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Cole-Frieman & Mallon EOY Update

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www.colefrieman.com
January 4, 2016

Clients, Friends, Associates:While the holiday season is a cause for celebration and reflection, it is also the busiest time of the year for most investment managers.  Year-end administrative upkeep and 2017 planning are particularly important, especially for General Counsels, Chief Compliance Officers, and key operations personnel.  As we head into 2017, we have put together this checklist to help managers stay on top of the business and regulatory landscape for the coming year.

This overview includes the following:

  • Annual Compliance & Other Items
  • Annual Fund Matters
  • Annual Management Company Matters
  • Regulatory & Other Changes in 2016
  • Compliance Calendar

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Annual Compliance & Other Items:Annual Privacy Policy Notice. On an annual basis, registered investment advisers (“RIAs”) must provide natural person clients with a copy of the firm’s privacy policy, even if there are no changes to the policy.Annual Compliance Review. On an annual basis, the Chief Compliance Officer (“CCO”) of an RIA must conduct a review of the adviser’s compliance policies and procedures. This annual compliance review should be in writing and presented to senior management. We recommend that firms discuss the annual review with their outside counsel or compliance firm, who can provide guidance about the review process as well as a template for the assessment and documentation. Advisers should be careful that sensitive conversations regarding the annual review are protected by attorney-client privilege. CCOs may also want to consider additions to the compliance program. Advisers that are not registered may still wish to review their procedures and/or implement a compliance program as a best practice.Form ADV Annual Amendment. RIAs or managers filing as exempt reporting advisers (“ERAs”) with the SEC or a state securities authority, must file an annual amendment to Form ADV within 90 days of the end of their fiscal year. RIAs must provide a copy of the updated Form ADV Part 2A brochure and Part 2B brochure supplement (or a summary of changes with an offer to provide the complete brochure) to each “client”. Note that for SEC-registered advisers to private investment vehicles, a “client” for purposes of this rule include the vehicle(s) managed by the adviser. State-registered advisers need to examine their state’s rules to determine who constitutes a “client”.Switching to/from SEC Regulation.SEC Registration. Managers who no longer qualify for SEC registration as of the time of filing the annual Form ADV amendment must withdraw from SEC registration within 180 days after the end of their fiscal year by filing Form ADV-W. Such managers should consult their state securities authorities to determine whether they are required to register in the states in which they conduct business. Managers who are required to register with the SEC as of the date of their annual amendment must register with the SEC within 90 days of filing the annual amendment.Exempt Reporting Advisers. Managers who no longer meet the definition of an ERA will need to submit a final report as an ERA and apply for registration with the SEC or the relevant state securities authority, if necessary, generally within 90 days after the filing of the annual amendment.Custody Rule Annual Audit.

SEC-Registered IA. SEC-registered advisers must comply with certain custody procedures, including (i) maintaining client funds and securities with a qualified custodian; (ii) having a reasonable basis to believe that the qualified custodian sends an account statement to each advisory client at least quarterly; and (iii) undergoing an annual surprise examination conducted by an independent public accountant.

Advisers to pooled investment vehicles may avoid both the quarterly statement and surprise examination requirements by having audited financial statements prepared for each pooled investment vehicle in accordance with generally accepted accounting principles by an independent public accountant registered with the Public Company Accounting Oversight Board (“PCAOB”). Statements must be sent to the fund or, in certain cases, investors in the fund, within 120 days after the fund’s fiscal year-end. Managers should review their custody procedures to ensure compliance with the rules.

California-Registered IA. California-registered investment advisers (“CA RIAs”) that manage pooled investment vehicles and are deemed to have custody of client assets must, among other things, (i) provide notice of such custody on the Form ADV; (ii) maintain client assets with a qualified custodian; (iii) engage an independent party to act in the best interest of investors to review fees, expenses, and withdrawals; and (iv) retain an independent certified public accountant to conduct surprise examinations of assets. CA RIAs to pooled investment vehicles may avoid the independent party and surprise examinations requirements by having audited financial statements prepared by an independent public accountant registered with the PCAOB and distributing such audited financial statements to all limited partners (or members or other beneficial owners) of the pooled investment vehicle, and to the Commissioner of the California Department of Business Oversight (“DBO”).

Advisers registered in other states should consult with legal counsel about those states’ custody requirements.

California Minimum Net Worth Requirement and Financial Reports.

RIAs with Custody. Every CA RIA that has custody of client funds or securities must maintain at all times a minimum net worth of $35,000. Notwithstanding the foregoing, the minimum net worth for a CA RIA (A) deemed to have custody solely because they act as general partner of a limited partnership, or a comparable position for another type of pooled investment vehicle; and (B) that otherwise comply with the California custody rule described above (such advisers, the “GP RIAs”), is $10,000.

RIAs with Discretion. Every CA RIA that has discretionary authority over client funds or securities but does not have custody, must maintain at all times a minimum net worth of $10,000.

Financial Reports. Every CA RIA that either has custody of, or discretionary authority over, client funds or securities must file an annual financial report with the Department of Business Oversight within 90 days after the adviser’s fiscal year end. The annual financial report must contain a balance sheet, income statement, supporting schedule, and a verification form. These financial statements must be audited by an independent certified public accountant or independent public accountant if the adviser has custody and is not a GP RIA.

Annual Re-Certification of CFTC Exemptions. Commodity pool operators (“CPOs”) and commodity trading advisers (“CTAs”) currently relying on certain exemptions from registration with the CFTC are required to re-certify their eligibility within 60 days of the calendar year-end. CPOs and CTAs currently relying on relevant exemptions will need to evaluate whether they remain eligible to rely on such exemptions.

CPO and CTA Annual Updates. Registered CPOs and CTAs must prepare and file Annual Questionnaires and Annual Registration Updates with the NFA, as well as submit payment for annual maintenance fees and NFA membership dues. Registered CPOs must also prepare and file their fourth quarter report for each commodity pool on Form CPO-PQR, while CTAs must file their fourth quarter report on Form CTA-PR. Unless eligible to claim relief under Regulation 4.7, registered CPOs and CTAs must update their disclosure documents periodically, as they may not use any document dated more than 12 months prior to the date of its intended use. Disclosure documents that are materially inaccurate or incomplete must be corrected promptly, and the corrected version must be distributed promptly to pool participants.

Trade Errors. Managers should make sure that all trade errors are properly addressed pursuant to the manager’s trade errors policies by the end of the year. Documentation of trade errors should be finalized, and if the manager is required to reimburse any of its funds or other clients, it should do so by year-end.

Soft Dollars. Managers that participate in soft dollar programs should make sure that they have addressed any commission balances from the previous year.

Schedule 13G/D and Section 16 Filings. Managers who exercise investment discretion over accounts (including funds and SMAs) that are beneficial owners of 5% or more of a registered voting equity security must report these positions on Schedule 13D or 13G. Passive investors are generally eligible to file the short form Schedule 13G, which is updated annually within 45 days of the end of the year. Schedule 13D is required when a manager is ineligible to file Schedule 13G and is due 10 days after acquisition of more than 5% beneficial ownership of a registered voting equity security. For managers who are also making Section 16 filings, this is an opportune time to review your filings to confirm compliance and anticipate needs for the first quarter.

Section 16 filings are required for “corporate insiders” (including beneficial owners of 10% or more of a registered voting equity security). An initial Form 3 is due within 10 days after becoming an “insider”; Form 4 reports ownership changes and is due by the end of the second business day after an ownership change; and Form 5 reports any transactions that should have been reported earlier on a Form 4 or were eligible for deferred reporting and is due within 45 days after the end of each fiscal year.

Form 13F. A manager must file a Form 13F if it exercises investment discretion with respect to $100 million or more in certain “Section 13F securities” within 45 days after the end of the year in which the manager reaches the $100 million filing threshold. The SEC lists the securities subject to 13F reporting on its website.

Form 13H. Managers who meet the SEC’s large trader thresholds (in general, managers whose transactions in exchange-listed securities equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month) are required to file an initial Form 13H with the SEC within 10 days of crossing the threshold. Large traders also need to amend Form 13H annually within 45 days of the end of the year. In addition, changes to the information on Form 13H will require interim amendments following the calendar quarter in which the change occurred.

Form PF. Managers to private funds that are either registered with the SEC or required to be registered with the SEC and have at least $150 million in regulatory AUM must file Form PF. Smaller private advisers (fund managers with less than $1.5 billion in regulatory AUM) must file Form PF annually within 120 days of their fiscal year-end. Larger private advisers (fund managers with $1.5 billion or more in regulatory AUM) must file Form PF within 60 days of the end of each fiscal quarter.

SEC Form D. Form D filings for most funds need to be amended on an annual basis, on or before the anniversary of the most recently filed Form D. Copies of Form D can be obtained by potential investors via the SEC’s EDGAR website.

Blue Sky Filings. On an annual basis, a manager should review its blue sky filings for each state to make sure it has met any renewal requirements. Several states impose late fees or reject late filings altogether. Accordingly, it is critical to stay on top of filing deadlines for both new investors and renewals. We also recommend that managers review blue sky filing submission requirements. Many states now permit blue sky filings to be filed electronically through the Electronic Filing Depository (“EFD”) system, and certain states will now only accept filings through EFD.

IARD Annual Fees. Preliminary annual renewal fees for state-registered and SEC-registered investment advisers are due on December 16, 2016. If you have not already done so, you should submit full payment now.

Pay-to-Play and Lobbyist Rules. SEC rules disqualify investment advisers, their key personnel and placement agents acting on their behalf, from seeking to be engaged by a governmental client if they have made political contributions. State and local governments have similar rules, including California, which requires internal sales professionals who meet the definition of “placement agents” (people who act for compensation as finders, solicitors, marketers, consultants, brokers, or other intermediaries in connection with offering or selling investment advisory services to a state public retirement system in California) to register with the state as lobbyists and comply with California lobbyist reporting and regulatory requirements. Investment professionals (employees who spend at least one-third of their time managing the assets or securities of the manager) are statutorily excluded from California’s “placement agent” definition, and thus do not have to register as lobbyists. Note that managers offering or selling investment advisory services to local government entities must register as lobbyists in the applicable cities and counties.

State laws on lobbyist registration differ widely, so we recommend reviewing your reporting requirements in the states in which you operate to make sure you are in compliance with the rules.

Annual Fund Matters:

New Issue Status. On an annual basis, managers need to confirm or reconfirm the eligibility of investors that participate in initial public offerings or new issues, pursuant to both FINRA Rules 5130 and 5131. Most managers reconfirm investors’ eligibility via negative consent (i.e. investors are informed of their status on file with the manager and are asked to inform the manager of any changes). A failure to respond by any investor operates as consent to the current status.

ERISA Status. Given the significant problems that can occur from not properly tracking ERISA investors in private funds, we recommend that managers confirm or reconfirm on an annual basis the ERISA status of their investors. This is particularly important for managers that track the underlying percentage of ERISA funds for each investor.

Wash Sales. Managers should carefully manage wash sales for year-end. Failure to do so could result in embarrassing book/tax differences for investors. Certain dealers can provide managers with swap strategies to manage wash sales, including Basket Total Return Swaps and Split Strike Forward Conversion. These strategies should be considered carefully to make sure they are consistent with the investment objectives of the fund.

Redemption Management. Managers with significant redemptions at the end of the year should carefully manage unwinding positions so as to minimize transaction costs in the current year (that could impact performance) and prevent transaction costs from impacting remaining investors in the next year. When closing funds or managed accounts, managers should pay careful attention to the liquidation procedures in the fund constituent documents and the managed account agreement.

NAV Triggers and Waivers. Managers should promptly seek waivers of any applicable termination events set forth in a fund’s ISDA or other counterparty agreement that may be triggered by redemptions, performance, or a combination of both at the end of the year (NAV declines are common counterparty agreement termination events).

Fund Expenses. Managers should wrap up all fund expenses for 2016 if they have not already done so. In particular, managers should contact their outside legal counsel to obtain accurate and up to date information about legal expenses for inclusion in the NAV for year-end performance.

Electronic Schedule K-1s. The IRS authorizes partnerships and limited liability companies taxed as partnerships to issue Schedule K-1s to investors solely by electronic means, provided the partnership has received the investor’s affirmative consent. States may have different rules regarding electronic K-1s and partnerships should check with their counsel whether they may still be required to send state K-1s on paper. Partnerships must also provide each investor with specific disclosures that include a description of the hardware and software necessary to access the electronic K-1s, how long the consent is effective and the procedures for withdrawing the consent. If you would like to send K-1s to your investors electronically, you should discuss your options with your service providers.

