Happy Friday. Best wishes for a happy and safe Memorial Day Weekend!
Initial Coin Offerings – Bitcoin and other cryptocurrencies took center stage this weeks as new high prices were reached in volatile trading and euphoria around the Consensus conference earlier this week. Initial coin offerings (or ICOs) were a major topic discussed there and should be a major topic going forward.
Artificial Intelligence Hedge Funds – perhaps lost over the last couple of weeks in the discussion of cryptocurrencies has been the general movement in finance toward utilizing artificial intelligence in the investment process. We recently wrote about artificial intelligence hedge fund strategies and detailed the issues that managers should consider when launching a fund in this space.
DOL Rule Effective June 9 – the delay of the DOL rule was short lived. The DOL recently published a news release that provided that initial implementation of the rule would begin on June 9 (as opposed to April 10th, the originally scheduled implementation date) and that “advisers to retirement investors will be treated as fiduciaries and have an obligation to give advice that adheres to “impartial conduct standards” … [t]hese fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services and refrain from making misleading statements.”
For hedge fund managers, life does not change to a large extent (managers will likely need to update their subscription documents, and may need to get additional representations from IRA and ERISA investors for any new investment made after June 9, 2017). SMA managers will need to be careful and should review their relationship to retirement investors. More information on this will be forthcoming on this blog and in our client updates.
CFTC Focus on FinTech – the CFTC launched a LabCFTC Initiative which “aimed at promoting responsible FinTech innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees.” The overall goal of the program is to promote innovation for new FinTech products while providing the sponsors of such products more insight into the potential regulatory oversight of those products. Central to that goal will be GuidePoint which will act as “dedicated point of contact for FinTech innovators to engage with the CFTC, learn about the CFTC’s regulatory framework, and obtain feedback and information on the implementation of innovative technology ideas for the market.” This sort of proactive approach to innovation by regulators should be a welcome sight to new product sponsors.
Cooperman Insider Trading Settlement – Leon Cooperman settled his insider trading case with the SEC and the SEC released an interesting statement on the settlement. While the settlement allows his fund Omega to continue to operate, Cooperman and Omega were subject to a $1.7M fine for insider trading. More importantly, the firm must retain an onsite independent consultant for the next 5 years to guard against insider trading. There were a couple of additional requirements of the settlement which, with the various fines and independent consultant requirement, have to make the SEC feel like they got a big win here. It will be interesting to see how or if this settlement is used as precedent in future cases.
SEC Issues Cybersecurity Alert – on the heels of the WannaCry ransomeware attack, the SEC issued a Cybersecurity Alert. The alert is geared more towards smaller broker-dealers and investment advisory firms and provides background and links to other SEC resources on this issue.
New York Employers Cannot Ask About Salary History – on May 4, New York Mayor de Blasio signed a bill making it illegal (and subject to fines) for an employer to ask questions about a candidate’s prior compensation. Hedge fund managers located in New York will want to discuss this issue with their internal HR persons, as well as their outside counsel. The bill is called “Intro. 1253” and goes into effect 180 days after the signing. A cached version of the de Blasio press release can be found here.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP and focuses his legal practice on the investment management industry. He can be reached directly at 415-868-5345.