Category Archives: Uncategorized

California Consumer Privacy Act

The California Consumer Privacy Act (the “CCPA”), which was passed as law on June 28, 2019, will be effective as of January 1, 2020. Please be aware most fund managers will not be affected, but given the upcoming date of effectiveness it may be prudent to evaluate the reach of the law.

First, WHO does the CCPA affect?

The CCPA will affect fund managers who do business in California AND either (i) have at least $25 million of annual gross revenue; (ii) buy, sell, share or receive personal data; or (iii) receive over half of their revenue from the sale of personal data of California residents. Most fund managers who do business in California will not meet any of these prongs. The few managers who the CCPA will affect will likely fall under prong (i) – those who do business in California and have at least $25 million in annual gross revenue.

In calculating the $25 million in annual gross revenue, fund managers operating with a bifurcated management structure (separate management company and general partner entities) will likely have to aggregate the revenues of the general partner and management entities. The CCPA expands the definition of a “business” to entities who control or are in common control with another business and which share a common branding. In this case, if the threshold is met across both management entities, each entity will be subject to the provisions of the CCPA. If the general partner and investment manager do not share common branding, our view is that the revenues of the entities will not need to be aggregated.

Second, WHAT information does the CCPA cover?

The CCPA generally covers “personal information” that identifies, relates to, describes, associates with, directly or indirectly, a particular institutional or prospective client. This information includes, without limitation, names, addresses, email addresses, social security numbers, driver’s license or state issued ID number and passport numbers.

Typically, fund managers maintain the personal information of (i) their own employees (ii) individual clients (iii) institutional or entity clients and (iv) prospective clients. Fund managers may be relieved to learn that, due to certain statutory exemptions, information collected (i) about manager’s employees, (ii) via certain business to business transactions and (iii) about individual clients (if a manager is an SEC Registered Investment Adviser), does not constitute personal information and as a result, does not fall under the scope of the CCPA. Thus, the CCPA will generally only cover personal information of a fund manager’s (i) entity or institutional clients and (ii) prospective clients.

The CCPA exempts from coverage all data pre-empted by the Gramm-Leach-Bliley Act (the “GLBA”), which only applies to SEC Registered Investment Advisers (each, an “RIA”). The GLBA protects nonpublic personal information that is provided by a consumer to a financial institution in connection with obtaining financial products/services from the institution. The GLBA’s definition of nonpublic personal information differs from the definition of personal information under the CCPA, and is limited to individual investor information. Thus, while certain individual investor information may be pre-empted from the scope of the CCPA, personal information of entity investors, institutional investors and prospective investors is not within the scope of the GLBA and as such, will be covered by the CCPA.

Third, HOW should fund managers comply?

To the extent that clients or client prospects of fund managers are protected by the CCPA, their rights include the right to request disclosure of information that is collected and shared, the right to delete personal information and the right to non-discrimination. To ensure such compliance with the CCPA, we recommend that managers within the scope of the CCPA take the below actions:

    • Fund managers must broadly be prepared to promptly respond to California client rights and requests including clients’ rights to (i) access specific personal information (ii) data portability (iii) data deletion and (iv) non-discrimination for exercise of any CCPA right. Once a fund manager has received a verifiable consumer request from a client, it must be prepared to disclose and deliver the required information to the client within 45 days.
    • Typical privacy policies currently used by fund managers may need to be updated to (i) inform clients of their rights under the CCPA and instructions on how to exercise those rights and (ii) reword and incorporate as a comprehensive list all personal information (including drivers licenses, passport numbers or any other personal identifiers) collected and shared with service providers (such as the fund administrator, auditor, legal/regulatory service providers and I.T. providers). RIAs should also distribute their annual privacy policy update to all clientele in January.
    • Fund managers operating a website which collects personal information (either through an online portal access, cookies or other website function) must publish a separate CCPA compliant privacy disclosure on such website relating to the collection and use of such personal information. Many fund managers do not collect personal information on their websites, and thus will not need to include such privacy disclosure on their webpage.
    • Fund managers should consider updating their agreements with their fund administrator and possibly other service providers that have access to covered information of clients to include a representation from the service provider that it is in compliance with CCPA regulations.

Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP.  Mr. Mallon can be reached directly at 415-868-5345.

Cole-Frieman & Mallon 2019 First Quarter Update

Below is our quarterly newsletter. If you would like to be added to our distribution list, please contact us.

Clients, Friends, Associates:

The first quarter of each year is typically a busy time for both investment managers and services providers.  The first quarter of 2019 was no exception.  Now that many of the filing deadlines have passed, and audit work should be completed (or nearly so), we enter the second quarter of 2019 with regulatory changes and developments on the horizon.  Below is a brief overview of some items that we hope will help you stay on top of the business and regulatory landscape in the coming months.

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SEC Matters

SEC Publishes Examination Priorities for 2019.  On December 20, 2018, the SEC announced its Examination Priorities for this year.  In 2019, the SEC intends to place emphasis on matters concerning digital assets, cybersecurity, and matters of importance to retail investors, including fees, expenses, and conflicts of interest.  Specifically, the SEC will focus on (i) compliance and risks in critical market infrastructure; (ii) retail investors, including seniors and those saving for retirement; (iii) FINRA and MSRB; (iv) cybersecurity; and (v) anti-money laundering programs.  We recommend speaking with your compliance firm to ensure your books and records as well as operations are in compliance with the securities rules.

SEC Adopts Final Rules Allowing Exchange Act Reporting Companies to Use Regulation A.  Regulation A provides an exemption from registration under the Securities Act for offerings of securities up to $50 million within a 12-month period.  On December 19, 2018, the SEC amended Regulation A to enable companies that are subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange to use Regulation A.  The amendments also permit such reporting companies to meet their Regulation A ongoing reporting obligations through their Securities Exchange Act reports.

SEC Proposes Rule Changes for Fund of Fund Arrangements.  On December 19, 2018, the SEC voted to propose a new rule and related amendments designed to streamline and enhance the regulatory framework for fund of fund arrangements.  The SEC’s proposal would allow a fund to acquire the shares of another fund in excess of the limits of Section 12(d)(1) of the Investment Company Act without obtaining an individual exemptive order from the SEC.  To rely on the rule, funds must comply with conditions designed to enhance investor protection, including conditions restricting the ability of funds to improperly influence other funds, charge excessive fees, or create overly complex fund of fund structures.

SEC Takes Action Against Robo-Advisers.  On December 21, 2018, the SEC settled proceedings against two robo-advisers for making false statements about investment products and publishing misleading advertising.  The proceedings were the SEC’s first enforcement actions against robo-advisers, which provide automated, software-based portfolio management services.

SEC Opens Registration in Compliance Outreach Seminar. The SEC will be sponsoring a seminar on May 16, 2019 as part of its compliance outreach program. The program seeks to aid chief compliance officers and other investment adviser or investment company personnel in the development of their compliance programs. The seminar will be held in Pittsburgh, Pennsylvania, and the topics include 2019 exam and enforcement priorities, common deficiencies, cybersecurity, and what to expect in an examination. Those interested in attending the seminar may register here.

CFTC Matters 

CFTC Releases a Primer about Smart Contracts. On December 11, 2018, LabCFTC, the CFTC’s hub for engagements with the FinTech innovation community, released a primer to help explain smart contract technology and related risks and challenges. The primer looks to provide a definition for smart contracts by looking at smart contract history, characteristics, and potential application in daily life.

NFA Adopts Proficiency Requirements for Swap-Related Associated Persons. On March 25, 2019, the NFA adopted an interpretive notice regarding its amendments to NFA Bylaw 301 and NFA Compliance Rule 2-24 which will implement changes to the NFA’s Swaps Proficiency Requirements. These new rules will go into effect on January 1, 2020 and will require all Associated Persons who engage in, or supervise activities involving, swaps at futures commission merchants, introducing brokers, commodity pool operators, commodity trading advisers, swap dealers, and major swap participants to take and pass a proficiency exam. The exam tests both market knowledge and knowledge of regulatory requirements, and there is no grandfathering provision within the new requirements. The new rules provide for two tracks of testing: the Long Track for swap dealers and the Short Track for all others. The NFA’s Swaps Proficiency Requirements must be completed by January 31, 2021.

NFA Amends its Interpretive Notice on Information Systems Security Programs. In March 2016, the NFA issued an interpretive notice requiring each member to adopt a written information systems security program (ISSP) to combat and effectively respond to unauthorized access of their information technology systems. On January 7, 2019, the NFA announced that it amended the notice to provide more clarification on ISSP approval and the corresponding training requirements for members. Additionally, the amended notice now requires NFA members (other than FCMs) to notify the NFA when certain cybersecurity incidents occur. The amendments to the March 2016 notice became effective April 1, 2019.

NFA Adopts Interpretive Notice Regarding CPO Internal Controls Systems. On April 1, 2019 the NFA adopted an interpretive notice applicable to CPO NFA members that have the ability to control customer funds. The notice specifically requires these CPO NFA members to implement an internal controls framework meant to protect customer funds and provide reasonable assurance that the CPO is in compliance with all CFTC and NFA rules, especially rules regarding maintenance of books and records for each commodity pool.

CFTC Announces 2019 Examination Priorities. On February 12, 2019, the CFTC announced its 2019 examination priorities–the first time the CFTC has done so in its history. In the announcement, the Division of Market Oversight (DMO), the Division of Swap Dealer and Intermediary Oversight, and the Division of Clearing and Risk each summarized their respective priorities. Of note, one of the DMO’s 2019 priorities include cryptocurrency surveillance practices.

