Investment Fund Law Blog

InvestmentFundLawBlog

Updates and Insights on Legal Issues Facing Fund Managers and Investors

Hedge Fund General Counsel and Compliance Officer Summit

Posted in Events, Hedge Funds

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Pillsbury Winthrop Shaw Pittman LLP is pleased to present an exclusive client discount for the upcoming:

 Hedge Fund General Counsel and Compliance Officer Summit
October 19, starting at 8:00 a.m. through October 20, ending at 4:30 p.m. ET.
The University Club, New York, NY

Use Promotion Code HFPWSP for a 35% discount when registering.
Click Here to Register

Join us for our session:
“2015 Exam Priorities: Tips for Handling SEC Exams and Investigations”
taking place Tuesday, October 20, 2015, from 10:00 AM – 11:00 AM

 Discussion Leader:

Ildiko Duckor
Partner and Co-head, Investment Funds & Investment Management Practice,
Pillsbury Winthrop Shaw Pittman, LLP

 Speakers to Include:

 David Charnin, Managing Director, General Counsel and Chief Compliance Officer,
Strategic Value Partners, LLC

Sarah A. Good, Partner and Co-leader, Securities Litigation & Enforcement Team,
Pillsbury Winthrop Shaw Pittman, LLP

William H. Woolverton, Senior Managing Director and General Counsel,
Gottex Funds Management

Steven A. Yadegari, Chief Operating Officer and General Counsel,
Cramer Rosenthal McGlynn, LLC

   For more information Click Here

or contact Deborah Bernbaum at (212) 457-7918 or DBernbaum@alm.com
For registration inquiries, contact Frank Wolson at (212) 457-9510 or FWolson@alm.com

FinCEN Proposes to Regulate Investment Advisers under the Bank Secrecy Act

Posted in Advisory, Client Alert, Hedge Funds, Investment Advisers, Private Equity, Private Funds

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking on August 25, 2015 which, among other things, would add SEC-registered investment advisers to the “financial institutions” regulated under the Bank Secrecy Act (BSA). This represents another step by the U.S. government to expand the professions and industries deemed anti-money laundering (AML) gatekeepers. Covered investment advisers will face new AML program, reporting and record-keeping requirements, with implications for hedge, private equity and other funds; money managers; and public or private real estate funds.

FinCEN has long expressed an interest in regulating investment advisers, which it believes may be vulnerable to or may obscure money laundering and terrorist financing. Should the rule become final, SEC-registered investment advisers would be included in the regulatory definition of “financial institution” and, as a consequence, required to establish and implement appropriately comprehensive written AML programs and comply with a variety of reporting and recordkeeping requirements under the BSA. Investment advisers that already implemented AML programs would need to evaluate them to ensure they comply with BSA requirements.

Who are Covered “Investment Advisers”?

Investment advisers provide advisory services, such as portfolio management, financial planning, and pension consulting, to many different types of clients, including institutions, private funds and other pooled investment vehicles, pension plans, trusts, foundations and mutual funds. According to the proposed rule, an “investment adviser” would be defined as “[a]ny person who is registered or required to register with the SEC under section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(a)).”

The definition would cover all investment advisers, including subadvisers, subject to Federal regulation which, generally speaking, would include advisers that have $100 million or more in assets under management. This includes investment advisers engaging in activities with publicly or privately offered real estate funds. Small- and medium-sized investment advisers that are state-registered and other investment advisers that are exempt from SEC registration requirements would not be captured by the proposed rule. FinCEN indicated, however, that future rulemaking may include those types of advisers.

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Read this article and additional publications at pillsburylaw.com/publications-and-presentations.  You can also download a copy of the Client Alert.

FinCEN Proposes New AML Regulations for Investment Advisers

Posted in Advisory, Hedge Funds, Investment Advisers, Private Equity, Private Funds

In a release issued today, the Financial Crimes Enforcement Network (FinCEN) has proposed anti-money laundering (AML) regulations for investment advisers. The proposed rule requires investment advisers registered or required to be registered with the Securities and Exchange Commission (SEC) to establish AML programs and report suspicious activity to FinCEN pursuant to the Bank Secrecy Act (BSA). The SEC would be delegated authority by FinCEN to examine investment advisers for compliance. The proposed rule also makes investment advisers fall under the definition of “financial institution,” requiring them to file Currency Transaction Reports (CTRs) and comply with record keeping obligations under the BSA.

