500 Startups, a Silicon Valley venture capital fund known for its startup incubator, said on Thursday it would generally solicit investments from the public for its third fund. Prior to the JOBS Act going into effect last year, 500’s attempt to generally solicit the public would have drawn the ire of the Securities & Exchange Commission. Now, the Act’s general solicitation provision allows private funds—500 …
California Private Funds Managing Public Retirement Plans Face New Disclosures
California Private Funds Managing Public Retirement Plans Face New Disclosures Reporting and disclosure requirements for managers of “alternative investment vehicles” (an “AIV”) in California just became more complex with Governor Jerry Brown’s signing of a new amendment to California law, specifically aimed at transparency for fees and expenses associated with investment by State and Local pension and retirement plans. The new provision, AB 2833, provides …
Federal Courts Now Available for Trade Secret Misappropriation Claims
By Lauren Mack On May 11, 2016, President Obama publicly signed into law the Defend Trade Secrets Act (the “DTSA”), a long anticipated piece of legislation that creates a federal cause of action for trade secret misappropriation claims. Unlike claims of copyright, trademark, and patent infringement, trade secret misappropriation claims could not be brought by plaintiffs in federal court until now. What Are Trade Secrets? …
AIFMD and Potential Extension of the EU Passport to the U.S
By Lauren Mack and Simon Riveles The Alternative Investment Fund Managers Directive (“AIFMD”) governs Alternative Investment Fund Managers (“AIFMs”) and Alternative Investment Funds (“AIFs”) in the European Union (“EU”) and seeks to harmonize the applicable regulations throughout the member states of the EU. Among its regulations are two different paths that AIFMs planning to market to EU investors may take: (a) minimum requirements for the …
Real Estate Fund Managers: Is Investment Adviser Registration Required?
By William Kelly Firms and individuals required to register as investment advisers and associated persons face a throng of regulatory requirements and restrictions. Under the Investment Advisers Act of 1940 (“Advisers Act”), investment advisers with assets under management (“AUM”) of $100 or more generally must register with the SEC. Registered investment advisers must maintain extensive records and are subject to ongoing SEC examination and reporting …
CFTC Issues Guidance to Exempt CPOs Seeking to Generally Solicit
By Matt McCullough and Eugene Schlesinger On September 9, the Commodity Futures Trading Commission (CFTC) issued CFTC Letter No. 14-116 in response to requests that it harmonize its regulations with Rule 506(c)’s general solicitation provision. Rule 506(c) lifted the prohibition on issuers, including hedge fund managers, from engaging in “general solicitation.” General solicitation includes advertisements in periodicals, on television, radio or public websites, and seminars …
Private Funds, the Cayman Islands IGA and FACTA
By Simon Riveles and Simon M. Cooke. On November 29, 2013, the Cayman Islands signed a FACTA Model 1 intergovernmental agreement (“IGA”) with the United States. The IGA ensures that financial institutions located in the Caymans, whose investors include ‘Specified U.S. Persons’ (defined below), will be able to largely bypass the burdensome FACTA compliance obligations that are applicable to financial institutions located in Model 2 …
Bitcoin and U.S. Regulation
By Simon Riveles and Simon Cooke Bitcoin faces an uncertain regulatory future in the U.S. This uncertainty has led to the U.K.’s newest and most developed bitcoin exchange, Coinfloor, not accepting U.S. customers, at least initially. Bitcoin is a ‘peer to peer’ virtual currency created by a computer generated math based protocol. Bitcoin is an extremely risky and volatile investment with bitcoin’s value fluctuating by …
Simon Riveles a Panelist at the Hedge Fund Association’s Student Symposium at Seton Hall on November 20th
On November 20, 2013, the Hedge Fund Association (“HFA”), an international non-for-profit organization made up of hedge funds, funds of hedge funds, family offices, high net worth individuals, and service providers, is sponsoring the HFA Inaugural Student Symposium at Seton Hall entitled, How to Find Your Fortune Without Losing Your Soul. The Symposium was a unique opportunity for Seton Hall students interested in learning more …
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 …
ERISA and Hedge Funds
What is ERISA? ERISA is the Employee Retirement Income Security Act of 1974, which governs, among other things, the investment of certain benefit plans into hedge funds. The significance of ERISA for hedge funds is that if more than 25% of a hedge fund’s equity interests are those of certain “benefit plan investors,” all of the hedge fund’s assets will be considered “plan assets” under …
CPO Exemptions and General Solicitation
The Securities and Exchange Commission (“SEC”) recently adopted the final rules amending Rule 506 of the Securities Act of 1933, which will eliminate the prohibition on general solicitation for private funds provided fund managers only offer interests to “accredited” investors and take reasonable steps to verify each investor’s accredited status. The final rules will go into effect September 23, 2013. While many private fund managers …
Private Placements under FINRA Scrutiny
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 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 …
FINRA Outlines 2013 Regulatory Priorities
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, …
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 …
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 …
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 …
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