Digital Asset Matters

SEC Commissioner Discusses Regulatory Considerations Concerning Digital Assets.  On February 8, 2019, SEC Commissioner Hester Peirce provided remarks concerning regulation and innovation.  Commissioner Peirce stated that digital asset tokens sold for use in a functioning network, rather than as investment contracts, fall outside the definition of securities.  Commissioner Peirce also acknowledged the uncertainty of the regulatory environment concerning digital assets as well as the novel challenges presented by digital asset trading platforms.  Additionally, Commissioner Peirce suggested that there will be further development of the digital asset regulatory environment in 2019.

SEC Issues a Public Statement on Digital Assets as Investment Contracts. On April 3, 2019, the SEC released a public statement discussing whether digital assets are considered securities by virtue of being offered and sold as investment contracts. The public statement references both a published framework of analysis by FinHub and a response to a no-action request by the Division of Corporation Finance. FinHub’s published framework identifies the relevant factors in determining whether a digital asset is offered or sold as an investment contract. Further, the no-action letter demonstrates the type of digital asset that the Division of Corporation Finance would not consider an investment contact or, accordingly, a security.

District Court Reconsiders Previous Ruling, Grants SEC Preliminary Injunction.  Last November, in what was seen as a victory for ICO issuers, a District Court denied the SEC’s attempt to obtain a preliminary injunction against a digital asset company, holding that the SEC failed to prove the company’s token was a security.  On February 14, 2019, the District Court reversed its position and granted a preliminary injunction to the SEC, holding that the contents of the company’s website, whitepaper, and social media posts concerning the company’s ICO constituted an offer of securities.

CFTC is Seeking Comments on Digital Asset Mechanics and Markets.  On December 11, 2018, the CFTC announced it is seeking public comment and feedback to better inform the CFTC’s understanding of the underlying technology, opportunities, risks, mechanics, use cases, and markets for virtual currencies beyond Bitcoin, namely Ether and its use on the Ethereum Network.  The CFTC is seeking to understand the similarities and distinctions between Ether and Bitcoin, as well as Ether-specific opportunities, challenges, and risks.

ICO Issuer Settles Unregistered ICO Charges After Self-Reporting to the SEC. On February 20, 2019, the SEC announced a settlement regarding an unregistered ICO by a company that raised over $12 million in digital assets in late 2017 to finance its operations. In the summer of 2018, the company self-reported to the SEC and cooperated with the SEC’s investigation. The SEC stated that it did not impose a penalty on the company because the company self-reported, agreed to compensate investors, and will register the tokens in compliance with securities laws.

Although the company conducted an ICO after the SEC released the DAO Report on July 25, 2017, the SEC’s decision to forgo fining the company suggests the SEC’s approach to the digital asset space is to focus on fraudulent conduct rather than stifling innovation in the space.

Nasdaq Offers Bitcoin and Ethereum Liquid Indices.  As of February 25, 2019, Nasdaq is offering spot Bitcoin and Ethereum indices, quoted in USD, based on real-time prices.  This move by Nasdaq, which lists over 3,300 companies and carries out approximately 1.8 billion trades per day, could serve as a step towards mainstream adoption of digital assets.

Florida Court Rules Direct Sales of Bitcoin Constituted Money Transmission.  On January 30, 2019, the Third District Court of Appeals in Florida held that an individual’s sale of Bitcoin for cash constituted money transmission and the sale of a payment instrument.  The Court held that since the seller was not licensed to act as a money services business, he could be charged with engaging in unlawful money transmitter services in connection with sales of Bitcoin for cash.

JPMorgan Creates Digital Asset Payment Coin.  On February 14, 2019, JPMorgan announced that it is the first U.S. bank to create and successfully test a digital coin representing a fiat currency, JPM Coin.  JPMorgan claims the JPM Coin will be used to make instantaneous payments using blockchain technology.  While JPMorgan claims that the JPM Coin is designed for institutional use and not for public investment, the company hopes to further develop JPM Coin’s utility in the future.

Other Matters 

FINRA Issues Panel Decision Regarding Transaction-Based Compensation. On January 29, 2019, FINRA’s Department of Enforcement released its decision in an enforcement hearing involving transaction-based compensation. In the decision, FINRA found that the respondent violated such  rules by paying compensation to (i) an unregistered finder’s non-member, unregistered entity and (ii) non-member, unregistered entities owned by its brokers. Additionally, FINRA held that the respondent failed to reasonably supervise its business and had inadequate written supervisory procedures that neither prevented nor detected deficiencies.

Atlanta Panel.  On April 24, 2019, Cole-Frieman & Mallon will be co-hosting a panel with Harneys and Trident Fund Services at Atlanta Tech Village.  The panel will cover developing topics in the investment management space including developments in the digital asset space, the rise of cannabis, and qualified opportunity zone funds.

Qualified Opportunity Zones.  This continues to be a hot topic:

Qualified Opportunity Fund Panel.  In February, Cole-Frieman & Mallon and Anderson Tax hosted a panel regarding qualified opportunity zone funds.  The panel addressed the tax and legal considerations that investment managers and investors should be aware of when creating or investing in a qualified opportunity zone fund.

IRS Holds a Public Hearing on Qualified Opportunity Funds.  On February 14, 2019, the IRS held a public hearing seeking input related to the first round of proposed rulemaking it issued in October 2018.  In the next round of proposed rules, the IRS is expected to provide (i) clarity on the definition of qualified opportunity zone business; (ii) data reporting requirements; (iii) clarity on interactions with other tax incentives; and (iv) guidance on interim gain reinvestment.  Further rule clarifications are expected in Spring 2019.

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Compliance Calendar.

 

Please note the following important dates as you plan your regulatory compliance timeline for the coming months:

Deadline Filing
March 31, 2019 Deadline to update and file Form ADV Parts 1 & 2
April 10, 2019 Amendment to Form 13H due if necessary
April 15, 2019 1st Quarter 2019 Form PF filing for quarterly filers (Large Liquidity Fund Advisers)
April 30, 2019 Collect quarterly reports from access persons for their personal securities transactions
April 30, 2019 Distribute code of ethics and compliance manuals to employees.  Require acknowledgement form to be executed in connection with such delivery
April 30, 2019 Annual Privacy Notice sent to all clients or fund investors (for Advisers with Fiscal Year ending December 31)
April 30, 2019 Distribute audited financial statements to private fund investors that have not invested in fund of funds
April 30, 2019 Distribute Form ADV Part 2 to clients
April 30, 2019 Quarterly NAV Report (registered commodity pool operators claiming the 4.7 exemption)
April 30, 2019 Annual Form PF due date for annual filers (Large Private Equity Fund Advisers and Smaller Private Fund Advisers)
May 15, 2019 Quarterly Commodity Trading Advisor Form PR filing
May 15, 2019 File Form 13F for first quarter 2019
May 31, 2019 First deadline for Cayman Islands Financial Institutions to submit their CRS returns to the Cayman Islands Tax Authority
May 31, 2019 Third reporting deadline (full reporting) for Cayman Islands Financial Institutions with reporting obligations under the Cayman FATCA regulatory framework to report their U.S. Reportable Accounts to the Cayman Islands Tax Authority
June 29, 2019 Distribute audited financial statements to private fund investors that have invested in fund of funds
Variable Distribute copies of K-1 to fund investors
Periodic Filings Form D and Blue Sky filings should be current

Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP.  Mr. Mallon can be reached directly at 415-868-5345.

Cole-Frieman & Mallon 2018 Third Quarter Update

Below is our quarterly newsletter. If you would like to be added to our distribution list, please contact us.

Clients, Friends, Associates:

We hope that you had an enjoyable summer. The past quarter saw further interest in digital assets from regulators, as well as enforcement actions and indications of possible regulatory changes. In the traditional investment management space, this summer saw a continuation of the bull market. As we move into the fourth quarter, we would like to provide an overview of items we hope will help you stay up-to-date with regulatory developments.

In addition to the discussion below, we would like to announce a couple of firm-related items:

  • CoinAlts Fund Symposium. In September, preceded by a well-attended Women in Crypto networking event sponsored by Coinbase, founding sponsor Cole-Frieman & Mallon hosted its third successful full day Symposium in San Francisco. Speakers including keynote Tim Draper, founder of Draper Associates, DFJ and the Draper Venture Network and Joe Eagan of Polychain Capital explored issues key to fund managers and investors in the digital asset space.
  • CFM San Francisco. We are delighted to announe our overflowing San Francisco team will shortly relocate to expanded premises at 255 California Street.

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SEC Matters

SEC Chairman Hints at Changes in Investor Standards. On August 29, Securities and Exchange Commission (“SEC”) Chairman Jay Clayton spoke at the Nashville 36|86 Entrepreneurship Festival. He discussed issues the SEC is focused on or intends to focus on, including initial coin offerings (“ICOs”), promoting capital formation for public companies or companies considering going public, and rethinking the SEC’s current private offering exemption framework. Of note, Chairman Clayton stated that the SEC should explore how the current private offering exemption landscape could be simplified and streamlined. In particular, the Chairman noted that the SEC should examine the possibility of focusing on factors beyond investor wealth (i.e. accredited investor status), such as investor sophistication or investment amount.