A full copy of the proposed rule is available HERE.

A related article about the new AML regulations was posted in our blog last week.

PILLSBURY PARTNER QUOTED IN FUNDFIRE

Posted in Hedge Funds, Investment Advisers, Private Equity, Private Funds

Kimberly Mann, co-head of Pillsbury’s Investment Funds and Investment Management Group, was interviewed and quoted at length in an article published in FundFire this week. The article explored whether regulators should permit asset managers to settle cases without admitting culpability. In response to that question, Ms. Mann, who has expertise in investment advisor regulatory and fund-related matters, commented “If you’re asking investors, they would likely say “yes”, there should be an admission required. But if you ask fund managers, the response might be a little different and it might be nuanced; it might depend on the severity of the charge and the impact of the charge.” Ms. Mann added “There’s a lot to consider when one is trying to decide whether to make an admission. So, I think most would want flexibility.” She further commented “Some investors might shy away from anyone who’s even been charged, but there are others who might not be as put off if there weren’t an admission.”  To the question of how a regulator would determine when to require an admission, Ms. Mann responded “The broader the effect, the more aggressive [the regulator] would be in pursuing an admission.”

Read the full article HERE.

Advisers Get Ready – New AML Requirements May Be on the Way

Posted in Advisory, Hedge Funds, Investment Advisers, Private Equity, Private Funds

The U.S. Treasury Department’s Financial Crimes Enforcement Network will soon propose new rules that may require investment advisers to establish and implement written anti-money laundering programs designed to prevent advisory clients from using advisers to launder funds or perpetrate other criminal activities. The rules also may require advisers to report suspicious client activity.

The new rules may be similar in certain respects to rules proposed by Treasury in 2003, when the Department attempted to subject investment advisers to the AML provisions of the Bank Secrecy Act. The 2003 rules would have required advisers to (1) establish and implement policies, procedures and controls reasonably designed to prevent advisers from being used to launder money or finance terrorist activities, (2) provide independent testing of compliance by the advisory firms’ personnel, affiliates or third parties, (3) designate persons responsible for implementing and monitoring the operations and internal controls of the program and (4) provide ongoing training for appropriate persons who are involved with the program.

The new rules are likely to reflect comments received in response to the 2003 proposal and may be informed, in part, by certain practices followed by advisers in offshore jurisdictions. It is unclear whether the rules will require investment advisers to apply their anti-money laundering programs to their clients’ beneficial owners.

If the new rules are adopted, investment advisers will need to review and update their compliance manuals, as necessary, to incorporate anti-money laundering policies and procedures that are tailored to their business, clients and risks. In addition, private offering memoranda, fund governance documents, advisory agreements and other client communications should be updated to include information about the anti-money laundering program and suspicious activity reporting requirements.

Citco Ranks #1 Fund Administrator in Q2 2015

Posted in Hedge Funds

During the second quarter of 2015, fund administrator Citco overtook State Street Global Fund Services to become the top fund administrator with regulatory assets under management (RAuM) of $1.06trn as reported to the Securities and Exchange Commission, according to HFM Week.

HFM Week tracks fund administrators, on a quarterly basis, by both the number of funds managed and RAuM. Citco’s ascension to the number one spot for RAuM continues the momentum that Citco previously established through its position as the number one fund administrator based on the number of funds administered in prior HFM Week studies.

Treasury Imposes Toll Charge on Some Transfers of Assets by U.S. Taxpayers to Partnerships with Their Foreign Affiliates

Posted in Advisory, Client Alert, Hedge Funds, Private Equity, Private Funds

On August 6, 2015, the Treasury and the IRS issued Notice 2015-54, which implements a Clinton-era tax provision intended to prevent U.S. taxpayers from using the partnership provisions of the Code to shift built-in gain on property contributed to a partnership to non-U.S. affiliates of the transferor that are partners in the transferee partnership. These rules were announced in reaction to Treasury’s and the IRS’s belief that U.S. taxpayers have been using partnership structures that adopt Section 704(c) methods, special allocations under Section 704(b) and inappropriate valuation techniques with a view towards shifting income to their foreign affiliates.

