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
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 …
SEC Posts Q&A About Broker-Dealer Exemption in JOBS Act
On its website, the SEC posted responses to frequently asked questions regarding Broker-Dealer Registration under Title II of the Jobs Act.
The JOBS Act: Important Questions Remain Unresolved For Private Funds
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
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
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
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
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
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
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
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
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
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
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?
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
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
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
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
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
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 …