SEC Releases Best Execution Deficiencies Alert. On July 11, the Office of Compliance Inspections and Examinations of the SEC released an alert outlining common deficiencies observed in examinations of advisers’ “best execution” obligations. These requirements come from the Investment Advisers Act of 1940, as amended, and impose a duty on advisers to execute trades so that total costs and proceeds are most favorable to clients. While best execution obligations depend on the facts of each situation, the SEC observed the following common deficiencies:

  • Not Performing Reviews – advisers were unable to provide evidence that they periodically and systematically reviewed the broker-dealers used to execute transactions.
  • Not Considering Materially Relevant Factors in Broker-Dealer Services – advisers did not consider the full range and quality of broker-dealers’ services.
  • Not Seeking Other Broker-Dealers – advisers often used only one broker-dealer for all of their clients without evaluating the services, quality, and costs of others.
  • Not Disclosing Best Execution Practices – advisers did not fully disclose best execution practices to their clients.
  • Not Disclosing Soft Dollar Arrangements – soft dollar arrangements (i.e. commissions in exchange for brokerage and research services) were not fully and fairly disclosed in advisers’ Form ADVs.
  • Not Properly Allocating Mixed Use Products and Services – advisers did not properly allocate the costs of mixed use products or services (i.e. products or services obtained using soft dollars, where that product or service is also used for non-investment purposes, such as accounting or marketing). Additionally, advisers did not properly document the reasons for mixed use product or service allocations.
  • Inadequate Policies and Procedures – advisers lacked policies, had insufficient internal controls, or did not have policies tailored to their investment strategy.
  • Not Following Policies and Procedures – advisers failed to follow their own best execution policies and procedures.

In light of the deficiencies listed above, advisers should review their best execution policies and procedures, and contact legal counsel or a compliance professional with any questions.

Hedge Fund Adviser Charged with Short-and-Distort Scheme. On September 12, the SEC charged a hedge fund advisor with illegally profiting from a “short-and-distort” scheme. The adviser is alleged to have released false information about a public pharmaceutical business after shorting the company. The adviser allegedly used reports, interviews, and social media to spread false claims that, for example, the pharmaceutical company was “teetering on the brink of bankruptcy”. The SEC is seeking a permanent restraining order, disgorgement of ill-gotten gains, and civil penalties.

SEC Charges Adviser for Risky Investments and Secret Commissions. On July 18, the SEC charged an adviser and its CEO with misleading investors by putting their capital in risky investments and secretly pocketing large commissions from such investments. The adviser and CEO are accused of misleading investors about the risks of the investments, overbilling, concealing financial conflicts, and violating the anti-fraud and registration provisions of federal securities laws. The SEC is seeking a permanent injunction, disgorgement of ill-gotten gains and losses avoided plus prejudgment interest, and civil monetary penalties. 

CFTC/NFA Matters 

CFTC Chairman Outlines Increased CFTC Enforcement. On October 2, the Commodities Futures Trading Commission (“CFTC”) Chairman Christopher Giancarlo summarized the CFTC’s increased enforcement efforts from the prior fiscal year in a speech to the Economic Club of Minnesota. These efforts include:

  • Enforcement Actions – in the prior fiscal year, the CFTC filed approximately 25% more enforcement actions than each of the prior three fiscal years.
  • Large-Scale Matters – the CFTC has increased enforcement actions against large-scale matters (i.e. matters that threaten basic market integrity). In the CFTC’s last fiscal year, it brought more than three times the average number of large-scale actions as the previous administration.
  • Manipulative Conduct – the CFTC has brought more than five times the previous average number of actions against manipulative conduct in the past fiscal year. Such conduct includes fraud, spoofing (i.e. bidding with the intent to cancel before execution), and the use of technology to manipulate order books.
  • Accountability – the CFTC has prioritized individual accountability, and approximately 70% of the past fiscal year’s cases involved charges against individuals who committed illegal acts.
  • Partnership with Criminal Enforcement – the CFTC has filed “far more actions in parallel” with criminal law enforcement partners than in any previous year.
  • Whistleblower Awards – with respect to whistleblowers, the CFTC has strengthened protections, granted a record number of awards, and received a record number of tips and complaints.

With these increased enforcement efforts in mind, managers of funds subject to CFTC jurisdiction should ensure they are up-to-date with CFTC filings and regulations.

CTA Associated Person and Introducing Broker Charged with Fraud. On August 10, the CFTC settled charges against an associated person of a commodity trading adviser (“CTA”) and introducing broker. The charges were based on a fraudulent trading scheme where the trader entered unauthorized commodities trades in customers’ accounts, transferred profitable trades to his own account, and left losses in the clients’ accounts. The settlement included a cease and desist order, a permanent ban from engaging in trading with any CFTC-registered entity, and a $100,000 civil monetary penalty.

Digital Asset Matters

Regulators continued to show interest and initiate enforcement actions in the digital asset space. Below is a summary of certain key digital asset items from the third quarter. For a complete review of these and other crypto developments, please consult our Third Quarter Digital Asset Regulatory Items blog post.

SEC Charges Digital Asset Hedge Fund Manager. On September 11, the SEC announced the settlement of charges against a digital asset hedge fund and its manager. The charges include misleading investors, offering and selling unregistered securities, and failing to register the hedge fund as an investment company. After being contacted by the SEC, the fund offered rescission and disclosed its previous misstatements to investors. The settlement included cease-and-desist orders, censure, and a $200,000 penalty. This is the first action the SEC has taken against a digital asset fund based on violations of the investment company registration requirements.

SEC Charges ICO Platform for Operating as Unregistered Broker-Dealer. On September 11, the SEC settled charges against an ICO platform. The business was charged with failing to register as a broker-dealer, as well as offering and selling unregistered securities. This is the SEC’s first charge against an unregistered broker-dealer in the digital asset space following the SEC’s 2017 DAO Report, which cautioned anyone offering or selling digital assets to comply with federal securities laws.

New York Attorney General Releases Report on Digital Asset Exchanges. On September 18, the Office of the Attorney General of New York (the “OAG”) released a report summarizing a crypto exchange fact-finding initiative. Based on the digital asset exchanges examined, the OAG outlined three primary areas of concern: potential conflicts of interest, lack of anti-abuse controls, and limited customer fund protection.

NFA Requires CPOs and CTAs to Disclose Digital Asset Activity. On July 20, the National Futures Association (“NFA”) released a notice that imposed new disclosure requirements on futures commission merchants, commodity pool operators (“CPOs”), and CTAs that are NFA members engaged in certain digital asset activities. The new disclosures cover, for example, the volatility and cybersecurity risks of digital assets. Additional details are available in our recent blog post.

Offshore Matters

Cayman Islands Delays AML Officer Deadline. Under new Cayman Islands requirements, investment funds that conduct business in or from the Cayman Islands must appoint individuals to new anti-money laundering officer positions. The Cayman Islands Monetary Authority (“CIMA”) has delayed certain deadlines for funds that launched prior to June 1, 2018:

  • CIMA-Registered Cayman Funds – registered funds still must have appointed the new officers by September 30, 2018, but now do not need to confirm the identity of the officers via CIMA’s Regulatory Enhanced Electronic Forms Submission (“REEFS”) portal until December 31, 2018.
  • Unregistered Cayman Funds – unregistered funds do not need to appoint the new officers until December 31, 2018, and they do not need to confirm the identity of these officers via the REEFS portal.

Funds formed on or after June 1, 2018 must have appointed the officers (and confirmed such officers through REEFS for registered funds) at launch. The new roles must be filled by individuals, and some service providers may be willing to provide individuals to serve such roles. We recommend fund managers discuss anti-money laundering compliance with offshore counsel and the fund’s administrator.

Other Matters 

FINRA Warns of Regulator Impersonators. On July 13, FINRA issued a warning that persons claiming to be working for FINRA have been calling firms and attempting to obtain confidential information. In particular, FINRA warned that the use of overseas telephone numbers or email addresses indicates a likely scam, as well as emails from suspicious domains that do not end with “@finra.org” and that contain attachments or embedded links. If you have questions about the legitimacy of purported FINRA communications, contact your FINRA Coordinator.

New York Issues Sexual Harassment Compliance Mandate. Managers with operations in New York State and New York City should be aware of recent changes to employers’ obligations with respect to sexual harassment. Effective October 9, 2018, all employers in New York State are required to adopt a sexual harassment prevention policy equal to or greater than the standards of the state-issued model policy. Additionally, New York State employers must provide sexual harassment prevention training annually that is equal to or greater than the state-created model. This training must be completed by current employees by January 1, 2019, and by new hires within 30 days of being hired. Managers that may be subject to these new requirements can learn more on New York State’s Combating Sexual Harassment in the Workplace website. New York City has also implemented similar training requirements for employers with 15 or more employees, which will take effect on April 1, 2019. Additionally, effective September 6, 2018, New York City employers must post a sexual harassment poster and distribute a fact sheet to new employees.

SEC Charges Firm for Deficient Cybersecurity. On September 26, the SEC settled charges against a broker-dealer/investment adviser based on the firm’s deficient cybersecurity procedures after parties posing as contractors accessed customers’ personal information. The charges are a reminder of the importance of maintaining strong cybersecurity policies and procedures. Firms should be aware that cybersecurity is an on-going obligation and has become a focus of the SEC.

IRS Ends Voluntary Disclosure Program. On September 28, the Internal Revenue Service ended the 2014 Offshore Voluntary Disclosure Program (“OVDP”). U.S. taxpayers are required to report and pay taxes on certain offshore assets and face potential stiff criminal and civil penalties for failing to do so, and the OVDP was designed to offer taxpayers certain protections from these penalties. Fund managers with unreported foreign assets that were not able to meet the September 28, 2018 deadline should discuss their options with tax counsel.

New Law Expands Disclosure and Approval Requirements for Investments by Foreign Entities. On August 13, the Foreign Investment Risk Review Modernization Act (“FIRRMA”) was signed into law. It expands the scope of investments by non-U.S. investors in critical domestic tech companies that must be disclosed to and approved by the federal government in an effort to strengthen national security. An example investment within the scope of FIRRMA is an investment by a non-U.S. entity in a tech company that gives the investing entity access to material non-public technical information. While there are limits and exemptions to the scope of FIRRMA and the typical fund will not need to worry about its new requirements, venture funds with foreign limited partners or foreign co-investors should be mindful of the expanded approval requirements.