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Read this article and additional publications at pillsburylaw.com/publications-and-presentations.  You can also download a copy of the Client Alert.

SEC Establishes a Registration Framework for Dealers and Major Participants in the Security-Based-Swap Market

Posted in Advisory, Broker-Dealers

Chair Mary Jo White’s remarks on August 5, 2015 highlighted the SEC’s continuing implementation of the Dodd-Frank Act. Title VII of the Dodd-Frank Act requires the SEC and CFTC to establish a regulatory framework for the over-the-counter swap market. The SEC is specifically tasked with regulating security-based swap (“SBS”) dealers and major participants.

The Dodd-Frank Act added Section 15F to the Exchange Act requiring the SEC to adopt rules to provide for the registration of SBS dealers and major participants. Once registered, SBS dealers and major participants will be required to update information about their business activities, structure, and background in addition to information about affiliates. Moreover, SBS dealers and major participants will be immediately subject to SEC examination and inspection authority upon registration.

Additionally, SBS dealers and major participants are required to perform documented due diligence to ensure there is a framework to enable compliance with federal securities laws. The due diligence will serve as the basis for the senior officer of the SBS dealer or major participant to certify that written policies and procedures reasonably designed to prevent violations of federal securities laws have been implemented at the time of registration.

Under Section 15F(b)(6) it is unlawful, unless otherwise provided by rule, regulation, or order of the SEC, for SBS dealers or major participants to permit a statutorily disqualified associated person to effect or be involved in effecting SBS transactions on their behalf. However, to facilitate the registration process of entities currently engaged in SBS business the SEC provides a limited exception from the statutorily disqualified associated person bar if (1) the associated persons are not natural persons and (2) the statutory disqualifications occurred prior to the compliance date of the final rule once it is published in the Federal Register.

In light of the statutory disqualifications that will apply to dealers and major participants; the SEC has proposed Rule of Practice 194 which provides a process to determine whether it is in the public interest to permit a statutorily disqualified associated person to continue to engage in SBS transactions on behalf of a SBS entity. Comments on proposed Rule of Practice 194 will be due 60 days after it is published in the Federal Register.

Read the SEC release on SBS registration rules HERE.

New IFIM member announcement

Posted in Events

Pillsbury’s Investment Funds and Investment Management group (IFIM) welcomes Corey Harris, Associate.  Corey graduated this summer from Berkeley Law with a Masters in Securities Law.  He has a JD and an MBA from Boston College.  Between law school and the LLM Program, Corey worked at Proskauer Rose in Boston, as in-house counsel at eSECLending and at Hirschler Fleischer in Richmond Virginia, all in the investment management and investment funds area.  We look forward to involving Corey in serving our clients.

Corey can be reached by e-mail at corey.harris@pillsburylaw.com or by phone at (415) 983.6105.

Proposed Regulations Target Management Fee Waivers

Posted in Client Alert, Investment Advisers, Private Equity, Private Funds

In the Federal Register for July 23, 2015, the Treasury Department published proposed regulations regarding the circumstances under which partnership allocations and distributions will be treated as disguised payments for services. These proposed regulations are aimed at attempts by investment fund managers to convert ordinary, management fee income into tax-favored long-term capital gains through the use of management fee waivers.

The proposed regulations draw heavily on the legislative history to Internal Revenue Code section 707(a)(2)(A), enacted as part of the Deficit Reduction Act of 1984 (P.L. 98-369), which provides that allocations and distributions to a partner by a partnership will be disregarded and instead treated as disguised payments for services if the performance of such services and the related direct or indirect allocation and distribution, taken together, are properly characterized as a transaction between the partnership and a partner acting other than in his capacity as a member of the partnership.

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Read this article and additional publications at pillsburylaw.com/publications-and-presentations.  You can also download a copy of the Client Alert.

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