“Bad Actor” Recertification Requirement. A security offering cannot rely on the Rule 506 safe-harbor from SEC registration if the issuer or its “covered persons” are “bad actors”. Fund managers must determine whether they are subject to the bad actor disqualification any time they are offering or selling securities in reliance on Rule 506. The SEC has advised that an issuer may reasonably rely on a covered person’s agreement to provide notice of a potential or actual bad actor triggering event pursuant to contractual covenants, bylaw requirements or undertakings in a questionnaire or certification. If an offering is continuous, delayed or long-lived, however, issuers must update their factual inquiry periodically through bring-down of representations, questionnaires and certifications, negative consent letters, periodic re-checking of public databases and other steps, depending on the circumstances. Fund managers should consult with counsel to determine how frequently such an update is required. As a matter of practice, most fund managers should perform such an update at least annually.

U.S. FATCA and UK FATCA. Funds should monitor their compliance with U.S. FATCA and UK FATCA. U.S. FATCA reports are due on March 31, 2017 or September 30, 2017, depending on where the fund is domiciled. UK FATCA reports are due May 31, 2017. As a reminder for this year, we strongly encourage managers to file the required reports and notifications, even if they already missed previous deadlines. Applicable jurisdictions may be increasing enforcement and monitoring of FATCA reporting and imposing penalties for each day late. We recommend managers contact their tax advisors to stay on top of these requirements and avoid potential penalties.

Annual Management Company Matters:

Management Company Expenses. Managers who distribute profits on an annual basis should attempt to address management company expenses in the year they are incurred. If ownership or profit percentages are adjusted at the end of the year, a failure to manage expenses could significantly impact the economics of the partnership or the management company.

Employee Reviews. An effective annual review process is important to reduce the risk of employment-related litigation and protect the management company in the event of such litigation. Moreover, it is an opportunity to provide context for bonuses, compensation adjustments, employee goals and other employee-facing matters at the firm. It is not too late to put an annual review process in place.

Compensation Planning. In the fund industry, and the financial services industry in general, the end of the year is the appropriate time to make adjustments to compensation programs. Since much of a manager’s revenue is tied to annual income from incentive fees, any changes to the management company structure, affiliated partnerships, or any shadow equity programs should be effective on the first of the year. Make sure that partnership agreements and operating agreements are appropriately updated to reflect such changes.

Insurance. If a manager carries D&O insurance or other liability insurance, the policy should be reviewed on an annual basis to ensure that the manager has provided notice to the carrier of all claims and all potential claims. Newly launched funds should also be added to the policy as appropriate.

Other Tax Considerations. Fund managers should assess their overall tax position and consider several steps to optimize tax liability. Managers should also be aware of self-employment taxes, which can be minimized by structuring the investment manager as a limited partnership. Managers can take several steps to optimize their tax liability, including: (i) changing the incentive fee to an incentive allocation; (ii) use of stock-settled stock appreciation rights; (iii) if appropriate, terminating swaps and realizing net losses; (iv) making a Section 481(a) election under the Internal Revenue Code of 1986, as amended (the “Code”); (v) making a Section 475 election under the Code; and (vi) making charitable contributions. Managers should consult legal and tax professionals to evaluate these options.

Regulatory & Other Changes in 2016:

The Supreme Court Declines to Follow Newman in Ruling on Insider Trading Case. On December 6, 2016, The Supreme Court decided Salman v. United States, unanimously upholding the Ninth Circuit’s decision to affirm Bassam Salman’s conviction of insider trading, a decision we discussed previously. Salman was a closely-watched “tipper-tippee” liability case in which Mr. Salman traded on inside information he received from his future brother-in-law, who in turn received the information from his brother, a former investment banker at Citigroup. Historically, the Supreme Court has held that “tippers” are liable if they disclose material, nonpublic information in breach of a fiduciary duty and in order to receive a “personal benefit”; and tippees are liable for trading on the tip if they know the tipper’s disclosure was in breach of a duty and to receive a personal benefit. Salman sought to rely on the Second Circuit’s holding in Newman that a tipper must receive something of a “pecuniary or similarly valuable nature” in arguing that a gift of confidential information to a friend or family member was alone insufficient to establish the “personal benefit” required for tippee liability. The Supreme Court disagreed, holding that gifting inside information to “a relative or friend” constitutes a sufficient personal benefit to the tipper. Salman does not completely overturn Newman, and key questions remain unanswered (including how close the relationship must be between tipper and tippee) but it makes clear that gifting nonpublic confidential information to a friend or relative who trades on that information can trigger insider trading liability.

SEC Updates.

SEC Revised Qualified Client Threshold. Effective August 15, 2016, the SEC increased the “net worth” threshold in the definition of “Qualified Client” under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), from $2,000,000 to $2,100,000 to account for inflation. The Qualified Client threshold is critically important for investment advisers because performance fees and incentive allocations can only be charged to investors who are Qualified Clients in nearly all jurisdictions. All investment advisers should examine their subscription documents to ensure that new investors have provided accurate representations regarding their Qualified Client status.

SEC Proposes Rule Requiring RIAs to Adopt Business Continuity and Transition Plans. The SEC’s proposed rule would require SEC RIAs to implement written business continuity and transition plans designed to mitigate the effects of significant internal or external disruptions in operations, such as natural disasters, cyber-attacks, technology failures, and departure of key personnel. The content of such plans would be based upon risks associated with a RIA’s operations and would include policies and procedures designed to address different elements of a firm’s business. Firms would also be required to review the adequacy and effectiveness of their plans at least annually and retain certain records.

SEC Emphasis on Cybersecurity. Throughout 2016, cybersecurity remained an enforcement priority for the SEC. In June, the SEC appointed Christopher R. Hetner, a career information security expert, to the role of Senior Advisor to the Chair for Cybersecurity Policy. Later that month, it was announced that Morgan Stanley had settled SEC charges brought against the firm for failure to protect digital customer information through failure to adopt the statutorily required written policies and procedures.  Given the SEC’s continued emphasis on cybersecurity, firms should be moving forward with cybersecurity implementation and may want to discuss with counsel or other outside service providers.

SEC Implemented Business Conduct Standards for SBS Dealers and Major SBS Participants. On April 15, 2016, the SEC adopted new rules that would require security-based swap (“SBS”) entities to comply with a comprehensive set of business conduct standards and CCO requirements. The new rules aim at enhancing accountability and transparency in transactions with investors and special entities in the over-the-counter derivatives market, which, according to SEC Chair Mary Jo White, has lacked fundamental customer protections for years. Additional provisions and heightened protections apply in transactions with special entities, such as municipalities, pension plans, and endowments.

SEC Amended Form ADV and Rule 204-2. On August 25, 2016, the SEC adopted rules to enhance the information reported by investment advisers on Form ADV with a goal of increasing transparency, efficiency and compliance. The rules increase reporting on Form ADV with respect to SMAs, formalize umbrella registration requirements for related investment advisers, and expand the books and records required to be kept related to performance. Advisers will need to begin complying with the amendments on October 1, 2017.

SEC Approved FINRA Pay-To-Play Rule. The SEC approved FINRA’s proposed Rule 2030 which applies to investment advisers who are also FINRA member firms (i.e. also broker-dealers).  Rule 2030 was modeled after Advisers Act Rule 206(4)-5 and addresses pay-to-play practices by investment advisers who are also broker-dealers. The elements and terms of FINRA’s rule are substantially similar to the SEC’s pay-to-play rule and prohibit covered members from engaging in distribution and solicitation activities for compensation with government entities on behalf of an investment adviser within two years after a contribution is made to an official of the government entity by the covered member. FINRA member firms that are not yet subject to the pay-to-play rule should familiarize themselves with its provisions.

Outgoing SEC Chair. SEC Chair Mary Jo White announced recently that she plans to step down from that role around when President Obama leaves office in January. During Ms. White’s tenure, the SEC focused on tightening rules implementing the Dodd–Frank Wall Street Reform and Consumer Protection Act and pursued record numbers of enforcement cases. President-elect Trump will appoint Ms. White’s successor, and it is not yet clear how the SEC’s focus and priorities may change under new leadership.

CFTC and NFA Updates.

NFA Proposed Amendments to Financial Reporting Rule and Amended Compliance Rule 2-46. The NFA proposed to revise forms PQR and PR to require CPOs and CTAs respectively to disclose two ratios related to their financial health that would measure the firm’s ability to pay its short-term obligations with current assets and the firm’s pricing strategy and operating efficiency. CPOs and CTAs would also be required to keep records demonstrating how the ratios were calculated. Additionally, effective September 30, 2016, each late Form CPO-PQR or CTA-PR will be subject to a $200 fee for each business day it is late. Generally, Form CTA-PR is due within 45 days and Form CPO-PQR within 60 days of the relevant calendar quarter end. Note, however, that payment and acceptance of the fees does not preclude the NFA from filing a disciplinary action for failure to comply with the deadlines imposed by NFA Compliance Rules.

CFTC Amended CPO Financial Report Requirements. On November 25, 2016, the CFTC published final rules amending certain CPO financial report requirements. Effective December 27, 2016, the amendments will permit the use of additional alternative generally accepted accounting principles, standards or practices; provide relief from the Annual Report audit requirement under certain circumstances; and clarify that an audited Annual Report must be distributed and submitted at least once during the life of a commodity pool. The amendments codify certain exemptions provided by the Commission over the years on a case-by-case basis through exemptive or no-action letters.  We recommend contacting counsel, or reviewing the Federal Register to determine eligibility for the amended regulations.

Prudential Regulators and CFTC Adopted Margin Rules for Uncleared Swaps. The prudential regulators – the Federal Deposit Insurance Corporation, the Department of the Treasury (the Office of the Comptroller of the Currency), the Board of Governors of the Federal Reserve System, the Farm Credit Administration and the Federal Housing Finance Agency – (“PRs”) adopted a joint final rule covering swap entities that are supervised by one of the PRs (such covered swap entities, “CSEs”). Shortly thereafter, the CFTC adopted its own final rule covering swap entities that are not supervised by one of the PRs, but that are registered with CFTC (“Non-Bank CSEs”). Both the PRs and the CFTC emphasized that the margin requirements are intended to reduce risk for individual CSEs and for the financial system as a whole. We recommend that you speak with your firm’s outside counsel to determine if either rule applies to you.

NFA Guidance Regarding Cybersecurity. Beginning March 1, 2016, each NFA member firm should have established a written information systems securities program (“ISSP”) discussing, among other items, the firm’s current cybersecurity risks and ongoing cybersecurity training, and creating an “incident response” plan to help manage, contain and mitigate identified security breaches. Each ISSP must be reviewed annually by an executive-level officer of the firm. NFA members should review their cybersecurity programs and promptly take appropriate steps to make sure they are in compliance with the new rule.

Municipal Advisor Rulemaking. On August 17, 2016, the Municipal Securities Rulemaking Board (“MSRB”) extended pay-to-play standards to municipal advisors. Amended Rule G-37 prohibits municipal advisors from engaging in municipal securities business for two years after making certain political contributions and from soliciting or coordinating contributions with certain municipal officials and political parties with which the municipal advisor is engaging, or seeking to engage, in business. The rule also requires quarterly disclosures of certain contributions to the MSRB. Municipal advisors should review their current policies and consider whether they adequately address the new pay-to-play rules.

Other Updates.

DOL Defined Fiduciary of an Employee Benefit Plan under ERISA. The United States Department of Labor (“DOL”) issued a new rule that will extend fiduciary status to all advisers offering investment advice to employee benefit plans, plan fiduciaries, and IRAs when the rule comes into effect early next year. Under the new rule, all investment advisers who provide such advice will be required to make recommendations that are in the “best interest” of their clients. Under certain exemptions, an investment adviser would be able to continue using methods of conflicted compensation as long as the adviser meets specific conditions that mitigate conflicts of interest and ensure that investment advice is in the best interest of their clients. The general fiduciary standard becomes effective on April 10, 2017. There is a fair amount of uncertainty regarding the new rule’s application to private fund advisers, but at this time we have no reason to believe it will apply to private funds that are not “plan assets” funds (i.e., funds that do not exceed the 25% ERISA threshold). Investment advisers are encouraged to review their client base and discuss with legal counsel to determine whether they are subject to this new regulation.

New Due Diligence Requirements for Covered Financial Institutions. The U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued new customer due diligence (“CDD”) requirements that covered financial institutions must comply with by May 11, 2018. Covered financial institutions (which include banks, broker-dealers in securities, mutual funds, futures commission merchants and introducing brokers in commodities) will be required to verify the identity of any natural person that is a beneficial owner of at least 25% of any legal entity applying to open a new account, develop a customer risk profile for each customer, and establish an account-monitoring system to report suspicious transactions. Certain types of customers are exempted from these requirements.