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Compliance Calendar. As you plan your regulatory compliance timeline for the coming months, please keep the following dates in mind:

 

Deadline Filing
October 10, 2018 Form 13H amendment due for large traders if the information contained in the filing became inaccurate in Q3
October 15, 2018 Quarterly Form PF due for Large Liquidity Fund Advisers (for funds with December 31 fiscal year-ends) filing for Q3 2018 (if applicable)
October 15, 2018 Extended deadline to file Reports of Foreign Bank and Financial Accounts (FBAR)
October 30, 2018 Registered investment advisers must collect access persons’ personal securities transactions
November 14, 2018 Form PR filings for registered CTAs that must file for Q3 within 45 days of the end of Q3 2018
November 14, 2018 Form 13F is due for certain institutional investment managers
November 30, 2018 Form PF filings for Large Hedge Fund Advisers with December 31 fiscal year-ends filing for Q3 2018
November 30, 2018 Large registered CPOs must submit a pool quarterly report (CPO-PQR)
December 17, 2018 Deadline for paying annual IARD charges and state renewal fees
December 31, 2018 Small and mid-sized registered CPOs must submit a pool quarterly report (CPO-PQR)
December 31, 2018 Deadline for CIMA-registered Cayman funds formed prior to June 1, 2018 to confirm the identity of appointed anti-money laundering officers via REEFS; deadline for unregistered Cayman funds to appoint anti-money laundering officers
December 31, 2018 Cayman funds regulated by CIMA that intend to de-register (i.e. wind down or continue as an exempted fund) should do so before this date in order to avoid 2019 CIMA fees
Periodic Fund managers should perform “Bad Actor” certifications annually
Periodic Amendment due on or before anniversary date of prior Form D and blue sky filing(s), as applicable, or for material changes
Periodic CPO/CTA Annual Questionnaires must be submitted annually, and promptly upon material information changes

Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP.  Mr. Mallon can be reached directly at 415-868-5345.

CoinAlts Fund Symposium Announces 3rd Conference in San Francisco

Keynote and Panels to focus on Custody and Institutionalization

After two successful events, the CoinAlts Fund Symposium is excited to announce its third symposium will take place in San Francisco on September 20, 2018 at the St. Regis Hotel. Headlined by keynote speaker Tim Draper, founder of Draper Associates and the Draper Venture Network, additional speakers include crypto industry veterans as well as digital asset fund managers. The all-day conference will address legal and operational concerns germane to the digital asset industry, as well as emerging trends in operations and raising capital from institutional investors.

“We are excited to present a program that will focus on the institutionalization of the digital asset space, specifically: what is happening with custody of digital assets,” said conference co-chair Bart Mallon of the law firm Cole-Frieman & Mallon LLP. Lewis Chong of Harneys, another conference co-chair, echoed those sentiments noting that, “clients are keenly aware of the various ways that custody is emerging and evolving to meet investor desire for the safety of digital assets.”

Sam McIngvale, the product lead at Coinbase Custody and a conference panelist, said “custody has been a big issue for digital asset funds, we are excited to be part of the emerging solution set and to talk about the other trends we are seeing with this asset class.”

Registration is now open on the CoinAlts Fund Symposium website – current early bird pricing for investment managers is $300 per person and $950 per person for service providers. Early bird pricing ends on August 31, 2018, after which the price will be $500 and $1,200 respectively. The Symposium together with Coinbase is also hosting a networking event exclusively for women in the digital asset community: Women in Crypto which will be held on September 19, 2018 at Rooftop, Hotel VIA.

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About the CoinAlts Fund Symposium

The CoinAlts Fund Symposium was established by four firms with practices significantly devoted to fund managers in the cryptocurrency and digital asset space. Cohen & Company specializes in the investment industry and advises cryptocurrency funds on important tax, audit and operational matters. MG Stover & Co. is a full service fund administration firm built by former auditors and fund operators to deliver world class solutions to the global alternative investment industry. Cole-Frieman & Mallon LLP is a premier boutique investment management law firm, providing top-tier, responsive and cost-effective legal solutions for cryptocurrency fund managers. Harneys is a leading international offshore law firm that acts for both issuers of digital assets and investment funds who invest in them. Members of our team are members of a number of the leading industry working groups in the BVI, Cayman Islands and the United States who are contributing to the thought leadership and industry insight in these areas.

Cole-Frieman & Mallon 2018 Second Quarter Update

Below is our quarterly newsletter.  If you would like to be added to our distribution list, please contact us.

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July 12, 2018

Clients, Friends, Associates:

We hope that you are enjoying the start of summer.  Although the second quarter is typically not as busy as the first quarter from a regulatory or compliance perspective, we continue to see rapid developments in the digital asset space.  As we move into the third quarter, we would like to provide a brief overview of some items we hope will help you stay abreast of these developments.

In addition to the discussion below, we would like to announce a couple of firm items:

CFM Atlanta.  Our Atlanta office has just moved into new space in the heart of Buckhead.  The new office address is 3348 Peachtree Road NE, Suite 1030, Atlanta, GA 30326.

CoinAlts Fund Symposium. In April founding sponsor Cole-Frieman & Mallon hosted its second full day Symposium attended by over 300 professionals, students, and investors in New York.  Featuring twenty eight speakers, including key-notes, John Burbank of Passport Capital and Mark Yusko of Morgan Creek Capital Management, CoinAlts East presented a broad spectrum of content essential to managers and investors in the digital asset space.  Our next CoinAlts Fund Symposium will take place in San Francisco on September 20, 2018. More details to follow.

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GDPR

GDPR Effective May 25.  The General Data Protection Regulation (“GDPR”) went into effect on May 25, 2018 as part of the European Union’s effort to protect personal data.  Any person or business that handles EU residents’ personal data must comply with the regulation.  GDPR also applies to businesses established outside of the EU if their activities involve processing personal data related to offering goods or services to persons within the EU.  US fund managers with EU resident investors will need to: (i) maintain records of any data processing activities; (ii) obtain EU clients’ affirmative consent to process data; and (iii) provide EU clients with access to the fund’s privacy policy.

Managers with EU resident investors, but no presence within in the EU may also be required to appoint an EU local representative unless they can demonstrate processing is “occasional”, does not include special categories of EU resident personal data, including criminal, on a large scale, and is unlikely to result in a risk to the rights and freedoms of natural persons.  We believe most of our clients generally fall into this exclusion and will not need to appoint an EU representative, but it may be challenging at present to find EU counsel that will advise on this requirement in the absence of more guidance from EU regulators.  For more information on GDPR, including compliance items for hedge fund managers, please see our earlier post.

Legal and Regulatory Developments

SEC Proposes Rules Regarding Form CRS, Form ADV, and Disclosures in Retail Communications.  On April 18, 2018, the Securities and Exchange Commission (“SEC”)  proposed new rules and amendments to certain rules and forms under the Investment Advisers Act of 1940, as amended (“Advisers Act”) and the Securities Exchange Act of 1934, as amended.  One proposal would require both registered investment advisers and broker-dealers to provide a summary (“Form CRS”) disclosing the nature and details of their relationship to retail investors.  Form CRS would be added as a section to Form ADV and would disclose: (i) the relationships and services the firms offer; (ii) the standard of conduct and fees and costs associated with the services; (iii) specified conflicts of interest; and (iv) reportable legal or disciplinary events on the firm’s part or its financial professionals.

The SEC also proposed two new rules to reduce investor confusion caused by communications with broker-dealers and investment advisers by placing additional requirements on retail investor communications.  One rule would restrict broker-dealers’ use of the terms “adviser” and “advisor” when communicating with retail investors.  The other rule would require broker-dealers and investment advisers to disclose their SEC registration status in retail investor communications.  It would also require associated natural persons and supervised persons to disclose their relationships with broker-dealers or investment advisers in retail investor communications.  Comments to the SEC are due on or before August 7, 2018.

SEC Proposes Interpretation of Standard of Conduct for Investment Advisers.  On April 18, 2018, the SEC proposed an interpretation of the conduct standard for investment advisers under the Advisers Act and requested comment on its proposal.  The SEC also seeks comment on the following proposed requirements for SEC registered investment advisers (“RIAs”): (i) federal licensing and continuing education; (ii) periodic account statements; and (iii) financial responsibility requirements similar to those required of broker-dealers.  Comments to the SEC are due on or before August 7, 2018.

SEC Charges 13 Private Fund Advisers for Repeated Form PF Filing Failures.  On June 1, 2018, the SEC  announced settlements with 13 SEC RIAs for repeatedly failing to provide risk monitoring information.  The SEC found that the advisers continually failed to file annual reports on Form PF.  Section 204(b) of the Advisers Act requires large fund managers to report information such as assets under management, fund strategy, and fund performance on Form PF.  The SEC uses these reports to inform their rulemaking process and to target examinations and enforcement investigations.  The SEC found that each of the advisers violated the Form PF reporting requirements under the Advisers Act.  Although the advisers did not admit or deny the SEC’s findings, they agreed to be censured, cease and desist, and to each pay a $75,000 civil penalty.

SEC Charges Hedge Fund Adviser with Deceiving Investors.  On May 9, 2018, the SEC charged a hedge fund adviser and certain principals, including the CEO and a former portfolio manager, for fraudulently overvaluing its funds by hundreds of millions of dollars.  Defendants are alleged to have placed trades in exchange for inflated broker-dealer quotes and applied “imputed” mid-point valuations in a manner that further inflated the value of securities.  The SEC is seeking permanent injunctions, the return of illicit profits with interest, and civil penalties.

