Monthly Archives: December 2008

Colorado Hedge Fund Law – Colorado Investment Advisor Privacy Rules

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Application of the Gramm-Leach-Bliley Act to Colorado Registered Investment Advisors

A common question for state registered investment advisors is regarding their responsibilities for maintaining the privacy of their hedge fund investors.  Many state securities divisions provide notice on their website regarding the applicability of the Gramm-Leach-Bliley Act to the manager’s investment advisory activities.  The Colorado Securities Division, which has a savvy and knowledgeable staff, has provided Colorado investment advisers with an overview of their responsibilities with regard to “non-public personal information.”  In general most hedge funds do not have a need to disclose the “non-public personal information” of their investors to outside parties, but if a hedge fund manager does need to disclose such information to third parties, then the manager should discuss this in greater detail with his hedge fund attorney.

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Another Commodity Pool Operator Fraud – Lesson in Hedge Fund Due Diligence

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We frequently discuss scams involving the investment management and hedge fund industry as a warning to potential hedge fund investors to take the hedge fund due diligence process seriously.  In the CFTC release posted below, we have a classic scam where the sponsors of a commodity/futures fund acted in a fraudulent manner and used the assets of the fund for their own personal reasons.  We have listed the items which the consent order found and how an experienced hedge fund due diligence team could have protected the investor from fraud. Continue reading →

Oregon Hedge Funds – Investment Advisor Issues

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Questions and Answers on Oregon Investment Advisor Registration For Hedge Funds

Some states will provide a good source of information to start up hedge fund managers which details whether the hedge fund manager will need to register as an investment adviser in the state of residence.  The following resource is from the Oregon Division of Finance and Corporate Securities and answers common questions that potential Oregon hedge fund managers would have regarding the Oregon investment advisor registration requirements.

Specifically this set of questions and answers shows us that there is no de minimis rule which would allow managers to escape investment advisor registration in Oregon; the Q&A also details the notice filing requirements in Oregon.  Even though SEC registered investment advisors will not need to register with the state securities division, the firm will need to “notice file” and pay a filing fee and investment advisor representatives of the firm will usually need to have the Series 65 and the investment advisory firm will need to pay a filing fee for the representative.  Continue reading →

Hedge Fund Managers and Investment Advisor Registration Status

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Many hedge fund managers who are registered as investment advisors with the SEC have experienced losses this year as well as investor redeptions.  For some managers the losses combined with investor redemptions may have the effect of decreasing an advisor’s assets below the $25million threshold for SEC investment advisor registration.  Generally an investment advisor is not allowed to be registered with the SEC if the manager’s assets under management do not exceed $25 million. Continue reading →

Non-Accredited Investors in Hedge Funds

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Many start-up hedge fund managers want to know if their friends and family can invest in the start-up hedge fund.  Most of the time, such friends and family do not fall within the definition of accredited investor under the Regulation D rules. The regulation D rules allow a maximum of 35 non-accredited investors to invest in any single offering.  Because a hedge fund offering is continuous, the limit of 35 non-accredited investors is cumulative.  That means that over the life of the fund there can be no more than 35 non-accredited investors (as opposed to 35 non-accredited investors in the fund at any single point in time). Continue reading →

BVI Offshore Hedge Fund – BVI Entity Formation and Costs

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British Virgin Islands Hedge Funds

The British Virgin Islands (BVI) is the second most popular jurisdiction for offshore hedge funds behind the Cayman Islands.  In many ways the offshore hedge fund formation process is better in the BVI, and it is certainly much cheaper.  This article will detail the costs to establish a management company and a hedge fund in the BVI.  It will also detail to costs for BVI registered agent services. Continue reading →

Hedge Funds Blindsighted by Massive Ponzi Scheme

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According to a SEC release this morning (and every other financial news agency), major hedge funds, banks and other financial institutional were caught in a Ponzi scheme of epic proportions.  While it is hard to believe that such large groups were blindsighted by this, it does showcase the fact that fraud can happen to even sophisticated investors and that hedge fund due diligence (an ongoing due diligence) is absolutely required.  The SEC release is reprinted below. Continue reading →

Alabama Hedge Fund Law – Regulation D Filings

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In our continuing effort to expand our hedge fund law resources on this blog, we will be posting statutes and other legal resources from each of the states.  Because each state has different laws and enforces those laws differently, hedge fund lawyers often discuss state specific hedge fund issues with the securities division prior to providing advice to clients.  The post below provides information on Alabama’s regulation D requirements.  Please contact us if you would like to establish an Alabama hedge fund or have questions on Alabama investment advisory issues. Continue reading →

Discussion of NFA Compliance Rule 2-29 (Forex Advertising)

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NFA Compliance Rule 2-29 is important right now for those commodity pool operators and commodity trading advisors who also trade in the spot forex market.  If the CFTC approves a rule adjustment by the NFA (see NFA Announces New Forex Rules), such CPOs and CTAs (who are NFA members) will need to make sure that all of their activity with regard to their forex trading activities conforms to the requirements of NFA Compliance Rule 2-29.

NFA Compliance Rule 2-29 is also important because the CFTC is expected to propose rules requiring managers who trade in the Forex markets, and who are not regisitered as CPOs or CTAs, to register with the CFTC.  In the event such registration rules go forward, it is likely that such Forex managers will need to follow Compliance Rule 2-29.  This article details the important aspects of this rule.  Continue reading →

Segregated Portfolio Companies for Offshore Hedge Funds

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Hedge Fund Segregated Portfolio Companies

A segregated portfolio company (SPC) is a single entity structure which contains a series of segregated portfolios (sometimes referred to as “cells”), each of which is regarded as a separate legal entity for asset protection purposes.  For offshore hedge funds, the segregated portfolio company is the functional equivalent to the domestic hedge fund series LLC.  This article will detail: SPC jurisdictions, SPC Offshore structures, SPC offering documents, SPC advantages and SPC disadvantages. Continue reading →