New Filing Deadline for Form 1099-MISC. The IRS now requires Form 1099-MISC to be filed on or before January 31, 2017, when reporting nonemployee compensation payments. Otherwise, Form 1099-MISC may be filed by February 28, 2017, if it is filed on paper, or by March 31, 2017, if it is filed electronically. Automatic 30-day extension is available by filing Form 8809 by January 31, 2017. No signature or explanation is required for the extension.

Offshore Updates.

Cayman Islands Publishes Limited Liability Company Law. The highly-anticipated Cayman Islands Limited Liability Companies Law came into effect on July 8, 2016, and allows for the formation and operation of a limited liability company similar in structure and flexibility to that of a Delaware limited liability company (“LLC”). We have been in discussions with certain Cayman law firms about how managers might use such LLCs in their offshore structures in future. It seems like the best use will be for certain management company entities or as single-purpose investment vehicles under a larger fund structure. At this time, we do not expect the LLC form to supersede the Ltd. form for actual fund entities in the Cayman Islands. If you are interested in how you might be able to utilize these vehicles in the future, we recommend that you speak with your firm’s offshore counsel to discuss the entity’s advantage and disadvantages.

ESMA Proposed Extension of Funds Passport to 12 Non-EU Countries. The European Securities and Markets Authority (“ESMA”) recommended this year that the Alternative Investment Fund Managers Directive (“AIFMD”) passport should apply to 12 non-EU countries: Australia, Bermuda, Canada, Cayman Islands, Guernsey, Hong Kong, Japan, Jersey, Isle of Man, Singapore, Switzerland, and the United States. The passport is currently available to EU entities, but according to ESMA, there are generally no significant obstacles impeding the application of AIFMD in these 12 countries. ESMA’s advice will be considered next by the European Commission, Parliament and Council. If the passport is extended, it will be easier for non-EU alternative investment fund managers and alternative investment funds to market and manage funds throughout the EU.

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

Deadline Filing
December 16, 2016 IARD Preliminary Renewal Statement payments due (submit early to ensure processing by deadline)
December 27, 2016 Last day to submit form filings via IARD prior to year-end
December 31, 2016 Review AUM to determine 2017 Form PF filing requirement
January 15, 2017 Quarterly Form PF due for large liquidity fund advisers (if applicable)
January 31, 2017 “Annex IV” AIFMD filing
February 14, 2017 Form 13F due
February 14, 2017 Annual Schedule 13G updates due
February 14, 2017 Annual Form 13H updates due
March 1, 2017 Deadline for re-certification of CFTC exemptions
March 1, 2017 Quarterly Form PF due for larger hedge fund advisers (if applicable)
March 31, 2017 Annual ADV amendments due
March 31, 2017 Annual Financial Reports due for CA RIAs (if applicable)
April 15, 2017 Extended FBAR deadline for certain individuals with signature authority over, but no financial interest in, one or more foreign financial accounts
April 30, 2017 Annual Form PF due for all other advisers (other than large liquidity fund advisers and large hedge fund advisers)
Periodic Form D and blue sky filings should be current
Periodic Fund managers should perform “Bad Actor” certifications annually
Please contact us with any questions or for assistance with any compliance, registration or planning issues on any of the above topics.Sincerely,Karl Cole-Frieman, Bart Mallon, Lilly Palmer & John Araneo
****Cole-Frieman & Mallon LLP is a premier boutique investment management law firm, providing top-tier, responsive and cost-effective legal solutions for financial services matters. Headquartered in San Francisco, and with an office in New York City, Cole-Frieman & Mallon LLP has an international practice that services both start-up investment managers, as well as multi-billion dollar firms. The firm provides a full suite of legal services to the investment management community, including: hedge fund, private equity fund, venture capital fund, mutual fund formation, adviser registration, counterparty documentation, SEC, CFTC, NFA and FINRA matters, seed deals, hedge fund due diligence, employment and compensation matters, and routine business matters. The firm also publishes the prominent Hedge Fund Law Blog which focuses on legal issues that impact the hedge fund community. For more information please visit us at: www.colefrieman.com.Cole-Frieman & Mallon LLPOne Sansome Street, Suite 1895San Francisco, CA  94104535 Fifth Avenue

New York, NY 10017

Karl Cole-Friemankarl@colefrieman.com415-762-2841 Bart Mallonbmallon@colefrieman.com415-868-5345
Lilly Palmerlpalmer@colefrieman.com415-762-2842 John Araneojaraneo@colefrieman.com646-535-0270

 

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Cole-Frieman & Mallon 2016 Second Quarter Update

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 www.colefrieman.com

July 22, 2016

Clients and Friends:

We hope that this message finds you well and that you are enjoying the first months of summer. As we move into the third quarter, we would like to provide you with 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 Revises Qualified Client Threshold. The SEC recently published an order approving an adjustment to the definition of a “Qualified Client” under the Investment Advisers Act of 1940 (the “Advisers Act”). Specifically, the “net worth” threshold has been increased from $2,000,000 to $2,100,000 to account for inflation since the date the original definition was adopted. The Qualified Client threshold is critically important for investment advisers because in nearly all jurisdictions, including for SEC registered investment advisers, performance fees and incentive allocations can only be charged to investors who are Qualified Clients. The new definition becomes effective August 15, 2016 (the “Effective Date”), but will not be applied retroactively to contractual relationships existing as of such date. Additionally, investors who subscribed for interests in a private fund before the Effective Date may make additional subscriptions without needing to confirm the new net worth requirement.

All investment advisers should promptly update their subscription documents to ensure that new investors who agree to make investments on or after the Effective Date have provided accurate representations regarding their Qualified Client status.

Private Equity Fund Adviser Acting as an Unregistered Broker Settles SEC Charges. The SEC charged Blackstreet Capital, a private equity advisory firm, and its owner with performing in-house brokerage services without being properly registered as a broker-dealer. While the firm disclosed to investors that it would operate as a broker-dealer in exchange for a fee, it did not register as a broker-dealer with the SEC or any state securities commission. The SEC’s investigation also found that the firm engaged in several conflicted transactions and did not disclose certain fees and expenses to investors when such disclosure was warranted (such as using fund assets to make political and charitable contributions and pay for entertainment expenses). The firm and its owner have agreed to pay more than $3.1 million to the SEC in settlement of the charges. Broker-dealer activities are highly regulated, so we encourage all clients to not only confirm that any marketers they use are properly registered but also to ensure that their own marketing activities are in compliance with the applicable rules.

SEC to Require IAs to Adopt Business Continuity and Transition Plans. The SEC proposed a new rule on June 28, 2016, that would require SEC registered investment advisers to implement written business continuity and transition plans designed to mitigate the effects of significant internal or external disruptions in operations, such as natural disasters, cyber-attacks, technology failures, the departure of key personnel, and similar events. This is the SEC’s latest effort to encourage proper risk management in the asset management industry and minimize any potential client harm from material service disruptions. Under the proposed rule, the content of an SEC registered adviser’s business continuity and transition plan would be based upon risks associated with an IA’s operations and would include policies and procedures designed to address different elements of a firm’s business. Firms would be required to review the adequacy and effectiveness of their plans at least annually and to retain certain records.

No Expansion of SEC Examinations of Exempt Reporting Advisors. In our 2015 fourth quarter newsletter, we reported that the SEC intended to expand the scope of its on-going examination program to include Exempt Reporting Advisers (“ERAs”) who rely on the Private Fund Adviser Exemption or Venture Capital Fund Adviser Exemption to registration. The previous discussion was based on published reports interpreting comments made by Marc Wyatt, the Director of the SEC’s Office of Compliance Inspections and Examinations, at a conference in November 2015. Further investigation by our firm, however, has revealed that Mr. Wyatt’s comments were misreported and misinterpreted by the industry. We have received confirmation from the SEC that the agency does not intend to expand the scope of its on-going examination program to include ERAs. It should be noted, however, that the SEC does continue to conduct examinations of ERAs for cause and other misconduct.

Notwithstanding the SEC’s general stance on examinations of ERAs, the SEC has indicated that it is focusing some of its examination efforts on those who rely on the Venture Capital Fund Adviser Exemption. The SEC suspects that many ERAs who rely on this exemption are in fact not eligible to do so. With that in mind, we recommend all ERAs who rely on the Venture Capital Fund Adviser Exemption to confirm with counsel their eligibility to rely on this exemption.

SEC Signals a Focus on Cybersecurity.With a new hire to the agency’s cybersecurity division and cybersecurity charges being brought against an institutional wealth management firm, the SEC is signaling its focus on the issue to the investment management industry. In June, the SEC appointed Christopher R. Hetner, a career information security expert, to the role of Senior Advisor to the Chair for Cybersecurity Policy. Later in the month it was announced that Morgan Stanley had settled SEC charges brought against the firm for failure to protect digital customer information through failure to adopt the statutorily required written policies and procedures.  Failing to comply with cybersecurity laws didn’t just lead to a former Morgan Stanley employee accessing and transferring approximately 730,000 unique client accounts data to his personal server, which was ultimately hacked by third parties, but also led to Morgan Stanley having to pay a $1 million penalty to settle the SEC charges. Given the SEC’s recent emphasis on cybersecurity, firms should be moving forward with cybersecurity implementation and may want to discuss with counsel or other outside service providers.

Fund Administrator Settles with the SEC for Failure to Identify and Respond to Fraud by Two Investment Adviser Clients. A well-known fund administrator recently settled charges with the SEC due to its failure to identify and correct fraudulent faulty accounting perpetrated by two of its investment adviser clients. The SEC noted that fund administrators have a “gatekeeping responsibility” in relation to the investment funds which they administer and are primarily responsible for accurate reporting of fund assets to investors and other service providers. In this case, the administrator failed to uphold its gatekeeping responsibility by either missing or ignoring clear indications of fraudulent books which allowed the advisory firm’s scheme to persist until the SEC stepped in. Without admitting to the allegations, the firm agreed to pay a fine in its settlement. Managers might want to think about amending their administration agreements to include additional termination rights which could be exercised by the manager in the event their administrator suffers the same fate.

New Federal Law Expands Trade Secret Remedies. As the “secret sauce” for many investment managers may now take the form of a trade secret in an easily copied digital format, misappropriation of trade secrets by employees and other service providers has become an increasingly important area of concern for the investment management industry. President Obama recently signed into law the Defend Trade Secrets Act of 2016 (“DTSA”), which expands the options available to firms who suspect an employee misappropriated trade secrets. The DTSA permits a firm to sue for civil damages in federal court, considerably simplifying the litigation process. Further, the DTSA expands the scope of damages available for a successful claimant, including but not limited to royalties for the misuse of trade secrets as well as attorneys’ fees. In order for a firm to take advantage of the expanded options available under the DTSA, a firm must provide notice to its employees and other service providers of the confidentiality and whistleblower protections. Firms will likely need to amend their contracts with employees and service providers in order to provide such notice.

Cayman Islands Publishes LLC Law. On June 8, 2016, the Cayman Islands introduced the highly anticipated Cayman Islands Limited Liability Companies Law, developed in a joint effort by the Cayman Islands Government and the Cayman Islands Monetary Authority in response to requests from the investment funds industry. The law came into effect on July 8, 2016 and currently allows for the formation and operation of limited liability companies similar in structure and flexibility to that of a Delaware LLC. It is now possible to:

  • form and register a new Cayman Islands LLC;
  • migrate an entity organized in another jurisdiction (e.g., Delaware) into the Cayman Islands as an LLC;
  • convert an existing Cayman Islands exempted company into an LLC; and
  • merge an existing Cayman Islands exempted company into an LLC.

We have been in discussions with certain Cayman law firms about how managers might use such LLCs in their offshore structures in future. It seems like the best use will be for certain management company entities or as single-purpose investment vehicles under a larger fund structure. At this time we do not expect the LLC form to supercede the Ltd. form for actual fund entities in the Cayman Islands. If you are interested in how you might be able to utilize these vehicles in the futures, we recommend that you speak with your firm’s offshore counsel to discuss the entity’s advantage and disadvantages.

SEC Adopts Final Rules Implementing Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants. On April 15, 2016, the SEC adopted new rules that would require security-based swap (“SBS”) entities to comply with a comprehensive set of business conduct standards and chief compliance officer (“CCO”) requirements. The SEC believes the new rules will enhance accountability and transparency in transactions with investors and special entities in the over-the-counter derivatives market, which, according to SEC Chair Mary Jo White, has lacked fundamental customer protections for years. Some of the provisions applicable to SBS dealers and major participants include:

  • disclosure to the counterparty of material information about the security-based swap, including material risks, characteristics, incentives, and conflicts of interest;
  • disclosure of information concerning the daily mark of the security-based swap and the ability of the counterparty to require clearing of the security-based swap;
  • communication with counterparties in a fair and balanced manner based on principles of fair dealing and good faith;
  • establishment of a supervisory and compliance infrastructure; and
  • designation of a CCO who must fulfill the described duties and prepare an annual compliance report.