SEC Charges Hedge Fund Firm for Asset Mismarking and Insider Trading.  The SEC announced on May 8, 2018 that a manager agreed to settle charges regarding insider trading and fraudulent overvaluation of certain assets held by its hedge funds.  The SEC found that two of the portfolio managers overstated the values of their hedge funds’ securities.  In a separate order, the SEC alleged that the CFO failed to supervise the two portfolio managers appropriately and respond to red flags regarding the mismarking.  The SEC also found that the portfolio managers violated insider trading laws by trading pharmaceutical securities on confidential information obtained through a former U.S. Food and Drug Administration official.

Second Circuit Amends Martoma Decision.  On June 25, 2018, the U.S. Court of Appeals for the Second Circuit amended its decision in United States v. Martoma to clarify tippee liability in insider trading cases.  As we discussed in a previous Quarterly Update, the Second Circuit once again upheld a former portfolio manager’s 2014 conviction for insider trading.  In its amended decision, the court confirmed that a “meaningfully close personal relationship” is not required for tippee liability in insider trading cases.

Digital Asset Matters

We see many thought-provoking items in the digital asset sector as the industry moves towards greater institutional infrastructure.  After numerous public statements by SEC officials, token issuers understand that there are several compliant ways to raise capital through token offerings.  One way is through Regulation A+, which has many advantages over other securities offering mechanisms.  We are also seeing many groups use airdrops as a way to try to circumvent the private placement regulatory regime.  One item to specifically note, is that privately placed tokens may have resale restrictions that could create issues for both the token issuers and token purchasers.  We are also aware of several groups beginning the process of registering as alternative trading systems or otherwise becoming broker-dealers and/or qualified custodians.

Outside of these items, we have summarized some notable regulatory developments in the second quarter.  For a complete review of these developments, please consult our Digital Asset Regulatory Items blog post.

CFTC Issues Advisory on Virtual Currency Derivatives.  On May 21, 2018, the Commodity Futures Trading Commission (“CFTC”) Division of Market Oversight and the Division of Clearing and Risk issued an advisory regarding virtual currency derivative products.  The CFTC outlined key expectations for exchanges and clearinghouses operating in the virtual currency derivatives space:

  • Enhanced Market Surveillance – an adequate market surveillance program would include sharing information on the underlying spot markets, allowing the CFTC to access a broad range of exchange trade data (i.e., trader identity, volumes, times, prices, and quotes), and real-time monitoring of all trading activity to identify red flags.
  • Close Coordination with the CFTC Surveillance Group – exchanges should engage in regular discussions with the CFTC on surveillance of virtual currency derivatives contracts and allow access to data on settlement processes referenced in such contracts.
  • Large Trader Reporting – exchanges should set large trader reporting thresholds for any contract at five BTC (or equivalent) to increase their ability to focus on relevant market information.
  • Outreach to Members and Market Participants – exchanges should obtain comments from stakeholders on listing issues beyond contract terms and conditions.  Comments should include explanations of opposing views and the exchanges’ perspectives.
  • Derivative Clearing Organization’s Risk Management – the CFTC requests information from derivative clearing organizations (“DCOs”) necessary to assess the suitability of proposed initial margin requirements.  The CFTC may require DCOs to amend inadequate initial margins.  They may also request information regarding the approval process of proposed contracts.

NASAA Combats ICO Fraud.  On May 21, 2018, the North American Securities Administrators Association (“NASAA”) announced its involvement in “Operation Cryptosweep,” one of the largest coordinated enforcement efforts against fraudulent Initial Coin Offerings (“ICOs”), crypto-related products, and cryptocriminals.  Operation Cryptosweep is a combined effort between NASAA’s members, spanning more than 40 jurisdictions in the United States and Canada.  Since April 2018, the operation has produced almost 70 inquiries and investigations in addition to 35 pending or completed enforcement actions related to digital assets and ICOs, including multiple actions against private funds.  According to NASAA President Joseph Borg, these recent actions are only the beginning of further enforcement against ICO fraud.

Other Items

5th Circuit Issues Mandate on Fiduciary Rule.  On June 21, 2018, the U.S. Court of Appeals for the Fifth Circuit issued a mandate regarding the Department of Labor’s (“DOL’s”) Fiduciary Rule (“Fiduciary Rule”) after months of uncertainty.  The Fifth Circuit’s mandate effectuates its March 15 decision to vacate the Fiduciary Rule.  Although the DOL’s Fiduciary Rule appears defeated, the court’s decision may prompt the SEC and other regulators to revisit their plans for fiduciary reform.

Section 3(c)(1) of the Investment Company Act Amended.  President Trump authorized the Economic Growth, Regulatory Relief, and Consumer Protection Act (“Growth Act”) on May 24, 2018.  A portion of the Growth Act amends Section 3(c)(1) of the Investment Company Act of 1940, as amended, by increasing the number of investors allowed in a qualifying venture capital fund from 100 to 250 investors.  The Growth Act —  which will take effect in late 2019 —  defines a qualifying venture capital fund as one with less than $10 million “in aggregate capital contributions and uncalled committed capital.”

The CFTC and NASAA Sign Information Sharing Memorandum.  The CFTC and NASAA signed a Memorandum of Understanding (“MOU”) regarding the sharing of non-public information on May 21, 2018.  The MOU aims to forge a closer working relationship between the CFTC and individual state securities agencies— represented by the NASAA— to better enforce the U.S. Commodity Exchange Act of 1936, as amended (“CEA”) by promoting voluntary, inter-agency sharing of non-public information.  NASAA President Joseph Borg believes the MOU could assist NASAA members in enforcing both securities and commodities law violations, particularly against schemes related to digital assets and other modern commodities.

NFA Develops Swaps Proficiency Program and Exam.  The National Futures Association (“NFA”) announced on June 5, 2018 that its board approved the creation of an online proficiency requirements program and exam for all associated persons participating in swaps activities.  The swaps proficiency program is part of the NFA’s mandate under the CEA, which requires the NFA to set training standards and proficiency testing for individuals and activities governed thereunder.  The online program and exam are expected to launch in early 2020.

Cayman Islands Revises and Clarifies AML Regulations.  As mentioned in previous updates, the Cayman Islands released the 2018 revisions to its Anti-Money Laundering (“AML”) regulations earlier this year.  The following are some notable changes:

  • Non-Cayman Islands Monetary Authority (“CIMA”) registered funds (i.e., 4(4) funds) will be subject to AML regulations;
  • All investment funds (registered and unregistered) must designate natural persons to act as Anti-Money Laundering Compliance Officers (“AMLCOs”), Money Laundering Reporting Officers (“MLROs”), and Deputy Money Laundering Reporting Officers (“DMLROs”) by September 30, 2018 or, for funds registering after June 1, 2018, upon submission of the registration application; and
  • All investment funds (registered and unregistered) will be subject to enhanced AML processes and procedures.

CIMA also released a notice on April 6, 2018 to clarify its guidance notes on the AML regulations.

The guidance clarified that a fund could designate the same individual to serve as its AMLCO and MLRO.  Also, if an MLRO, DMLRO, and AMLCO have been appointed, a person carrying out the relevant financial business of a fund may delegate to another the performance of functions outlined in the AML regulations.  Significantly, managers should also note that these officers may be exposed to criminal sanctions for breach of their obligations.  Failure to comply with CIMA’s AML regulations could result in an unlimited fine and imprisonment for two years.  We recommend that fund managers discuss AML compliance and implementation issues with offshore counsel and the fund’s administrator.

Cayman Islands Appeals Court Holds That a Liquidator May Not Adjust a Shareholder’s NAV.  The Cayman Islands Court of Appeal held that an official liquidator of a fund could not change a contractually agreed upon net asset value (“NAV”), even if it were based upon fraudulent numbers.  The judge agreed with the lower court that allowing adjustment of the NAV would “interfere with the shareholders’ proprietary rights,” an action that legislators did not intend to permit.  This outcome may benefit shareholders by providing certainty regarding a fund’s NAV and the benefits derived from “their rights under a valid and subsisting contract.”

Cayman Issues AEOI Portal Update.  On May 29, 2018, the Cayman Islands issued an update regarding the Automatic Exchange of Financial Account Information Portal (“AEOI”).  The statutory deadline for filing Common Reporting Standard (“CRS”) and US Foreign Account Tax Compliance Act, as amended, (“FATCA”) reporting was May 31, 2018.  However, the Cayman Islands Department for International Tax Cooperation will allow Cayman Financial Institutions until July 31, 2018 to fulfill their 2017 CRS and US FATCA reporting obligations without facing adverse consequences, compliance measures, or penalties.

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Compliance Calendar. As you plan your regulatory compliance timeline for the coming months, please keep the following dates in mind:

Deadline – Filing

  • June 29, 2018 – Delivery of audited financial statements to investors (private fund managers to fund of funds, including SEC, state, and CFTC registrants)
  • June 30, 2018 – Deadline for Cayman Island registered funds with a fiscal year end of December 31 to file the Fund Annual Return and audited financial statements with CIMA
  • June 30, 2018 – Deadline for making available AIFMD annual report for funds in or advertising in the EU (Alternative Investment Funds with a financial year ending on December 31st)
  • June 30, 2018 – Review transactions and assess whether Form 13H needs to be amended
  • July 15, 2018 – Quarterly Form PF due for large liquidity fund advisers
  • July 30, 2018 – Quarterly account statements due (CPOs claiming the 4.7 exemption)
  • July 30, 2018 – Collect quarterly reports from access persons for their personal
    securities transactions
  • July 31, 2018 – Cayman Islands CRS and US FATCA reporting deadline without adverse consequences (for those who missed the initial May 31, 2018 deadline)
  • August 14, 2018 – Form 13F filing (advisers managing $100 million in 13F Securities)
  • August 14, 2018 – CTA-PR filing with NFA
  • August 29, 2018 – Quarterly Form PF due for large hedge fund advisers
  • August 29, 2018 – CPO-PQR filing with NFA
  • September 30, 2018 – Review transactions and assess whether Form 13H needs to amended
  • September 30, 2018 – Deadline to designate an MLRO, DMLRO, and AMLCO for Cayman Islands AML compliance
  • October 15, 2018 – Quarterly Form PF due for large liquidity fund advisers
  • October 15, 2018 – Annual Foreign Bank and Financial Accounts Report deadline (for those who missed the April 17 deadline)
  • Periodic – Fund managers should perform “Bad Actor” certifications annually
  • Periodic – Amendment due on or before anniversary date of prior Form D filing(s), or for material changes
  • Periodic – CPO/CTA Annual Questionnaires must be submitted annually, and promptly upon material information changes
  • Periodic – Form D and blue sky filings should be current

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Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP.  Mr. Mallon can be reached directly at 415-868-5345.

