man Group, the world’s largest publicly traded hedge fund, reported Q1 investor redemptions of $1 billion. The money manager, known for its quant-based strategies, has been hemorrhaging assets for several quarters after reporting lackluster results for its flagship fund. The AHL fund was down 6% last year and is down 2% in 2012. Man’s AUM is now less than when …

Survey Says Hedge Funds Generally View Dodd-Frank Favorably

Simon Riveles Uncategorized

While many in the financial community have decried the stifling regulation and suffocating oversight of new Dodd-Frank rules, a new survey, by Hofstra University and EisnerAmper, finds that hedge fund managers, especially big fund managers, accept and even welcome the additional scrutiny brought on by SEC registration. Increased transparency during the due diligence process and with regard to risk management procedures and reporting requirements have …

Proposed FINRA Rule 5123: Enhanced Investor Protection or Unnecessary Regulatory Burden?

Simon Riveles Capital Introduction, FINRA Rule 5123, Hedge Funds, Private Placement, Third Party Marketing

Originally proposed on October 5, 2011, FINRA Rule 5123 (the “Rule”) would, if adopted, significantly increase the regulatory burden on certain issuers, such as private funds, and FINRA members involved in private placement of securities such as third party marketers, placement agents, solicitors and finders involved in private placements and may encourage issuers to rely on the services of unregistered intermediaries to facilitate introductions to …

The JOBS Act

Simon Riveles General Solicitation, Uncategorized

On March 22, the Senate passed an amended version of the Jump Start our Business Start-ups Bill (the JOBS Bill) which had been passed by the House with broad bi-partisan support on March 8. The bill is expected to be signed into law by the President. The law is meant to ease the regulatory burden on smaller companies and facilitate the capital formation process. The …

SEC Takes Action Against Funds Invested in Pre-IPO Shares

Simon Riveles Uncategorized

The last several years have seen exponential growth in the trading of private company on second market exchanges such as SharesPost, Brogger and SecondMarket. Social networking sites such as  Facebook, Twitter and LinkedIn are only a few of a variety of late stage companies being traded pre-IPO. Shares in these companies most often become available when an employee seeks to cash out of some or …

Absolute Activitist Decision Delineates Extraterritorial Reach of U.S. Securities Law

Simon Riveles Hedge Funds, Off-Shore Fund, Uncategorized

In 2010, the Supreme Court addressed whether the securities laws apply extra-territorially to transactions in foreign securities of foreign issuers by foreign investors. In what are known as the “F-Cubed” cases, the court held that the anti-fraud provisions of the Securities and Exchange Act of 1934 did not apply to the foregoing types of transactions but only to “domestic transactions” which it defined to be …

SEC Provides RIAs with SPVs Additional Regulatory Relief

Simon Riveles Dodd-Frank, Hedge Funds, Investment Adviser Registration, SEC, Uncategorized

In a no-action letter dated January 18, 2012, the SEC (“the Commission”) provided additional guidance and relief from registration to certain registered investment advisers (“RIAs”) with special purpose vehicles (“SPVs”). In a 2o05 no-action letter, the Commission had provided exemptive relief from investment adviser registration to SPVs created by RIAs who act as the general partner or managing member to a private fund that the …

2011 Start-Up Hedge Fund Survey

Simon Riveles Hedge Funds

The law firm of Stewart Kessel LLP recently conducted a survey of its hedge fund clients to determine what the most popular hedge fund strategies, fee and liquidity provisions and fund structures are for start-up managers. According to the study, approximately 50% of the firm’s clients followed an ‘equity or equity related’ strategy, of which a third were focused on U.S. equities, with the remainder …

Virginia Proposes New IA Registration Exemption for Private Fund Advisers

Simon Riveles Dodd-Frank, Hedge Funds, Private Equity Fund, Private Fund Exemption, SEC, Uncategorized

On February 14, 2012, the Virginia Division of Securities and Retail Franchising (the “Securities Division”) proposed the adoption of a new rule exempting certain managers to certain private funds based on the North American Securities Administrators Association (“NASAA”)  model exemption for investment advisers solely to private funds. The new rule would exempt advisers to private funds excluded from the definition of investment company under Section …

Private Offerings in New York: How an “Integration Clause” bars an Investor from Relying on the Offerors’ Representations

Simon Riveles Private Placement

By Kaiser Wahab, Counsel Anyone in business should be careful to note whether their contracts contain “integration clauses.”  A so called integration clause makes the contract “king” in terms of the promises and representations of a party to a transaction.  In other words, if there is an integration clause in a contract that says “X”, even if one party may have orally maintained “Y” throughout …

NYC Changes Stance on UBT Attributable to Hedge Fund Managers

Simon Riveles Hedge Funds, Uncategorized, Unincorporated Business Tax

Certain New York City based hedge fund management companies have recently been audited with respect to how they account for certain expenses under the City’s Unincorporated Business Tax (“UBT”). Since a statutory amendment to the UBT law was passed over 15 years ago, hedge fund management companies located in NYC have bifurcated the structure of their operations by creating who advisory entities for the fund.  …