Additional provisions and heightened protections apply in transactions with special entities, such as municipalities, pension plans, and endowments.

New Due Diligence Requirements for Covered Financial Institutions. In an effort to promote enhanced transparency in financial transactions and help law  enforcement entities fight illegal money laundering,  the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) has issued new customer due diligence (“CDD”) requirements that cover financial institutions, including, banks, broker-dealers, mutual funds, futures commission merchants and introducing brokers in commodities, must comply with by May 11, 2018. Covered financial institutions will now be required to verify the identity of any natural person that is a beneficial owner of at least 25% of any legal entity applying to open a new account, develop a customer risk profile for each customer, and establish an account monitoring system to report suspicious transactions. Certain types of customers are exempted from these requirements.

Other Items

  • Accounting Firm Charged for Deficient Surprise Exams. The SEC recently charged an accounting firm and one of its partners for failing to perform adequate surprise examinations of an SEC registered investment adviser which retained the firm for such purpose. The SEC noted that on two occasions the firm filed paperwork with the SEC containing false statements – first, that the manager had complied with certain procedures when in fact they had not, and second, that the manager’s client assets were held with a qualified custodian when in fact they were not. The accounting firm, without admitting or denying fault, agreed to pay disgorgement of fees and a penalty. The accounting firm and the partner in charge were also suspended from practicing before the SEC (including performing audits of public companies). In light of this action, investment managers would be well advised to ensure that the accountants they retain for surprise examinations dutifully comply with the applicable requirements.
  • SEC Charges Investment Adviser that Schemed to Acquire Larger Incentive Fees. On May 31, 2016, the SEC charged a Tennessee firm and its owner for orchestrating a fraudulent trading scheme designed to increase the incentive fees earned by the adviser. Specifically, the scheme caused large gains to be realized at the end of any given month and large losses to be realized at the beginning of the subsequent month, thereby artificially increasing the net gains subject to the incentive fee. The SEC’s investigation uncovered that the firm made millions of dollars in unearned incentive fees and that, without the fraudulent trading scheme, the firm would have earned almost no incentive fees since October 2014. The SEC is seeking disgorgement of fraudulently obtained gains, penalties, and permanent bans from the industry.
  • Cayman Islands FATCA Compliance Deadlines Further Extended. The Cayman Islands Department of International Tax Cooperation has recently extended both the notification and reporting deadlines for U.S. FATCA to August 10, 2016. This further extends the previously extended deadlines of June 10, 2016 and July 8, 2016 for notification and reporting of U.S. FATCA, respectively. We suggest speaking with your tax advisers to determine your notification and reporting obligations with respect to FATCA and confirm compliance with the new deadlines.
  • CFTC Issues a Compliance Advisory. The CFTC Division of Swap Dealer and Intermediary Oversight issued a Staff Advisory in early July, reminding Futures Commission Merchants (“FCMs”) and Introducing Brokers (“IBs”) to report suspicious activity and to comply with the economic sanctions programs administered by the Office of Foreign Affairs Control (“OFAC”). The suspicious activity reporting regulation requires every FCM and IB to report any possible violation of law or regulation no later than 30 calendar days after the date the suspicious activity is initially detected unless no suspect is identified. The economic sanctions regulations by OFAC generally prohibit U.S. persons from engaging in transactions with individuals or entities located in countries subject to sanction programs. Accordingly, FCMs and IBs should regularly review the economic sanctions programs each time they are updated and screen all new and current customers periodically.
  • Investment Advisers Modernization Act of 2016. The House of Financial Services Committee approved a bill directing the SEC to update portions of the Advisers Act by removing duplicative and burdensome regulations that impose an unnecessary burden on small business’ access to capital. Among the rules to be amended are Rule 206(4)-1 (Advertisements), Rule 206(4)-6 (Proxy Voting), and Rule 204(b)-1 (Form PF).
  • NFA Amends Compliance Rule 2-46. Effective September 30, 2016, each Form CPO-PQR or Form CTA-PR that is filed after the due date will be subject to a fee of $200 for each business day it is late. Generally, Form CTA-PR is due within 45 days and Form CPO-PQR is due within 60 days of the relevant calendar quarter end. Please examine the compliance calendar below for the relevant due dates.

MSRB to Launch Permanent Series 50 Exam in September. The Municipal Securities Rulemaking Board (“MSRB”) will make available the permanent Municipal Advisor Representative Qualification Examination (Series 50) beginning September 12, 2016. Any individual who engages in municipal advisory activities or supervises a municipal advisor representative is required to take the Series 50 to demonstrate the level of knowledge needed to perform municipal advisory activities. To facilitate the transition to the new exam requirement, the MSRB is providing a one-year grace period during which individuals will be able to take the municipal advisor representative exam while still engaging in municipal advisory activities.

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

Deadline             Description

Deadline Filing
June 1, 2016 Limited partnerships and limited liability companies formed in Delaware were required to pay the annual tax of $300.
June 30, 2016 Deadline for filing AIFMD annual report (AIFs with a financial year ending on December 31st).
June 30, 2016 Delivery of audited financial statements to investors (private fund managers to funds of funds, including SEC, State and CFTC registrants).
June 30, 2016 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 Cayman Islands Monetary Authority.
June 30, 2016 Review transactions and assess whether Form 13H needs to be amended.
June 30, 2016 Annual Foreign Bank and Financial Accounts Report (FBAR).
July 30, 2016 Quarterly NAV Report (CPOs claiming the 4.7 exemption).
August 10, 2016 Deadline for Reporting Financial Institutions under U.S. FATCA to file both notification and reporting with the Cayman Islands Tax Authority.
August 14, 2016 CTA-PR filing with NFA.
August 15, 2016 Form 13F filing (advisers managing $100 million in 13F Securities).
August 29, 2016 CPO-PQR filing with NFA (large CPOs).
August 29, 2016 Form PF for quarterly filers.
September 28, 2016 CPO-PQR filing with NFA (mid-size and small CPOs).
Variable Distribute copies of Schedule K-1 to fund investors.
Periodic Filings Form D and Blue Sky filings should be current.

Please contact us with any questions or for assistance with any compliance, registration or planning issues on any of the above topics.

Sincerely,

Karl Cole-Frieman, Bart Mallon & Lilly Palmer

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Cole-Frieman & Mallon LLP is a premier boutique investment management law firm, providing top-tier, responsive and cost-effective legal solutions for financial services matters. Headquartered in San Francisco, Cole-Frieman & Mallon LLP has an international practice that services both start-up investment managers as well as multi-billion dollar firms. The firm provides a full suite of legal services to the investment management community, including: hedge fund, private equity fund, and venture capital fund formation, adviser registration, counterparty documentation, SEC, CFTC, NFA and FINRA matters, seed deals, hedge fund due diligence, employment and compensation matters, and routine business matters.

Hedge Fund Events November 2015

The following are various hedge fund events happening this month.  Please email us if you would like us to add your event to this list.

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Date: November 2-4, 2015

Date: November 2-6, 2015

  • Sponsor: Power Week
  • Event: Power Week
  • Location: Singapore

Date: November 3, 2015

Date: November 3, 2015

Date: November 3, 2015

Date: November 3, 2015

Date: November 3, 2015

Date: November 3-4, 2015

Date: November 4, 2015

Date: November 4-5, 2015

Date: November 4-5, 2015

Date: November 4-5, 2015

Date: November 4-6, 2015

Date: November 5, 2015

Date: November 5, 2015

Date: November 5, 2015

Date: November 5, 2015

Date: November 5, 2015

Date: November 5, 2015

Date: November 5, 2015

Date: November 5, 2015

Date: November 5-6, 2015

Date: November 5-6, 2015

Date: November 9-10, 2015

Date: November 9-10, 2015

Date: November 9-10, 2015

Date: November 9-10, 2015

Date: November 9-11, 2015

Date: November 10, 2015

Date: November 10, 2015

Date: November 10-11, 2015

  • Sponsor: Worldwide Business Research
  • Event: FIMA
  • Location: London

Date: November 10-12, 2015

Date: November 11, 2015

Date: November 11, 2015

Date: November 11-12, 2015

Date: November 11-12, 2015

Date: November 11-13, 2015

Date: November 12, 2015

Date: November 12, 2015

Date: November 12, 2015

Date: November 12-13, 2015

Date: November 12-13, 2015

Date: November 12-13, 2015

Date: November 12-13, 2015

Date: November 15-16, 2015

Date: November 16-17, 2015

Date: November 16-17, 2015

Date: November 16-18, 2015

Date: November 16-19, 2015

Date: November 16-19, 2015

Date: November 17, 2015

Date: November 17, 2015

Date: November 17, 2015

Date: November 17, 2015

Date: November 17-18, 2015

Date: November 18, 2015

Date: November 18, 2015

Date: November 18, 2015

Date: November 18, 2015

Date: November 18, 2015

Date: November 18, 2015

Date: November 18-19, 2015

Date: November 18-19, 2015

Date: November 19, 2015

Date: November 19, 2015

Date: November 19, 2015

Date: November 19, 2015

Date: November 19-20, 2015

Date: November 23, 2015

Date: November 23-25, 2015

Date: November 23-25, 2015

Date: November 26-27, 2015

Date: November 30 – December 1, 2015

Date: November 30 – December 1, 2015

Date: November 30 – December 2, 2015

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Cole-Frieman & Mallon provides legal services for hedge fund managers and other groups within the investment management industry.  Bart Mallon can be reached directly at (415) 868-5345.

Hedge Fund Events August 2015

The following are various hedge fund events happening this month.  Please email us if you would like us to add your event to this list.

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Date: August 1, 2015

Date: August 5, 2015

Date: August 5, 2015

Date: August 10, 2015

Date: August 12, 2015

Date: August 18-20, 2015

Date: August 19, 2015

Date: August 20-21, 2015

Date: August 24-25, 2015

Date: August 24-27, 2015

Date: August 24-27, 2015

Date: August 25, 2015

Date: August 27, 2015

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Cole-Frieman & Mallon provides legal services for hedge fund managers and other groups within the investment management industry.  Bart Mallon can be reached directly at (415) 868-5345.

Hedge Fund Events July 2015

The following are various hedge fund events happening this month.  Please email us if you would like us to add your event to this list.

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Date: June 29-July 1, 2015

Date: June 29-July 2, 2015

Date: July 2, 2015

Date: July 2, 2015

Date: July 2-3, 2015

Date: July 7-10, 2015

Date: July 8, 2015

  • Sponsor: Incisive Media
  • Event: Risk Hedge
  • Location: New York, NY

Date: July 9, 2015

Date: July 9, 2015

Date: July 10-11, 2015

Date: July 13-14, 2015

Date: July 14, 2015

Date: July 14, 2015

Date: July 15, 2015

Date: July 15, 2015

Date: July 15-16, 2015

Date: July 16, 2015

Date: July 16, 2015

Date: July 20-21, 2015

Date: July 20-22, 2015

Date: July 20-22, 2015

Date: July 22-24, 2015

Date: July 23, 2015

Date: July 23-24, 2015

Date: July 26-29, 2015

Date: July 27, 2015

Date: July 29, 2015

Date: July 29, 2015

Date: July 29-30, 2015

Date: July 29-31, 2015

Date: July 30, 2015

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Cole-Frieman & Mallon provides legal services for hedge fund managers and other groups within the investment management industry.  Bart Mallon can be reached directly at (415) 868-5345.

Hedge Fund Events June 2015

The following are various hedge fund events happening this month.  Please email us if you would like us to add your event to this list.

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Date: May 31-June 2, 2015

Date: June 1, 2015

Date: June 2, 2015

Date: June 2, 2015

Date: June 2-3, 2015

Date: June 2-3, 2015

Date: June 3, 2015

Date: June 3, 2015

June 3, 2015

Date: June 3, 2015

Date: June 3-4, 2015

Date: June 3-4, 2015

Date: June 3-4, 2015

Date: June 4, 2015

Date: June 4, 2015

Date: June 4, 2015

Date: June 4, 2015

Date: June 7-9, 2015

Date: June 8-9, 2015

Date: June 8-9, 2015

Date: June 8-12, 2015

Date: June 9, 2015

Date: June 9, 2015

Date: June 9-10, 2015

  • Sponsor: Broadridge
  • Event: IDX 2015
  • Location: London, United Kingdom

Date: June 9-11, 2015

Date: June 9-11, 2015

Date: June 10, 2015

Date: June 10, 2015

Date: June 10, 2015

Date: June 10, 2015

Date: June 10-11, 2015

Date: June 10-11, 2015

Date: June 10-12, 2015

Date: June 10-12, 2015

Date: June 11, 2015

Date: June 11, 2015

Date: June 11, 2015

Date: June 11-12, 2015

Date: June 12, 2015

Date: June 15-16, 2015

Date: June 15-16, 2015

Date: June 15-19, 2015

Date: June 16-17, 2015

Date: June 17, 2015

Date: June 18, 2015

Date: June 18, 2015

Date: June 22, 2015

Date: June 22, 2015

Date: June 22-23, 2015

Date: June 23-24, 2015

Date: June 23-24, 2015

Date: June 24, 2015

  • Sponsor: MFA
  • Event: Forum 2015
  • Location: Chicago, IL

Date: June 25, 2015

Date: June 26, 2015

Date: June 29-July 2, 2015

Date: June 30, 2015

Date: June 30, 2015

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Cole-Frieman & Mallon provides legal services for hedge fund managers and other groups within the investment management industry.  Bart Mallon can be reached directly at 415-868-5345.