Digital Asset Regulatory Items – Second Quarter 2018

The second quarter offers notable regulatory updates in the digital asset space. For your convenience, we provide an overview of these items down below.

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SEC MATTERS

Speeches & Testimony

Chairman Testifies on Cryptocurrencies Before the House Committee on Appropriations

On April 26, 2018, Securities and Exchange Commission (“SEC”) Chairman Jay Clayton testified before the Financial Services and General Government Subcommittee of the House Appropriations Committee that digital assets are divided into 2 categories: (1) a “pure medium of exchange”—considered to be “not a security”; (2) tokens—a tool “to finance projects.” Given the uncertainty around cryptocurrencies, this may suggest that even the SEC might not readily view all tokens as securities yet.

SEC Director Hinman Testifies Before the House That Many ICOs are Securities Offerings, Certain Utility Tokens Do Not Have Hallmarks of a Security

On April 26, 2018, SEC Director William Hinman stated his position that it is “hard to have an initial sale without a securities offering.” Consequently, Hinman believes that initial coin offerings (“ICOs”) will likely require registering as a securities offering or operating under an exemption. He clarified that it is possible for a token not to have the hallmarks of a security if the token was purchased solely for its functional use and not as an investment. For many issuers, it could mean that they can offer tokens for sale by relying on appropriate exemptions without having to comply with the SEC securities registration.

SEC Director Hinman Speaks at the Yahoo Finance All Markets Summit on Crypto

On June 14, 2018, SEC Director of the Division of Corporation Finance William Hinman spoke at the Yahoo Finance All Markets Summit on Crypto in San Francisco.  He addressed questions regarding ICOs and token sales and whether a digital asset can be something other than a security.  He mentioned that currently, neither Bitcoin nor Ether meet the Howey test. However, he cautioned that classification of whether an instrument is a security is not static and the classification can change as the instrument changes.

Releases

SEC Creates Senior Advisor for Digital Assets and Innovation Position

On June 4, 2018, the SEC announced that Valerie A. Szczepanik would be the agency’s first ever Senior Advisor for Digital Assets and Innovation. This newly created position will allow the SEC to explore how U.S. securities laws would apply to digital asset technologies such as ICOs and cryptocurrencies. Ms. Szczepanik has been with the SEC since 1997. During her tenure, she has been an Assistant Director for the Division of Enforcement’s Cyber Unit. Currently, Szczepanik serves as the Head of the SEC’s Distributed Ledger Technology Working Group, Co-Head of the Dark Web Working Group, and a member of the FinTech Working Group.

Enforcement

SEC Takes Civil Actions Against Fraudulent ICO

On April 2, 2018, the SEC filed a complaint in the United States District Court for the Southern District of New York against Centra Tech., Inc. (“Centra”) for raising at least $32 million in unregistered securities through a fraudulent ICO. Centra falsely claimed that it had partnered with VISA, Mastercard, and Bancorp to create a “crypto debit card.” The complaint seeks a permanent injunction to stop Centra’s activities and to return the ill-gotten gains to investors. The U.S. Attorney’s Office has also filed criminal charges against the two founders.

SEC Files Charges Against Titanium Blockchain

On May 22, 2018, the SEC filed charges in the United States District Court for the Central District of California against Titanium Blockchain for violating antifraud and registration provisions under federal securities laws. The company used false corporate relationships and testimonies to inflate the values of their digital assets. Under the guise of an ICO, they fraudulently raised up to $21 million in cash and digital assets.

Other

SEC Creates Mock Initial Coin Offering

The SEC has created howeycoins.com. The website is designed to educate the public about fraudulent ICOs and how to avoid being a victim.

CFTC MATTERS

Advisory

The CFTC Issues Advisory on Virtual Currency Derivatives

On May 21, 2018, the Commodity Futures Trading Commission (“CFTC”) issued key expectations for exchanges and clearinghouses regarding virtual currency derivative products. These include: i) enhanced market surveillance; ii) close coordination with the CFTC surveillance group; iii) large trader reporting; iv) outreach to members and market participants; and v) derivative clearing organization’s risk management. For more details on these key points, please refer to our second quarterly update.

Speeches

CFTC Gives Keynote at the FIA 40th Annual Law & Compliance Division Conference on the Regulation of Futures, Derivative, and OTC Products, Washington, D.C.

CFTC Commissioner Rostin Behnam.  On May 3, 2018, CFTC Commissioner Rostin Behnam spoke at the Futures Industry Association’s 40th Annual Law & Compliance Division Conference on the Regulation of Futures, Derivative, and OTC Products. In his speech, the Commissioner noted that institutions look at digital assets as something more than a currency. He also acknowledged the National Futures Association’s work on understanding and regulating virtual currencies and their derivatives.

Commissioner Quintenz Announces the Establishment of TAC Subcommittees

CFTC Commissioner Brian Quintenz. On June 4, 2018, CFTC Commissioner Brian Quintenz announced the creation of the Technology Advisory Committee’s (“TAC”) four new subcommittees. The subcommittees will be tasked with exploring automated and modern trading markets, cybersecurity, distributed ledger technology and market infrastructure, and virtual currencies.

Enforcement

CFTC Files Complaint Regarding Fraudulent ATM Coin

On April 16, 2018, the CFTC filed a complaint against three investment funds for their connection with a “binary options” scheme that defrauded at least 6 U.S. clients of about $618,810. The managers invited investors to transfer their fund balances to a virtual currency firm in return for the fraudulent virtual currency called “ATM Coin.” Neither the defendants nor the executed transactions were registered with the CFTC or a registered exchange. One of the fund managers also faces criminal charges for altering records and obstructing the FBI investigation.

NFA MATTERS

Notice to Members

NFA Encourages FCMs and IBs to Review OFAC FAQs for Compliance Obligations

On May 3, 2018, the National Futures Association (“NFA”) released a notice recommending that futures commission merchants (“FCMs”) and introducing brokers (“IBs”) review the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) FAQs about compliance and sanctions with regard to illicit digital currency activities. The FAQs detail OFAC’s goal to combat terrorism and criminal exploitation of digital transactions, as well as compliance obligations in dealing with blocked persons or property.

FINRA MATTERS

Enforcement

FINRA Suspends a Member for Failure to Disclose Outside Business Activity.

On April 18, 2018, FINRA issued a $20,000 fine and a two-year suspension to a broker for failure to disclose his private blockchain business activity with his firm. According to FINRA, all firms’ employees must report outside business activities and any material changes to their firms. This rule is intended to strengthen investor protections against outside activities.

STATE MATTERS

California Legislation

The following bills regarding the digital asset space are moving through the California legislature.

  • CA AB-2658: it would define blockchain technology in California and create a government working group to evaluate the use of blockchain technology by CA businesses and the state government. The bill passed the State Assembly on May 30, 2018 and is currently in the State Senate.
  • CA SB-838: it would allow certain privately-owned corporations to amend their articles of incorporation to include provisions for the use of blockchain technology in recording information related to stock transactions. The bill passed the State Senate on May 17, 2018 and is currently in the State Assembly.

Colorado Division of Securities Participates in Coordinated International Crypto Crackdown

On May 3, 2018, the Colorado Securities Commission announced that it signed orders requiring Linda Healthcare Corporation and Broad Investments, LLC to cease and desist from selling securities in the state. The companies violated Colorado securities laws by promoting ICOs to Colorado residents without disclosing the risks involved.

Florida Chief Financial Officer Announces New Cryptocurrency Oversight Position

Jimmy Patronis, Florida Chief Financial Officer, released a statement on June 26, 2018 that Florida would be creating an oversight position for its cryptocurrency industry.  In coordination with the Office of Financial Regulation and the Office of Insurance Regulation, this new oversight position aims to develop policy, legislation, and regulation regarding cryptocurrency.

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Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP and focuses his legal practice on the investment management industry. He can be reached directly at 415-868-5345

Alternative Trading Systems (ATS)

ATS Registration Overview for Digital Asset Platforms

Digital asset platforms located in the U.S. that facilitate trading and exchange of digital assets (which are deemed to be securities) are generally subject to securities laws requiring such platforms to be registered as a national securities exchange (“NSE”) or fall within an exemption from NSE registration.  One exemption from registration as an NSE allows firms to conduct a platform business if such firm is registered as an alternative trading system (“ATS”).  This requirement was first highlighted by the SEC in the DAO Report released in July 2017.  We anticipate that many digital asset platforms currently facilitating trading will continue to face scrutiny as to whether they need to be registered as NSEs or an ATS and many have already begun the process to register as an ATS.

ATS Definition & Requirement to Register

The statutory definition of an ATS is:

any organization, association, person, group of persons, or system:

(1) That constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of § 240.3b-16 of this chapter; and

(2) That does not:

(i) Set rules governing the conduct of subscribers other than the conduct of such subscribers’ trading on such organization, association, person, group of persons, or system; or

(ii) Discipline subscribers other than by exclusion from trading.

As many digital asset platforms or exchanges technically fall within the ATS definition, these platforms will need to appropriately register with the SEC.  To register as an ATS, the platform will need to do the following:

  1. Register as (or buy) a broker-dealer
  2. File Form ATS
  3. Comply with Regulation ATS

1. Register as a Broker-Dealer

Registering as a broker-dealer (“BD”) is a pre-requite to becoming an ATS.  A firm may only file Form ATS with the SEC after receiving the Financial Industry Regulatory Authority’s (“FINRA”) approval of its broker-dealer application (or after purchase of a broker-dealer).  For platforms registering as a broker-dealer, at a high level the firm must:

  • Submit Form BD;
  • Comply with all applicable state requirements; and
  • Ensure all of its “associates persons” (BD representatives) have satisfied applicable qualification requirements.

The process to register as a new BD is well worn and relatively straight forward.  Firms applying to register as a BD will need to submit online through Form BD online and then submit a New Membership Application (“NMA”) to FINRA.  The NMA requires the firm to describe their business and compliance policies and controls in detail.  A firm will also be subject to an in-person new membership interview and will have to demonstrate how the ATS technology operates to FINRA staff.  As part of the BD process, the firm will need to become a member of at least one self-regulatory organization (“SRO”), which is likely to be FINRA, and become a member of the Securities Investor Protection Corporation (“SIPC”).

If a firm is already a broker-dealer (or has a broker dealer affiliate) but is not an ATS, the firm will need to submit a Continuing Membership Application (“Form CMA”) to FINRA.  For groups registering as a de novo BD, the firm should describe those parts of its business that will include the ATS function.  As with a de novo BD, an existing BD must demonstrate to FINRA staff how the ATS technology operates.

 2. File Form ATS

After a firm has registered as a BD and has discussed the ATS platform with FINRA (to FINRA’s satisfaction), the firm will need to notify the SEC that it is operating as an ATS.  Form ATS is the official SEC notification and must be submitted at least 20 days before the firm begins to operate its platform.

Form ATS is general in scope and requires information such as:

  • Certain identification information (i.e. full name, business name, address, CRD number, etc.)
  • Firm incorporation documents as attachments
  • Description of the types of users on the platform (i.e., broker-dealer, institution, or retail) and any differences in access to services between such users
  • List of the types of securities (digital assets/tokens which are deemed to be securities) that will be traded on the platform
  • Description of how the ATS will operate
  • Description of certain ATS operational procedures (i.e., entry of orders, transaction executions, reporting transactions, compliance, etc.)

It is important to note that Form ATS is a notice filing where the SEC provides no confirmation to the ATS regarding the filing status unless the form is deficient.  When a Form ATS has been filed with the SEC, it will be listed on the SEC website which will display the platform’s full name, the name(s) under which business is conducted, and the city and state of the ATS.  The reports on Form ATS are generally not published and are considered confidential.  Such reports will only be available to the SEC staff, state securities authorities, and any SRO for examination.

3. Ongoing Compliance

An ATS will be subject to numerous compliance obligations outside.  Some of the specific ATS obligations include:

  • File Form ATS-R (which summarizes the ATS’s transactions, on a quarterly basis) within 30 calendar days after the end of each quarter.
  • Amend Form ATS at least 20 calendar days before implementing a material change to the operation of the ATS.
  • Update Form ATS within 30 calendar days after the end of each quarter to correct any inaccurate or unreported information.
  • Permit the examination and inspection of its premises, systems, and records and cooperate with the examination, inspection, or investigation of subscribers by the SEC or SRO of which such subscriber is a member.

Additional BD, FINRA, and other guidelines, regulations, and obligations include:

  • Participating in the lost and stolen securities program.
  • Complying with the fingerprinting requirement.
  • Maintaining and reporting information regarding affiliates.
  • Following certain guidelines when using electronic media to deliver information.
  • Maintaining an anti-money laundering program.
  • Complying with the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) programs.
  • Filing quarterly and annual financial statements to the SEC.

If an ATS is not in compliance with the above requirements it may be subject to steep penalties.  In addition, it is important to note that securities on a registered ATS platform may be subject to a wide range of holding periods which must be enforced for an ATS to remain in compliance.

Registration Timing

It is unclear exactly how long a particular ATS application will take to be approved – it will largely depend on the exact scope of activities the platform will be involved with.  In general a platform designed for trading of private placements (in a kind of closed system for accredited investors) would likely take anywhere from 6-12 months to become fully licensed after submitting the Form NMA.  Technically, FINRA is required to review and process a substantially complete NMA within 180 calendar days after receiving it.

Issues to Consider

There are a number of issues to consider with respect to an ATS application.

  1. Underlying Instruments – the securities on most current digital asset exchanges are unregistered securities which were originally offered outside of any sort of registration exemption. Essentially these are restricted securities and any person selling or reselling such securities are arguably violating US securities laws (for more background, please see our post on restricted securities and distribution structures).  In such a case, we are not sure how FINRA will view a platform which facilitates the trading of restricted instruments.  We have seen many token issuers over the last 6-12 months who have decided to offer their tokens/securities according to registration exemptions, including through SAFTs.  To the extent a digital asset platform only transacts with such tokens (or tokens which go through the S-1 IPO process, which we think will happen within the next 12 months), we believe it is likely that such a platform would be able to be registered with FINRA.
  2. Discussion with FINRA Regarding Trading System – we have not talked directly with FINRA about their review of ATS platforms.  Most ATS platforms were created to allow for “dark pool” trading in the traditional institutional securities space.  It is unclear if FINRA has the experience or technical understanding (currently) to deal with digital assets and applicable trading platforms.
  3. IRS Reporting Requirements – the IRS released a notice in 2014 regarding the tax treatment of virtual currency. Since then, the IRS has subjected exchanges to certain user reporting requirements.  It is unclear whether the IRS will extend these types of user reporting requirements to ATS platforms as well.
  4. FinCEN’s Money Services Businesses Requirements – the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) released guidance in March of 2013 regarding individuals who handle virtual currencies. FinCEN determined that a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency (an “exchanger”) is subject to money services business (“MSB”) registration.  Although it is unclear if an ATS qualifies as a MSB, FinCEN has taken action against virtual currency exchanges that did not register with the bureau.
  5. Anti-Money Laundering and Know Your Customer Requirements – MSBs are required by the Bank Secrecy Act to have Anti-Money Laundering (“AML”) and Know Your Customer (“KYC”) procedures. AML procedures are required to detect and report suspicious actives that may indicate money laundering and terrorist financing.  KYC procedures are identification verification actions taken to ensure that the user is truly who they claim to be in order to prevent fraud.
  6. State Regulations – many states have imposed their own laws regarding digital assets. In addition, each state has its own rules and regulations regarding ATS platforms that operate within the state.  Before beginning to operate an ATS, you will want to research what rules and regulations your state has imposed.

Conclusion

After the DAO report, there have been a number of recent comments from SEC officials regarding digital assets and trading platforms that show the need for the cryptocurrency industry to quickly begin the process of integrating into the traditional securities regulatory landscape.  We believe that the ATS structure will become the predominant structure for digital asset exchanges in the future.  We also believe that over the next 12-24 months, as regulators flesh out various issues, the process will become more streamlined and well worn.  A few cryptocurrency related platforms have already started the process to become an ATS, with more likely to follow.

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Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP.  Cole-Frieman & Mallon LLP has been instrumental in structuring the launches of some of the first digital currency-focused hedge funds and works routinely on matters affecting the digital asset industry.  Please contact Mr. Mallon directly at 415-868-5345 if you have any questions on this post.

Token Distribution and Unregistered/Restricted Securities

Digital Assets and Restricted Securities Background

Many recent Initial Coin Offerings (ICOs) and other token sales are being conducted through a Simple Agreement for Future Tokens (SAFT) or other private placement that exempts the token from registration as a security with the SEC. Tokens sold through these structures have become hot investments, and access to deals selling these tokens is generally difficult to obtain. Accordingly, many investors are creating private funds, unincorporated investment groups, syndicates or other types of investment-fund-like structures (“syndicates” or “investors” for the purposes of this post) to invest in these tokens or SAFTs. Many times these syndicates are established with the stated intent or objective to make distributions of the tokens immediately upon receipt. Effectively the sponsors of such structures have created a de-facto distribution system for VC like investments into blockchain projects. The question is how such a distribution structure fits with traditional securities regulations – specifically, can privately placed tokens (securities) be distributed shortly after receipt? The answer is probably no.

Background on Unregistered Securities

SAFTs, tokens from a SAFT, or other private placements are in most cases going to be unregistered securities (unless the token or instrument later becomes registered with the SEC which is highly unlikely).  In general federal securities laws prohibit the transfer of unregistered securities unless an exemption applies to the transfer.  Any person then who has possession of, and then transfers, an unregistered security without complying with an applicable exemption is breaking the securities laws and subject to civil penalty (fine, rescission, bar from industry, etc).  Additionally, many private placements and SAFTs contain contractual provisions that restrict transfer of tokens for a certain amount of time after issuance (with a wink and a nod from the token issuer that “everyone transfers them anyways”). Unless there is an exemption allowing for the transfer of the tokens (restricted securities), the transferor would be both breaking securities laws and breaching contractual representations made to the token sponsor.

Potential Exemptions

Section 4(a)(1)

Given the above framework, investors or syndicates will want to find an exemption so they can transfer the tokens in accordance with securities laws (the risk posed by breaching a contractual representation to the token sponsor is beyond the scope of this post). Among statutory exemptions, Section 4(a)(1) the Securities Act of 1933 (the “Securities Act”) provides an exemption from registration of the securities if the sales/transaction is not conducted by an issuer, dealer, or underwriter. These terms all have precise definitions, but in this context we would be most concerned about the transferor being deemed an “underwriter” which is defined, in part, as “any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking.” This is a broad definition, and because of the stated or not-stated intent of creating a distribution structure for tokens, the syndicates described above may well be considered “underwriters” in this context and need to find another exemption on which to rely.