Cole-Frieman & Mallon LLP 2015 First Quarter Update

COLE_FRIEMAN_LOGO_large

 www.colefrieman.com

May 13, 2015

Clients and Friends:

The first quarter of 2015 was a busy period for investment managers and service providers alike and we find ourselves sending out this update very late.  As a variety of filing deadlines have passed and audit work is completed (or will be soon), we enter the second quarter with a number of new regulatory changes on the horizon, as well as many other topics worthy of discussion.  Below, we have prepared a short overview of some of these items.  Please note there are some items from the start of the second quarter which will be included in the next update.

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SEC Cybersecurity Sweep Examination Results.  The Office of Compliance Inspections and Examinations (“OCIE”) of the SEC recently released a Risk Alert in connection with its examination of over 100 broker-dealers (“BDs”) and registered investment advisers (“RIAs”) with respect to the cybersecurity preparedness and practices of such registered firms. The examinations focused on if and how the examined BDs and RIAs establish (1) cybersecurity policies, procedures, and oversight processes, (2) protect their networks and information, and (3) detect and handle unauthorized activities and other cyber-attacks.

Key findings from the examinations include:

  • More than 80% of RIAs and 90% of BDs examined have adopted written cybersecurity policies and conduct periodic firm-wide cybersecurity assessments.
  • Less than 25% of RIAs examined incorporate cybersecurity requirements into their contracts with vendors, service providers, and other business partners. However, more than 70% of BDs incorporate such provisions into their contracts.
  • More than 50% of BDs examined maintain insurance coverage for cybersecurity-related incidents, while only 21% of RIAS examined hold such policies. (Note that only one BD and one RIA reported that they had filed a claim with their insurance provider in connection with a cybersecurity incident.)

As shown in the statistics above, many RIAs and BDs could bolster their cybersecurity preparedness by including cybersecurity requirements in all of their vendor contracts and by obtaining insurance coverage for cybersecurity-related incidents. The OCIE has stated that the cybersecurity practices and preparedness of BDs and RIAs will be a focus for 2015, so we encourage our clients to contact their service providers to ensure that they are adequately protected against such cybersecurity risks.

The SEC has issued a Guidance Update in connection with the Risk Alert described above.  We will be discussing the “best practices” recommended by the SEC in a future quarterly update.

SEC 2015 Examination Priorities.  The SEC recently announced its 2015 examination priorities, which are intended to address market-wide issues, such as fraud detection/prevention and corporate governance, as well as those specific to particular business models and organizations.  In 2015, the SEC will focus on its efforts on: matters of importance for retail investors and investors saving for retirement, including whether the information, advice, products, and services being offered are consistent with applicable laws, rules and regulations; market-wide risks, such those created by clearing agencies, cybersecurity compliance and controls, and equity order routing conflicts; and, using data analytics to identify signals of potential illegal activity. Despite the SEC’s stated focus, its priorities list is not exhaustive and may be adjusted throughout the year in response to ongoing risk evaluation.

FINRA 2015 Exam Priorities.  FINRA published its 2015 Regulatory and Examinations Priorities Letter, outlining the organization’s enforcement priorities for the current year. While the priorities listed in the letter are too numerous to describe here, focus areas for 2015 will include:

  • Sale and supervision of interest-rate-sensitive and complex products, including alternative mutual funds;
  • Controls around the handling of wealth events in investors’ lives;
  • Management of cybersecurity risks;
  • Treatment of senior investors; and,
  • High-risk brokers and removing bad actors from the securities industry.

FINRA noted that they will increasingly rely on data analytics to identify potential problem areas within firms, and it encourages firms to use data analytics themselves to self-identify such problems.

Improperly Registered Investment Advisers.  Although not listed as an exam priority for 2015, investment advisers should be mindful that the SEC actively pursues improperly registered investment advisers. Several recent enforcement actions targeted SEC-registered investment advisers claiming to be Wyoming-based after investigations conducted by the SEC revealed that the investment advisers primarily directed their advising services from locations outside of Wyoming and should have been registered with the relevant state authority. We caution investment advisers against abusing the “Wyoming exception” or from exaggerating assets in order to secure SEC registration and avoid registration with state securities agencies.

Guidance Update Regarding Key Employee Trusts and Family Office Rule.  The Division of Investment Management of the SEC issued an Investment Management Guidance Update regarding whether certain key employee trusts would qualify as “Family Clients” under Rule 202(a)(11)(G)-1 of the Advisers Act (the “Family Office Rule”).  The Advisers Act defines “Family Clients” as including “any trust of which: each trustee or other person authorized to make decisions with respect to the trust is a key employee; and each settlor or other person who has contributed assets to the trust is a key employee.” The guidance update clarified that if a non-key employee makes non-investment decisions for the trust, the trust may still qualify as a Family Client so long as investment decisions are made by a key employee. “Investment decision” is not defined in the Advisers Act; however, the Division provided an illustrative list of decisions that would qualify as “investment decisions,” including preparing or filing taxes for the trust; keeping records for the trust; and distributing periodic statements or disclosures to trust beneficiaries.

Auditor Independence Violations. The SEC and Public Company Accounting Oversight Board (PCAOB) released an alert in November highlighting certain aspects the independence rules for non-issuer audit and attestation engagements. Auditors engaged to provide financial statement audit and attestation services for (i) non-issuer SEC-registered broker-dealers and (ii) SEC- and state-registered investment advisers and private funds who are subject to the SEC Custody Rule, are required to be “independent” from the clients that they audit. Under Rules 2-01(b) and (c) of Regulation S-X, an auditor is considered not to be “independent” if, at any time during the engagement, the auditor provides prohibited non-auditor services to the client, such as bookkeeping or financial statement preparation services. In December, the SEC sanctioned eight auditing firms for violating these rules when they prepared the financial statements for clients that they were hired to audit. The SEC noted that by preparing the financial statements for their clients, the auditors were effectively auditing their own work and inappropriately aligning themselves with the interests of the clients’ management teams rather than remaining neutral, independent auditors. As a result of the auditors’ non-independence, the auditors’ clients were also deemed to have violated their statutory obligation to provide independently audited financial statements. In light of these sanctions, we encourage our clients to ensure that their auditors remain independent throughout the auditing process and to engage other service providers to prepare their financial statements.

Marketing to Investors in Switzerland.  On March 1, 2015, new regulations came into effect that require specific steps to be taken before marketing to “unregulated qualified investors” in Switzerland. In Switzerland, a fund can be marketed to qualified investors without registering with the Swiss Financial Market Authority (“FINMA”). Qualified investors are divided into two categories: “regulated” and “unregulated.” “Regulated” qualified investors are entities that are already regulated by FINMA, such as banks, securities dealers, fund managers, and insurance companies.  The new regulations do not change the way funds are marketed to regulated qualified investors.

However, the new regulations do change the requirements for funds that wish to market to “unregulated” qualified investors, such as public institutions, pension funds, businesses, and high-net-worth individuals that (a) have made a declaration as such and (b) meet an asset and/or sophistication threshold. The new rules mandate that, before marketing to unregulated qualified investors, the fund must first: (1) appoint a licensed Swiss-representative to represent the fund to FINMA and Swiss investors, (2) appoint a Swiss bank to serve as a paying agent, (3) enter into a distribution agreement with the appointed Swiss-representative, and (4) make necessary disclosures to Swiss investors.

Nonetheless, Swiss investors do not trigger the Annex IV reporting requirements or the remuneration disclosure requirements under AIFMD and the up-front expense associated with marketing to Swiss investors is comparatively cheaper than in other jurisdictions. Funds interested in marketing to Swiss investors should consult with their offshore counsel to discuss whether marketing in Switzerland is worthy of additional attention and focus.

Cayman Islands FATCA Reporting.  The Department for International Tax Cooperation of the Cayman Islands (“DITC”) recently released guidance regarding the registration process for financial institutions with reporting requirements under the Cayman Islands FATCA framework on the Cayman Automated Exchange of Information Portal (“CAEIP”). Such reporting institutions are required to notify the DITC of the following information on or before May 21, 2015 (extended from the original deadline of March 31, 2015):

  • Name;
  • FATCA classification;
  • Global Intermediary Identification Number (aka GIIN – can be obtained on IRS website); and,
  • Point of Contact.

Following the initial informational submission on CAEIP described above, each Cayman Islands reporting institution is then required to submit their FATCA reports via the CAEIP by May 31, 2015.

Updated FATCA Guidance – British Virgin Islands.  Last June, the British Virgin Islands (“BVI”) and the United States entered an intergovernmental agreement that requires BVI financial institutions, including hedge funds, to report information about U.S. persons with offshore accounts to the BVI International Tax Authority (the “Authority”). Although BVI has not yet passed legislation or promulgated regulations under the agreement, the Authority has released a detailed guide to help affected entities comply with the new reporting requirements. The guide provides clarification about which entities must register with the IRS and report information to the Authority, due diligence requirements, and other procedural issues.

The initial reporting deadline is June 30, 2015; in subsequent years, the deadline will fall on May 31. Reports can only be filed through the BVI’s Financial Account Reporting System (“BVIFARS”). The Authority expects the website to be accessible by April 15, 2015. In the future, BVI may pass legislation and promulgate rules in accordance with the FATCA agreement. Managers should remain in touch with both U.S. and offshore fund counsel regarding the regulatory landscape and to plan any changes to the fund’s offering documents, and/or any investor communications that may become necessary.

Foreign Corporation Tax for Offshore Funds.  In January, the IRS’s Office of Chief Counsel released a memorandum explaining that an offshore fund and an offshore feeder may be taxed as a foreign corporation if the offshore fund engages in a “trade or business” within the United States. Normally an offshore fund qualifies for an exemption from taxation as a foreign corporation that covers security trading activities (the “Trading Safe Harbors”), but, as the memo clarifies, underwriting and money lending (as well as “other fact patterns”) are considered “trade and business” activities that do not fall within the Trading Safe Harbors. Offshore funds should consult with tax and legal advisors to consider whether their investment activities may fall outside the protection of the Trading Safe Harbors.

Cayman Fund Director Liability.  The Cayman Islands Court of Appeals overturned the contentious Weavering verdict on February 12, 2015.  In Weavering, the lower court found two directors of a Cayman fund “willfully negligent” for signing a quarterly report without reading its contents; the judge determined that a simple review of the quarterly report would have alerted the directors to fraudulent trading occurring within the fund. In reversing the verdict, the appellate court acknowledged that a director can be held willfully negligent for consciously choosing not to perform its duties to a fund, but signing a quarterly statement without reading the content is not in and of itself willfully negligent under Cayman law. Although the original ruling was reversed, the case highlights the importance for directors of Cayman Islands funds to not take their statutory duties lightly.

Finance Lenders Regulatory Reminder. The 2014 Annual Report for Lenders and Brokers Licensed under the California Finance Lenders Law (CFLL) was due on March 15, 2015. The form and instructions are available on the DBO’S website. In order to upload and file the report, licensees must log in to the self-service portal using their username and password. For licensees who have not registered in the DBO’s Self-Service DOCQNET Portal, registration is a three-step process: (1) licensees create an account; (2) DBO staff verify the information; and, (3) following the verification, licensees reenter the portal to complete their registration.  The registration process normally takes five days to complete. The registration portal can be found here.

Municipal Advisor Regulatory Update. The Municipal Securities Rulemaking Board (“MSRB”) and SEC have continued to develop municipal advisor rules in the areas of supervision and compliance, pay-to-play, standards of conduct including fiduciary duty, professional qualifications, and gifts and gratuities. The regulatory environment was discussed during a 2014 Compliance Outreach program for Municipal Advisors hosted by the MSRB, SEC and FINRA.  Notably, registered municipal advisors must be in compliance with the following MSRB Rules by April 23, 2015:

  • Rule G-44 Supervisory and Compliance Obligations of Municipal Advisors
  • Rule G-8 Books and Records
  • Rule G-9 Preservation of Record

The MSRB recently hosted a webinar on compliance with the foregoing rules.  As the municipal advisor regulatory framework is continuously changing, we recommend that registered municipal advisors regularly review the applicable MSRB Rules and register for MSRB email updates.

Electronic Blue Sky Notice Filings for Regulation D Offerings.  The North American Securities Administrators Association (“NASAA”) recently announced the launch of an online Electronic Filing Depository (“EFD”) for electronic notice filings made in connection with offerings under Rule 506 of Regulation D. The EFD will permit filers to submit the blue sky notice filings and pay the related filing fees electronically for such Regulation D offerings. Note that while some states currently accept electronic filings made through EFD, many states are expected to require such EFD-submitted filings in the near future.

Other Notes.

  • Basing Claims on Back-Tested Performance Data. Last December, the SEC issued a cease-and-desist order against an investment adviser for exaggerating the “proven track-record” of their proprietary trading technique.  The adviser advertised that their investing model, created in 2008, had been successful in managing client assets going back to 2001. The SEC determined that these claims were based on back-tested data, which snowballed into an assortment of securities law violations. The SEC prohibits substituting historic performance with back-tested data because such a claim, without disclosure, is materially misleading to investors. Investment advisers should be cognizant that back-tested data cannot be used to allege actual historic performance.
  • ESMA Guidelines and Technical Standards Overview. The European Securities and Markets Authority (“ESMA”) published an overview of guidelines and technical standards for an assortment of security-related regulations as well as compliance tables, consultation papers, and other useful information.  The overview is available on the ESMA website.
  • California Management Fee Withholding Tax. Many of you may have received a recent news bulletin that implied hedge funds with California investors will be subject to a new California state tax. The article was largely misleading, as the “new tax hit” the author identified generally reflects the status quo. California uses a “market-based” tax sourcing system: the source of revenues determines where the tax on such revenues should be paid. Most, if not all, fund managers already comply with this tax scheme. Note that there are on-going revisions to this rule and hearings scheduled for this summer, so the status quo may change. For now, this should not raise any “new” concerns for managers; however, we will be on the look-out for any updates on this front.
  • New Irish Legal Entity Designed for Hedge Funds. Ireland, long an attractive alternative to the Caribbean for offshore investment vehicles, recently passed legislation creating a new legal entity specifically tailored for hedge funds. The form of entity, named an Irish Collective Asset-Management Vehicle (“ICAV”), is designed to minimize the administrative burdens of establishing and maintaining an investment vehicle in Ireland, while at the same time permitting the vehicle to “check the box” and be taxed by the U.S. as a partnership. The latter feature allows U.S. taxable investors to circumvent certain adverse tax consequences that typically apply to U.S. investors of passive foreign investment companies.  Additionally, an ICAV will fall under Ireland’s tax regime for regulated funds, meaning that it is generally exempt from Irish income taxes at the fund level, transfer taxes for the issue, transfer, or sale of shares, and withholding taxes on distributions to non-Irish investors. The Irish Parliament hopes that ICAVs will further encourage the formation of new funds, and the re-domiciliation of existing offshore funds, in Ireland.
  • New Registration Requirement for Security-Based SDRs. The SEC has adopted new rules requiring security-based swap data repositories (“SDRs”) to register with the SEC and proposed additional rules relating to the reporting and public dissemination of security-based SDRs.  A notice about the new rule and proposed rules can be found here.
  • Alternative Trading Systems Reporting. FINRA is soliciting comments for proposed rules that would require alternative trading systems (“ATSs”) to report quotation information for corporate and agency debt securities to FINRA.  More information about the proposed rules can be found here.
  • OCR Final Rule. The CFTC issued a no-action letter extending the conditional deadline to comply with the OCR Final Rule’s expanded information reporting requirements. The new deadlines are September 30, 2015 for New Form 102A, New Form 102S and DCM threshold accounts via New Form 102B and February 13, 2017 for SEF volume threshold accounts via New Form 102B.  The deadline for reporting on New Form 40/40S and New Form 71 is February 11, 2016.  The extended deadlines are conditioned on the Reporting Parties continuing to report on Legacy Form 102, Legacy 102S Filing, Legacy Form 40, and Legacy 40S Filing.  The no-action letter can be found here.

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

Deadline             Description

March 31, 2015  Form ADV annual updating amendment deadline.

April 15, 2015     1st Quarter 2015 Form PF filing for quarterly filers (Large Liquidity Fund Advisers).

April 30, 2015     2014 Annual Form PF filing for annual filers (Large Private Equity Fund Advisers and Smaller Private Fund Advisers).

April 30, 2015     Offer or delivery of Form ADV Part 2 to clients (most registered investment advisers); Delivery of Privacy Notice.

April 30, 2015     Delivery of audited financial statements to investors (most private fund managers, including SEC, State and CFTC registrants).

April 30, 2015     Quarterly NAV Report (registered commodity pool operators claiming the 4.7 exemption).

May 5, 2015        FATCA registration with the IRS through the online web portal found here. Enter into a foreign financial institution agreement with the IRS via the web portal, or comply with an applicable intergovernmental agreement. Meet the other due diligence, reporting and withholding requirements under FATCA, as applicable.

May 15, 2015      Form 13F filing (advisers managing $100 million in 13F Securities).

May 15, 2015      CTA-PR filing.

May 21, 2015      Deadline for Cayman Islands Financial Institutions with reporting obligations under the Cayman FATCA regulatory framework to register their status on the Cayman Islands Tax Information Authority on the Cayman Automated Exchange of INFORMATION Portal (extended from March 31, 2015).

May 31, 2015      First reporting deadline for Cayman Islands Financial Institutions in respect of the Cayman FATCA regulatory framework.

June 30, 2015     Delivery of audited financial statements to investors (private fund managers to funds of funds, including SEC, State and CFTC registrants).

June 30, 2015     Deadline for filing audited financial statements for preceding financial year and Fund Annual Return with Cayman Islands Monetary Authority.

June 30, 2015     Review transactions and assess whether Form 13H needs to be amended.

Variable               Distribute copies of Schedule K-1 to fund investors.

Periodic Filings  Form D and Blue Sky filings should be current.

Please contact us with any questions or for assistance with any compliance, registration or planning issues on any of the above topics.

Sincerely,

Karl Cole-Frieman, Bart Mallon & Lilly Palmer

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Cole-Frieman & Mallon LLP is a premier boutique investment management law firm, providing top-tier, responsive and cost-effective legal solutions for financial services matters. Headquartered in San Francisco, Cole-Frieman & Mallon LLP has an international practice that services both start-up investment managers as well as multi-billion dollar firms. The firm provides a full suite of legal services to the investment management community, including: hedge fund, private equity fund, and venture capital fund formation, adviser registration, counterparty documentation, SEC, CFTC, NFA and FINRA matters, seed deals, hedge fund due diligence, employment and compensation matters, and routine business matters.

Hedge Fund Events April 2015

The following are various hedge fund events happening this month.  Please email us if you would like us to add your event to this list.

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Date: April 1, 2015

Date: April 6, 2015

Date: April 7, 2015

Date: April 9, 2015

Date: April 12-14, 2015

Date: April 13, 2015

Date: April 13-14, 2015

Date: April 13-14 , 2015

Date: April 13-16, 2015

  • Sponsor: SIFMA
  • Event: Ops 2015
  • Location: San Diego, CA

Date: April 14-17, 2015

Date: April 15-16 , 2015

Date: April 16, 2015

Date: April 19-21, 2015

Date: April 20, 2015

Date: April 20-21, 2015

Date: April 21, 2015

Date: April 21, 2015

Date: April 22-23, 2015

  • Sponsor: FRA
  • Event: OCIO Summit
  • Location: New York, NY

Date: April 22-23, 2015

Date: April 22-24, 2015

Date: April 22-24, 2015

Date: April 23, 2015

Date: April 23, 2015

Date: April 23-24, 2015

Date: April 26-28, 2015

Date: April 26-29, 2015

Date: April 27-28, 2015

Date: April 27-28, 2015

Date: April 27-29, 2015

Date: April 28, 2015

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Cole-Frieman & Mallon LLP provides legal services for hedge  fund managers and other groups within the investment industry.  Bart Mallon can be reached directly at 415-868-5345.

Hedge Fund Events February 2015

The following are various hedge fund events happening this month.  Please email us if you would like us to add your event to this list.

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Date: February 1, 2015

Date: February 2-4, 2015

Date: February 3, 2015

Date: February 3, 2015

Date: February 3, 2015

Date: February 4, 2015

Date: February 4, 2015

Date: February 4, 2015

Date: February 4, 2015

Date: February 4-6, 2015

Date: February 6, 2015

Date: February 8-11, 2015

Date: February 9-11, 2015

Date: February 9-10, 2015

Date: February 9-11, 2015

Date: February 10, 2015

Date: February 11, 2015

Date: February 11, 2015

Date: February 11-13, 2015

Date: February 12-13, 2015

Date: February 17, 2015

Date: February 17, 2015

Date: February 17, 2015

Date: February 18-19, 2015

Date: February 19, 2015

Date: February 19, 2015

Date: February 19-20, 2015

Date: February 22-23, 2015

Date: February 23, 2015

Date: February 23, 2015

Date: February 23, 2015

Date: February 24-25, 2015

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Cole-Frieman & Mallon LLP provides legal services for hedge fund managers and other groups within the investment management industry.  Bart Mallon can be reached directly at 415-868-5345.

Cole-Frieman & Mallon LLP 2014 Fourth Quarter Update

COLE_FRIEMAN_LOGO_largewww.colefrieman.com

December 29, 2014

Clients, Friends, Associates:

December is the busiest month of the year for most private fund managers. In addition to end of year administrative upkeep, the regulatory landscape has shifted dramatically over the past twelve months. As a result, year-end processes and 2015 planning are particularly important, especially for General Counsels, CCOs and key operations personnel. As we head into 2015, we have put together this checklist to help managers stay on top of the business and regulatory landscape for the coming year.

This overview includes the following:

  • Annual Compliance & Other Items
  • Annual Fund Matters
  • Annual Management Company Matters
  • Regulatory & Other Changes in 2014
  • Focus for Next Year
  • CFTC Regulation
  • Compliance Calendar

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Annual Compliance & Other Items:

New Issue Status.  On an annual basis, managers need to confirm or reconfirm the eligibility of investors that participate in initial public offerings or new issues, pursuant to both FINRA Rules 5130 and 5131.  Most managers reconfirm investors’ eligibility via negative consent (i.e. investors are informed of their status on file with the manager and are asked to inform the manager of any changes).  No response operates as consent to the current status.

ERISA Status.  Given the significant problems that can occur from not properly tracking ERISA investors in private funds, we recommend that managers confirm or reconfirm on an annual basis the ERISA status of their investors.  This is particularly important for managers that track the underlying percentage of ERISA funds for each investor.  This reconfirmation can also be obtained through negative consent.

Annual Privacy Policy Notice.  On an annual basis, a registered investment adviser must provide its natural person clients with a copy of its privacy policy, even if there are no changes to the policy.

Annual Compliance Review.  On an annual basis, the CCO of a registered investment adviser must conduct a review of the adviser’s compliance policies and procedures.  This annual compliance review should be in writing and presented to senior management.  We recommend that you discuss the annual review with your outside counsel or compliance firm, who can provide guidance about the review process as well as a template for the assessment and documentation.  Advisers should be careful that sensitive conversations regarding the annual review are protected by attorney-client privilege.  CCOs may also want to consider additions to the compliance program.  Advisers that are not registered may still wish to review their procedures and/or implement a compliance program as a best practice. 

Form ADV Annual Amendment.  Registered investment advisers (“RIAs”), or managers filing as exempt reporting advisers (“ERAs”), with the SEC or a state securities authority must file an annual amendment to Form ADV within 90 days of the end of their fiscal year.  RIAs must provide a copy of the updated Form ADV Part 2A brochure and Part 2B brochure supplement (or a summary of changes with an offer to provide the complete brochure) to each “client”.  Note that for SEC-registered advisers to private investment vehicles, a “client” for purposes of this rule include the vehicle(s) managed by the adviser.  State-registered advisers need to examine their state’s rules to determine who constitutes the “client”.

Switching to/from SEC Regulation.  

SEC Registration. Managers who no longer qualify for SEC registration as of the time of filing the annual amendment must withdraw from SEC registration within 180 days after the end of their fiscal year by filing Form ADV-W.  Managers should consult their state securities authorities to determine whether they are required to register in their home states.  Managers who are required to register with the SEC as of the date of their annual amendment must register with the SEC within 90 days of filing the annual amendment.

Exempt Reporting Advisers. Managers who no longer meet the definition of an ERA will need to submit a final report as an ERA and apply for registration with the SEC or the relevant state securities authority, if necessary, generally within 90 days after the filing of the annual amendment.