Investors my be in luck though as there are two other common exemptions that may be available – Rule 144 and Section 4(a)(1 ½).

Rule 144

Rule 144 of the Securities Act allows public resale of restricted securities if certain conditions are met.  The central condition is that the unregistered securities are held by the investor for a period of at least one year.  Further, the transferor/investor may not be an affiliate of the issuer.  There may be reduced holding period requirements if the issuer is subject to the Exchange Act Reporting requirements, but this is not a likely scenario in the digital asset space.  We believe for most syndicate groups, Rule 144 is the best way to comply with the transfer restriction. Of course, certain syndicates operating in this space might want or need to distribute the tokens before the expiration of Rule 144’s one-year holding period, and while imperfect as a solution, Section 4(a)(1 ½) (discussed below) may grant another option.

Section 4(a)(1 ½)

As mentioned above, Section 4(a)(1) of the Securities Act provides an exemption from registration for transactions by any person other than an issuer, underwriter, or dealer.  Section 4(a)(2) of the Securities Act provides a separate exemption for transactions by an issuer through a private offering. Over time, through case law and acknowledged by the Securities and Exchange Commission (the “SEC”), the “Section 4(a)(1 ½)” exemption was created.  This exemption generally is an exemption for private offerings, similar to Section 4(a)(2), but for entities that are not issuers.

To avoid being deemed an underwriter (and to ensure that a resale is sufficiently private), the investor/transferor must be able to show that it did not purchase the restricted securities with a view to distribution or resale.  In order to show this the investor/transferor should examine the following criteria :

  • Number of Purchasers – there should be a limited number of purchasers of the restricted security.  This generally can be satisfied if there are less than 25 purchasers.
  • Investment Intent – the investing entity’s intent in purchasing the tokens or SAFT should be to hold for an indefinite period of time and not with a view to resell or distribute.  The longer the investing entity holds the tokens or SAFT, the better the argument for the investor/transferor’s original intent.  Generally, in conjunction with other facts and circumstances, holding the security for at least six months will evidence the investor/transferor’s investment intent. The investor/transferor should also obtain a representation from purchasers that (1) the purchase is being made as an investment and not for resale and (2) any subsequent transfer will be made only in an SEC-registered transaction or in compliance with an exemption from registration.
  • Offeree Qualification – the investor/transferor of the token or SAFT should determine whether the buyer can hold the securities for an indefinite period of time and assume the risk of the investment by looking to the experience and sophistication of the buyer.
  • Information – the investor/transferor should provide access to all information about the investment and business of the issuer that would be necessary to the buyer. The investor/transferor should also provide access to any nonpublic information if it is an insider with such information.
  • Private Offering – No form of general advertising or general solicitation may be used in reselling the securities.

Because of the facts and circumstances determination for Section 4(a)(1 ½), the safest approach to addressing these restricted securities’ holding periods is for the investor/transferor to hold the securities for greater than one year in order to fall under the Rule 144 safe harbor.

Other Issues to Consider

There are a number of additional items that should be considered in the context of transferred digital assets that may have been issued as private securities:

  • Securities v. Non-Securities.  The restricted securities transfer rules apply to securities – they do not apply to non-security instruments.  Entities that invest in tokens and SAFTs may want to consider taking a position that the tokens are not securities and therefore not subject to securities laws.  Such a position would entail a facts and circumstances determination, and taking such a position is likely a risky strategy based on recent comments from SEC Chairman Clayton.  Also, taking the position that a SAFT is not a security would be problematic if the SAFT included language that it was a restricted security or otherwise contained a restrictive legend.
  • Distribution to syndicate owners.  If an entity wants to distribute the tokens or a SAFT instrument to its underlying owners, it should be aware that the above exemptions do not apply to a distribution to a syndicate’s underlying owners.  Additionally, the SEC would likely consider an in-kind distribution of tokens in exchange for redemption of interests in a syndicate as consideration sufficient to constitute a sale.
  • Regulation S.  Non-US investors may consider investing in a SAFT or purchasing tokens under Regulation S of the US securities laws.  While such investors would be non-US investors, Regulation S contains a one-year holding period similar to Rule 144 for sales to US persons so resale of such instruments would potentially be limited.
  • Timing.  No official guidance has been issued regarding holding periods and SAFT instruments.  We do not know whether the holding period begins when a SAFT is issued or once the actual tokens are issued (i.e. whether the SAFT and tokens are separate securities).  In cases where tokens are issued after a significant period of time following the SAFT execution, this determination may be significant.  Again, a determination one way or another will require a facts and circumstances analysis.

Conclusion

Investors should be aware that SAFTs and tokens in which they invest may be restricted securities that may not be resold absent an applicable exemption. With respect to digital assets, this issue is nascent and evolving, but investment managers should be cognizant to follow the securities laws in the absence of additional guidance from the SEC. Please reach out if you have questions on any of the above.

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Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP.  Cole-Frieman & Mallon LLP has been instrumental in structuring the launches of some of the first digital currency-focused hedge funds and works routinely on matters affecting the digital asset industry.  Please contact Mr. Mallon directly at 415-868-5345 if you have any questions on this post.

CoinAlts Fund Symposium East – New York, April 19th

Cryptocurrency Fund Conference Sponsored by Cole-Frieman & Mallon

As we have recently announced in our firm’s first quarter legal update, we are one of the founding sponsors of the second CoinAlts Fund Symposium which will be held in Midtown Manhattan on April 19th.  The agenda for the day is as follows:

  • Opening Remarks by Cory Johnson of Ripple
  • Legal & Regulatory Panel featuring Bart Mallon (moderator) and Karl Cole-Frieman (panelist)
  • Industry Keynote by Mark Yusko of Morgan Creek Capital Management
  • Featured Keynote by John Burbank of Passport Capital
  • Best Practices in Tax, Accounting and Operations
  • Trading & Execution in Digital Assets
  • Allocators to Digital Asset Funds
  • Cryptocurrency Trends and Innovations featuring Laura Shin (moderator) and Marco Santori (panelist)

The event is preceeded by a networking event for women in the blockchain/digital asset space on Wednesday evening sponsored by CoinAlts and Circle.  Attendance at the main event is expected at around 400 people and will include digital asset managers, investors, students and service providers.

For more information on the event please see the CoinAlts East press release.

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For more information on this topics related to the digital asset space, please see our collection of cryptocurrency fund legal and operational posts.

Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP.  Cole-Frieman & Mallon LLP has been instrumental in structuring the launches of some of the first cryptocurrency focused hedge funds. If there are any questions on this post, please contact Mr. Mallon directly at 415-868-5345.

CoinAlts East Announced – April 19, 2018 (Press Release)

Below is the press release on our CoinAlts East event.  We hope to see you there.

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CoinAlts Fund Symposium Announces East Coast Event

NEW YORK (PRWEB) MARCH 30, 2018

The CoinAlts Fund Symposium is announcing its second event, called CoinAlts East, in New York on April 19, 2018. The event will be headlined by the keynote speaker John Burbank of Passport Capital in a fireside chat format. Mark Yusko of Morgan Creek Capital Management will be the featured industry speaker. Additional speakers include Cory Johnson of Ripple and Donald R. Wilson of DRW. The all-day conference will address issues that digital asset managers face on the legal and regulatory front, as well as issues related operation items, trading and fund raising from institutional investors.

“We are so fortunate to have such high-quality speakers and panelists. Our goal has always been to foster a community of the best minds in the crypto space and I think you see that in both our speaker list and the attendees of the conference,” said conference co-chair Bart Mallon of the law firm Cole-Frieman & Mallon LLP. CoinAlts East comes on the heels of the first full day conference for digital asset managers held in September in San Francisco and attended by over 400 industry professionals. CoinAlts East is expected to sell 500 tickets to the all-day event.

“The first CoinAlts event had such an overwhelmingly positive response that we knew we needed to bring the event to New York. The asset class is maturing and traditional investment managers are beginning to be very much involved in the space,” said Corey McLaughlin of Cohen & Company, one of the conference’s founding sponsors. Lauren Colonna of Ovis Creative, a marketing and consulting firm and sponsor of CoinAlts East, echoed Corey’s comments saying that “in addition to the standard alternative asset management work we continually see, we are experiencing a significant increase in the demand for institutional quality marketing materials and messaging for managers in the cryptocurrency and digital asset space.”

Current early bird pricing for investment managers is $500 per person and $750 per person for service providers. Early bird pricing ends on March 30, 2018, after which the price will be $750 and $1,000 respectively. The conference is also the sponsor of a Women in Crypto networking event which will be held on April 18, 2018.

About the CoinAlts Fund Symposium

The CoinAlts Fund Symposium was established by four firms with significant practices devoted to fund managers in the cryptocurrency and digital asset space. Cohen & Company specializes in the alternative investment industry and advises cryptocurrency funds on important tax, audit and operational matters. Harneys Westwood & Reigels LLP is a leading international offshore law firm that advisers fund managers on all aspects of the life of a Cayman or BVI fund including formation, restructuring and closure. MG Stover & Co. is a full service fund administration firm built by former auditors and fund operators to deliver world class solutions to the global alternative investment industry. Cole-Frieman & Mallon LLP is a premier boutique investment management law firm, providing top-tier, responsive and cost-effective legal solutions for cryptocurrency fund managers.

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Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP.  Cole-Frieman & Mallon LLP has been instrumental in structuring the launches of some of the first cryptocurrency focused hedge funds. For more information on this topic, please contact Mr. Mallon directly at 415-868-5345.