Practices under the Rule require specific implementation, and RIAs advising separately managed accounts will have different obligations than those generally outlined above.  Certain RIAs also may qualify for exemptions under the Rule, and thus RIAs are encouraged to consult with legal counsel about their specific obligations under the new regime.

Trade Errors.  Managers should make sure that all trade errors are properly addressed pursuant to the manager’s trade errors polices by the end of the year.  Documentation of trade errors should be finalized, and if the manager is required to reimburse any of its funds or other clients, it should do so by year-end.

Soft Dollars.  Managers that participate in soft dollar programs should make sure that they have addressed any commission balances from the previous year.

Custody Rule Annual Audit.

SEC Registered IA. SEC registered advisers must comply with certain custody procedures, including (i) maintaining client funds and securities with a qualified custodian; (ii) having a reasonable basis to believe that the qualified custodian sends an account statement to each advisory client at least quarterly; and (iii) undergoing an annual surprise examination conducted by an independent public accountant.

Advisers to pooled investment vehicles may avoid both the quarterly statements and surprise examination requirements by having audited financial statements prepared in accordance with GAAP by an independent public accountant registered with the Public Company Accounting Oversight Board.  Statements must be sent to the fund or, in certain cases, investors in the fund, within 120 days after the fund’s fiscal year end.  Managers should review their custody procedures to ensure compliance with the rules.  Requirements for state-registrants may differ, and we encourage you to contact us if you have any questions or concerns about your custody arrangements.

California Registered IA. California-registered investment advisers that manage pooled investment vehicles and are deemed to have custody of client assets must, among other things, (1) provide notice of such custody on the Form ADV, (2) maintain client assets with a qualified custodian; (3) engage an independent party to act in the best interest of investors to review fees, expenses and withdrawals; and (4) retain an independent certified public accountant to conduct surprise examinations of assets.  Advisers to pooled investment vehicles may avoid the independent party and surprise examinations requirements by having audited financial statements prepared by an independent public accountant registered with the Public Company Accounting Oversight Board and distributing such audited financial statements to all limited partners (or members or other beneficial owners) of the pooled investment vehicle.

Advisers registered in other states should consult with legal counsel about those states’ custody requirements. 

Annual Re-Certification of CFTC Exemptions.  CPOs and CTAs currently relying on certain exemptions from registration with the CFTC will be required to re-certify their eligibility within 60 days of the calendar year end.  CPOs currently relying on CFTC Regulation 4.13(a)(3) will need to evaluate whether the commodity pool is still eligible for the exemption when taking into account the new CFTC regulated products. 

CPO and CTA Annual Updates. Registered CPOs and CTAs must prepare and file Annual Questionnaires and Annual Registration Updates with the NFA, as well as submit payment for annual maintenance fees and NFA membership dues. Registered CPOs must also prepare and file their fourth quarter report for each commodity pool  on Form CPO-PQR and CTAs must file their fourth quarter report on Form CTA-PR (the NFA recently made some changes to both forms, as described in a Notice to Members). Unless eligible to claim relief under Regulation 4.7, registered CPOs and CTAs must update their disclosure documents periodically, as they may not use any document dated more than 12 months prior to the date of its intended use. Disclosure documents that are materially inaccurate or incomplete must be promptly corrected and the corrected version must be promptly distributed to pool participants.

Schedule 13G/D and Section 16 Filings.  Managers who exercise investment discretion over accounts (including funds and separately managed accounts) that are beneficial owners of 5% or more of a registered voting equity security must report these positions on Schedule 13G.  Schedule 13G filings are updated annually within 45 days of the end of the year. For managers who are also making Schedule 13D filings and/or Section 16 filings, this is an opportune time to review your filings to confirm compliance and anticipate needs for Q1.

Schedule 13D is required when a manager is ineligible to file the short form Schedule 13G, and is due ten days after acquisition of more than 5% beneficial ownership of a registered voting equity security.

Section 16 filings are required for “corporate insiders” (including beneficial owners of 10% or more of a registered voting equity security). An initial Form 3 is due within 10 days after becoming an “insider”; Form 4 reports ownership changes and is due by the end of the second business day after an ownership change; and Form 5 reports any transactions that should have been reported earlier on a Form 4 or were eligible for deferred reporting and is due within 45 days after the end of each fiscal year

Form 13F.  A manager must file a Form 13F if it exercises investment discretion with respect to $100 million or more in certain securities within 45 days after the end of the year in which the manager reaches the $100 million filing threshold.  The SEC lists the securities subject to 13F reporting on its website.

Form 13H.  Managers who meet the SEC’s large trader thresholds (in general, managers whose transactions in exchange-listed securities equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month) are required to file an initial Form 13H with the SEC within 10 days of crossing the threshold.  Large traders also need to amend Form 13H annually within 45 days of the end of the year.  In addition, changes to the information on Form 13H will require interim amendments following the calendar quarter in which the change occurred.

SEC Form D.  Form D filings for most funds need to be amended on an annual basis, on or before the anniversary of the initial SEC Form D filing.  Copies of Form D can be obtained by potential investors via the SEC’s website.

Blue Sky Filings.  On an annual basis, a manager should review its blue sky filings for each state to make sure it has met any renewal requirements.  States are increasingly imposing late fees or rejecting late filings altogether.  Accordingly, it is critical to stay on top of filing deadlines for both new investors and renewals.

IARD Annual Fees.  Preliminary annual renewal fees for state registered and SEC registered investment advisers are due by December 12, 2014 (submit payment by December 9 in order for payment to post prior to the deadline).

Pay-to-Play and Lobbyist Rules.  SEC rules disqualify investment advisers, their key personnel and placement agents acting on their behalf, from seeking to be engaged by a governmental client if they have made political contributions.  State and local governments are following suit, including California, which requires internal sales professionals who meet the definition of “placement agents” (people who act for compensation as finders, solicitors, marketers, consultants, brokers, or other intermediaries in connection with offering or selling investment advisory services to a state public retirement system in California) to register with the state as lobbyists, and comply with California lobbyist reporting and regulatory requirements. Investment professionals (employees who spend at least one-third of their time managing the assets or securities of the manager) are statutorily excluded from California’s “placement agent” definition, and thus do not have to register as lobbyists. Note that managers offering or selling investment advisory services to local government entities have to register as lobbyists in the applicable cities and counties.

State laws on lobbyist registration differ widely, so we recommend reviewing your reporting requirements in the states in which you operate to make sure you are in compliance with the rules.

Form PF.  Managers to private funds that are either registered with the SEC or required to be registered with the SEC and have at least $150 million must file Form PF.  Smaller private advisers (fund managers with fewer than $1.5 billion in regulatory AUM) must file Form PF annually within 120 days of their fiscal year end. Larger private advisers (fund managers with $1.5 billion or more in regulatory AUM) must file Form PF within 60 days of the end of each fiscal quarter.

Electronic Schedule K-1s. The has IRS authorized partnerships and limited liability companies taxed as partnerships to issue Schedule K-1s to investors solely by electronic means, provided the partnership has received the investor’s affirmative consent. States may have different rules regarding electronic K-1s and partnerships should check with their counsel whether they may still be required to send state K-1s on paper. Partnerships must also provide each investor with specific disclosures that include a description of the hardware and software necessary to access the electronic K-1s, how long the consent is effective and the procedures for withdrawing the consent. If you would like to send K-1s your investors electronically you should discuss your options with your service providers.

“Bad Actor” Recertification Requirement. Last year the SEC adopted bad actor disqualification provisions for Rule 506 of Regulation D. These new provisions provide that an issuer is disqualified from relying on Rule 506(b) and 506(c) of a Regulation D offering if the issuer or any other “covered person” has a relevant disqualifying event. Under the rule, fund managers are required to determine whether they are subject to the bad actor disqualification any time they are offering or selling securities in reliance on Rule 506. The SEC issued a Q&A in December 2013 further clarifying, among other things, that “an issuer may reasonably rely on a covered person’s agreement to provide notice of a potential or actual bad actor triggering event pursuant to, for example, contractual covenants, bylaw requirements, or an undertaking in a questionnaire or certification. However, if an offering is continuous, delayed or long-lived, the issuer must update its factual inquiry periodically through bring-down of representations, questionnaires and certifications, negative consent letters, periodic re-checking of public databases, and other steps, depending on the circumstances.” Fund managers should consult with fund counsel to determine how frequently such an update is required. As a matter of practice, most fund managers should perform such an update at least annually.

Annual Fund Matters:

Wash Sales. Managers should carefully manage wash sales for year end. Failure to do so could result in embarrassing book/tax differences for investors. Certain dealers can provide managers with swap strategies to manage wash sales, including Basket Total Return Swaps and Split Strike Forward Conversion. These strategies should be considered carefully to make sure they are consistent with the investment objectives of the fund.

Redemption Management. Managers with significant redemptions at the end of the year should carefully manage the unwinding positions so as to minimize transaction costs in the current year (that could impact performance), and prevent transaction costs from impacting remaining investors in the next year. When closing funds or managed accounts, managers should pay careful attention to the liquidation procedures in the managed account agreement and the fund constituent documents.

NAV Triggers and Waivers.  Managers should promptly seek waivers of any applicable termination events set forth in a fund’s ISDA or other counterparty agreement that may be triggered by redemptions, performance or a combination of both at the end of the year (NAV declines are common counterparty agreement termination events).

Fund Expenses.  Managers should wrap up all fund expenses for 2014 if they have not already done so.  In particular, managers should contact their outside legal counsel to obtain accurate and up to date information about legal expenses for inclusion in the NAV for year-end performance.

Annual Management Company Matters:

Management Company Expenses.  Managers who distribute profits on an annual basis should attempt to address management company expenses in the year they are incurred.  If ownership or profit percentages are adjusted at the end of the year, a failure to manage expenses could significantly impact the economics of the partnership or the management company.

Employee Reviews.  An effective annual review process is important to reduce employment-related litigation and protect the management company in the event of such litigation.  Moreover, it is an opportunity to provide context for bonuses, compensation adjustments, employee goals and other employee-facing matters at the firm.  It is not too late to put an annual review process in place.

Compensation Planning.  In the fund industry, and the financial services industry in general, the end of the year is the appropriate time to make adjustments to compensation programs.  Since much of a manager’s revenue is tied to annual income from incentive fees, any changes to the management company structure, affiliated partnerships, or any shadow equity programs should be effective on the first of the year.  Make sure that partnership agreements and operating agreements are appropriately updated to reflect such changes.

Insurance.  If a manager carries D&O Insurance or other liability insurance, the policy should be reviewed on an annual basis to make sure that the manager has provided notice to the carrier of all claims and all potential claims.  Also, newly launched funds should be added to the policy as appropriate.

Regulatory & Other Changes in 2014:

Second Circuit Overturns Insider Trading Convictions. On December 10, 2014, the Second Circuit Court of Appeals reversed convictions of two former hedge fund managers for insider trading; a result that may make it harder for prosecutors to prove the crime in the future.  The issue on appeal in the case – United States v. Newman – was whether, in order to be convicted of insider trading, a downstream tippee of the material, non-public information has to know that the insider who leaked the information received a personal benefit from doing so.  The three-judge panel ruled unequivocally that “a jury must find that a tippee knew that the insider disclosed confidential information in exchange for a personal benefit.”  This case will likely impact how far down a tipper/tippee chain prosecutors can go in prosecuting “remote tippees” for insider trading.

FATCA Updates.

Implementing Regulations.  Many jurisdictions in which offshore funds are commonly domiciled, such as the Cayman Islands and the British Virgin Islands, have entered into intergovernmental agreements (“IGAs”) with the U.S. regarding the Foreign Account Tax Compliance Act (“FATCA”).  Such IGAs generally provide that a foreign government office in the country of domicile will collect the information required by FACTA and transmit it to the IRS.  However, until each jurisdiction passes domestic implementing legislation to enact its IGA, it is often unclear exactly what information must be provided, how it will be collected, and to which government entity it should be directed.

In early July, the Cayman Islands passed such implementing legislation as well as corresponding regulations that detail a fund’s obligations.  BVI regulators released implementing legislation in October, but to date it has not been passed.  Managers should remain in touch with both U.S. and offshore fund counsel regarding the regulatory landscape and to plan any changes to the fund’s offering documents, and/or any investor communications that may become necessary.

UK FATCA. The United Kingdom and its Overseas and Crown Dependences, including the British Virgin Islands and the Cayman Islands, have entered into intergovernmental agreements (“UK IGAs”) to implement an automatic exchange of information for tax purposes.  These UK IGAs are similar to FATCA in that they will require investment funds domiciled in those jurisdictions to undertake due diligence and annual reporting on specified UK persons, however, unlike FATCA, there are no withholding taxes assessed in the event of non-compliance.

New Investors to funds will have to identify themselves as either a “Specified UK Person” or “Passive Non-Financial Foreign Entity”.  Funds ought to perform thorough searches on pre-existing investors regarding UK mailing addresses and UK account numbers.  Managers should discuss the implications with their tax advisor and legal counsel.

 Global FATCA. On October 29, over 50 jurisdictions (notably including the Cayman Islands and British Virgin Islands but excluding the United States) signed on to the Organisation for Economic Co-operation and Development’s (“OECD”) Multilateral Competent Authority Agreement (“MCAA”) for the implementation of the automatic exchange of tax information pursuant to the OECD’s Common Reporting Standard.

 Like many IGAs implementing FATCA, the MCAA requires each signatory jurisdiction to implement standardized customer due-diligence procedures and reporting requirements for financial institutions and to automatically exchange the reported information with other governments signatory to the MCAA. The MCAA will be activated when the tax authorities in each signatory jurisdiction confirm to the OECD that they have the necessary implementing legislation in place. The Cayman Islands’ implementing legislation discussed above should suffice for purposes of MCAA implementation as well.

The MCAA signifies the increasing global importance of tax transparency regimes like FATCA, and will result in expanded international tax compliance obligations for financial institutions in signatory jurisdictions. Managers should monitor the OECD’s website (available here) for implementation updates.

SEC Guidance on “Reasonable Steps” to Verify Accredited Investors. We receive a lot of questions about general solicitations, but few managers have actually taken steps to engage in them. In order to engage in general solicitation under Rule 506(c), fund managers must, among other items, take “reasonable steps” to verify that each subscriber for fund interests meets the accredited investor standard. The SEC has previously described “safe harbors” with steps that, if followed, constitute sufficient evaluation of a prospective investor’s accredited investor status. The SEC this year released a new Q&A that addresses common questions regarding income and net worth calculations under the safe harbor rules.   

AIFMD Annex IV Reporting. The European Union’s Alternative Investment Fund Managers Directive (“AIFMD”), generally requires alternative investment fund managers (“AIFMs”) that manage or market alternative investment funds (“AIFs”) to EU investors to comply with heightened reporting and disclosure requirements. Notable is the imposition of a new Annex IV reporting requirement on AIFMs with assets under management of at least €100 million. Annex IV is a large complex filing, similar to the Form PF filed with the SEC, and it must be filed either semiannually or quarterly (depending on various factors) in each EU Member State where AIFs are marketed. The first Annex IV filings are due no later than January 30, 2015.

Annex IV requires substantial information reporting, and although it shares almost 60% of data points with Form PF, a number of differences (including differences in how AUM is calculated) prevent merely transferring Form PF data to Annex IV.

The UK’s Financial Conduct Authority (“FCA”) recently issued guidance specifying that managers marketing an AIF in the UK that is a feeder fund need only report on the assets of the feeder (whose only investment may be the master fund) on Annex IV, significantly reducing the burden of such reporting.

NFA Late Disciplinary Disclosure Fee. This year the NFA began imposing a $1,000 late fee when a firm or individual does not disclose a disciplinary matter upon registration or fails to promptly update an existing registration to disclose a new disciplinary matter. Generally, the NFA considers a matter to have been promptly disclosed if the firm discloses the matter before the NFA discovers the matter and requests disclosure. Managers that are members of the NFA should make sure they have sufficient compliance policies in place to ensure that all disciplinary matters are promptly disclosed.

Cayman Islands Revised Licensing Regime. The Directors Registration and Licensing Law (the “DRLL”), effective as of June 4, 2014, established a new registration and licensing regime for directors of certain Cayman Island regulated entities, including directors of entities registered as mutual funds with the Cayman Islands Monetary Authority (“CIMA” and such entities “Covered Entities”).  The DRLL does not, at present, apply to Covered Entities which are partnerships.  All directors of Covered Entities will need either to (i) register with CIMA; or (ii) apply to be licensed by CIMA in the case of corporate directors, or directors acting for 20 or more entities.

NFA Pursuing Net Capital Requirements for CPOs and CTAs.  The NFA is currently in the process of reviewing comments submitted on a proposal that would require CPOs and CTAs to maintain minimum amounts of capital and follow other customer protection measures. While the full scope of the proposed regulations has yet to be determined, likely changes to the regulatory regime include requirements that (1) CPOs and CTAs maintain a minimum amount of capital and file periodic reports with the NFA to demonstrate compliance; and (2) CPOs retain an independent third party to approve pool disbursements (i.e., a “gatekeeper” requirement).  For more information, please see our article and the NFA notice.

Amendments to FINRA Rule 5131.  FINRA has issued amendments to its Rule 5131, which bans certain practices related to allocating and distributing shares in initial public offerings.  Pursuant to the amendments, FINRA now may exempt a person from any provisions of Rule 5131 if, in light of the facts and circumstances, FINRA deems an exemption to be consistent with the protection of investors and the public interest.  As a result, FINRA members may apply for relief from Rule 5131.

Deferral of Tax on Incentive Fee Arrangements with Offshore Funds. On June 10, 2014, the IRS issued a ruling which may expand the ability of U.S. managers to offshore funds to defer performance-based compensation through nonstatutory stock options and stock-settled stock appreciation rights (“SAR”) in the offshore fund. Managers that want to explore the alternative fee arrangement should discuss the implications with their tax advisor and legal counsel.  More information can be found here.

Focus for Next Year:

Cybersecurity Focus.  Cybersecurity preparedness was a major focus of the SEC’s Office of Compliance Inspections and Examinations in 2014.  Awareness about the dangers posed by inadequate cybersecurity to capital markets is growing.  Both the SEC and the North American Securities Administrators Association (“NASAA”) put particular emphasis on the type of hardware and forms of communication that are used at firms.  Additionally, the SEC and NASAA recommend that firms should have a written policy regarding cybersecurity prevention and how to respond to an attack. Although 2014 is quickly coming to an end, cybersecurity preparedness will continue to be a concern for investment managers.  Managers should make sure they have sufficient policies in place regarding cybersecurity prevention and response.

SEC Charges Fraud and Breach of Fiduciary Duty for Improper Expense Sharing Among Funds. This year, the SEC charged a fund manager, Lincolnshire Management, with violating fraud and policy requirement provisions of the Investment Advisers Act, and breaching its fiduciary duty to a pair of private equity funds that it managed, by sharing portfolio company expenses in a way that benefited one fund over the other.  The factual situation was that each fund owned a separate portfolio company, but the manager integrated the portfolio companies and operated them as one.  However, an SEC investigation found that the expense allocation practices between the two funds occasionally caused one fund to pay more than its fair share of joint expenses that equally benefited both funds’ portfolio companies.  The SEC found that this preferential practice of commingling the funds’ assets violated the manager’s fiduciary duty to the funds.  In September, Lincolnshire Management settled the SEC’s charges for more than $2.3 million.  In light of this settlement, fund managers should be cognizant that fiduciary duties are owed separately to each fund, and that shared but uneven expense allocations may be recognized not only as a breach of fiduciary duties, but also as defrauding the investors that overpaid.

CFTC Regulation:

CFTC Grants Relief for General Solicitation.  After the JOBS Act relaxation of the general solicitation rules, fund managers exempt from CPO registration pursuant to CFTC Regulations 4.13(a)(3) or 4.7 were still prohibited from engaging in general solicitation with respect to the offering of private fund interests under Rule 506(c). However, a recent CFTC Letter 14-116 now allows such fund managers to engage in public offerings under Rule 506(c) without risking their exemptions, subject to the following conditions:

  1. The fund issuing interests must do so under Rule 506(c) or as a reseller under SEC Rule 144A.
  2. The fund manager must file a notice with the CFTC.
  3. The fund manager must represent that it meets all other requirements of the CFTC exemption on which it is relying.

Fund managers utilizing the CFTC Regulation 4.13(a)(3) exemption should take special note of the third requirement listed above. Even under the relief granted by CFTC Letter 14-116, such managers must refrain from marketing funds “as or in a vehicle for trading in the commodity futures or commodity options markets.”

SEC Guidance on Cross-Border Security-Based Swaps. Last year the CFTC issued guidance on cross-border swaps transactions. This guidance did not apply to security-based swaps, which are regulated instead by the SEC. Now the SEC has adopted final rules governing cross-border security-based swaps. This set of rules is the first in what is expected to be a series of SEC rules on these transactions, and it covers only a few select topics, including certain compliance-related rules and which entities must register as security-based swap dealers or security-based major swap participants. Although the rules technically went into effect on September 7, 2014, they will not have practical effect until the SEC adopts additional final rules on topics such as the actual registration process for security-based swap dealers and security-based major swap participants.

 CFTC Announces Streamlined Approach for Considering Requests for Relief From Registration for Delegating CPOs. In May, the CFTC issued a no-action letter adopting a streamlined approach for requesting CPO registration relief. The letter clarifies the conditions under which a CPO otherwise required to register (“Delegating CPO”) may delegate its CPO functions to another CPO (“Designated CPO”) and be relieved from a registration requirement under Section 4m(1) of the Commodity Exchange Act (the “CEA”). To request a relief through the streamlined approach, the Delegating CPO and its Designated CPO must meet a number of criteria. CPOs wishing to request relief under this streamlined approach should consult with their legal counsel.

Segregation of Initial Margin for Non-Cleared Swaps. This year, the CFTC adopted new rules relating to segregation of initial margin with respect to non-cleared swap transactions. Under these new rules, a swap dealer (“SD”) is required to segregate the initial margin of non-cleared swaps at a third-party custodian upon request from its swap counterparties (the “Segregation Rule”). The Segregation Rule requires the SD to notify counterparties of the right to require segregation of initial margin and to provide one or more non-affiliated custodians and price information for each. An SD will be required to obtain confirmation of notification and election prior to entering into any swap transaction, however a counterparty may change its election at any time.  If a counterparty elects segregation, the counterparty and SD must put in place a tri-party custodial agreement between the SD, counterparty and custodian to segregate the initial margin, which must include certain specific CFTC prescribed provisions. More information can be found here.

Compliance Calendar:

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

Deadline Filing
December 12, 2014 IARD Preliminary Renewal Statement payments due (submit by December 9 to ensure processing by deadline)
December 27, 2014 Last day to submit form filings via IARD prior to year-end
December 31, 2014 Review AUM to determine 2015 Form PF filing requirement
January 1, 2015 FATCA cutoff date of the transitional period for entities with “pre-existing obligations”
January 30, 2015 “Annex IV” AIFMD Filing
February 16, 2015 Form 13F due
February 16, 2015 Annual Schedule 13G updates due
February 16, 2015 Annual Form 13H updates due
March 1, 2015 Deadline for Re-Certification of CFTC Exemptions
March 3, 2015 Quarterly Form PF Due for Larger Private Advisers (if applicable)
March 31, 2015 Annual ADV Amendments Due
April 30, 2015 Annual Form PF Due for Smaller Private Advisers (if applicable)
June 30, 2015 Extended FBAR deadline for certain individuals that have signature authority over, but no financial in, one or more foreign financial accounts
Periodic Filings Form D and Blue Sky filings should be current
Periodic Filings Fund managers should perfor “Bad Actor” Recertifications annually

Please feel free to reach out to us if you have any questions regarding your end-of-the-year compliance. We will you all the best as 2014 comes to a close.

Sincerely,

Karl Cole-Frieman, Bart Mallon & Lilly Palmer

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Cole-Frieman & Mallon LLP is a premier boutique investment management law firm, providing top-tier, responsive and cost-effective legal solutions for financial services matters. Headquartered in San Francisco, Cole-Frieman & Mallon LLP has an international practice that services both start-up investment managers as well as multi-billion dollar firms. The firm provides a full suite of legal services to the investment management community, including: hedge fund, private equity fund, and venture capital fund formation, adviser registration, counterparty documentation, SEC, CFTC, NFA and FINRA matters, seed deals, hedge fund due diligence, employment and compensation matters, and routine business matters. The firm also publishes the prominent Hedge Fund Law Blog which focuses on legal issues that impact the hedge fund community. For more information please visit us at: www.colefrieman.com.

Cole-Frieman & Mallon LLP

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     Karl Cole-Frieman                                   Bart Mallon                                             Lilly Palmer

karl@colefrieman.com                 bmallon@colefrieman.com                  lpalmer@colefrieman.com

415-762-2841                                    415-868-5345                                          415-762-2845

This newsletter is published as a source of information only for clients and friends of the firm and should not be construed as legal advice or opinion on any specific facts or circumstances.  The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Circular 230 Disclosure: Pursuant to regulations governing practice before the Internal Revenue Service, any tax advice contained herein is not intended or written to be used and cannot be used by a taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.  Cole-Frieman & Mallon LLP is a California limited liability partnership and this publication may be considered attorney advertising in some jurisdictions.