Monthly Archives: March 2009

CFTC Fines BD/FCM For Books and Records Violations

Firm Fails to Institute Procedure for Bunched Orders


The fines can be hefty for breaking CFTC regulations or NFA rules.  We have seen a large number of actions both with the SEC and the CFTC as well as with the NFA.  Below is another example of a group who has been fined for failing to supervise its employees.  I think maybe even more importantly the group below got into trouble for not having written policies regarding “bunching” client orders.

Yesterday I wrote a post about hedge fund bunched orders and I specifically stated how important it is for managers to understand how bunched orders are allocated to their separately managed account clients.  I discussed how it is important from a disclosure standpoint and that each manager should have the broker’s back office or compliance group review the disclosures regarding bunched orders so that the manager is sure that the disclosure is accurate.  Evidently the broker below did not have managers who followed this protocol.  I would imagine that it is likely that managers had a broad statement that gave them the ability to allocate trades to client accounts in their own discretion.  In the future broad statements like these are going to become less prevalent and specific statements regarding the actual allocation procedures will become the industry best practice, if not the industry standard.


Release: 5639-09
For Release: March 26, 2009

CFTC Sanctions ADM Investor Services, Inc. $200,000 For Failing To Diligently Supervise Its Employees

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today simultaneously filed and settled charges against ADM Investor Services, Inc. (ADMIS) for violating rules governing post-execution allocations, maintenance of books and records, and supervision of its employees. The CFTC order sanctioned ADMIS with a $200,000 civil monetary penalty, among other things.

The CFTC entered an order on March 26, 2009, which finds that during 2002 to 2004, ADMIS, a Chicago-based registered futures commission merchant, failed to diligently supervise its employees concerning post-execution allocations of bunched orders.

According to the order, ADMIS had no written policy or procedures concerning post-execution allocations of bunched orders. To the extent ADMIS had unwritten procedures concerning such allocations, ADMIS on certain occasions failed to implement those procedures, the order finds. Additionally, ADMIS allowed an account manager to conduct post-execution allocations days after orders were originally executed and failed to maintain records that identify orders subject to the post-execution allocations. Finally, the order finds that ADMIS prepared, but failed to keep, forms related to such allocations.

Post-execution allocation is a procedure where an account manager is permitted to bunch customer orders together for execution, and to allocate them to individual accounts at the end of the day. Bunching of orders involves an account manager placing trades for two or more customers at the same time in the same order. By allowing all customers the opportunity to have their orders bunched, customers may receive better execution and better pricing of their orders. After the bunched orders are executed, an account manager must assign the trades to customers’ accounts, a process known as allocation. The allocation must be made in a manner that is fair and equitable.

The order also requires ADMIS to implement enhanced procedures to assure adherence to rules governing post execution allocation of trades.

The CFTC wishes to thank the National Futures Association for its cooperation in this matter.

The following Division of Enforcement staff was responsible for this case: W. Derek Shakabpa, Eliud Ramirez, Nathan Ploener, Manal Sultan, Lenel Hickson, Jr., Vincent A. McGonagle, and Stephen J. Obie.

Last Updated: March 26, 2009


Please feel free to contact us if you have any questions on this article or if you are interested in starting a hedge fund.  Other related articles include:

Bunched Orders and Separately Managed Accounts

Separately Managed Account Managers May Bunch Orders for Better Execution

One reason why the hedge fund structure is so popular with investment managers is that a single investment strategy can be implemented in one account.  Separately managed account managers, however, often have multiple accounts and need to execute the same transaction in each of those separate accounts.  Not only is this more time consuming than entering a single trade, there is the possibility that some accounts would receive poorer execution than other accounts (if the trades cannot all be executed for the same prices).  To combat this problem, many brokers offer “bunched” orders which allow a manager to enter into a trade (or series of trades) and then allocate those trades to individual accounts pursuant to a pre-defined allocation method.  In this way trades are allocated to accounts in what may be deemed a more “fair” way.

Types of Bunched Account Allocation Methods

In the event a bunched order is not filled at one total price (called a “partial fill”), there are two central ways to allocate trades to individual accounts from a bunched order – average pricing or high-low.

Average Pricing

Under the average pricing method, the broker’s back end will add up all of the buys or sells at their particular price levels, multiply the trades by the number of contracts (or securities) at each particular price level, and divide by the total number of contracts (or securities) to determine an average price for the whole bunched order.  The trades are allocated to the individual accounts and the price for the trade will reflect the average price.

High low

Under the high-low method, the higher fill prices will be allocated to the higher account numbered clients for both buys and sells, and the lower fill prices to the lower account numbered clients for both purchases and sales.

Issues for CTAs and Investment Advisors

Generally, separately managed accounts fit within the realm of commodity trading advisors and investment advisors.  However, many hedge fund managers are beginning to take on separately managed account clients as well.  The central issue for any of these managers is going to be how the allocation process is described in the investment advisory brochure/contract, disclosure documents or offering documents.  Managers will need to make sure that this issue has been discussed with both the attorney and the broker so that everyone is aware of the actual mechanics of the allocation.  Additionally, I recommend that the broker’s back office review the disclosure documents to ensure that the allocation language is accurate and precise.  If the offering documents state one method and the broker uses another method, there may be some liability for the manager.  Additionally, if the manager is ever subject to examiniation by the SEC, NFA or state securities division, this could be a topic for review.

For hedge fund investors, part of your due diligence process should be to find out whether a hedge fund manager also manages separately managed accounts with the same investment program as the fund.  If so, the investors should ask the manager to explain the allocation process for trades.  While this should be disclosed in the offering documents I have a hunch that this issue is often overlooked by many funds – especially those funds which enter into the SMA agreements after the fund has been in business for a period of time.

Please feel free to contact us if you have any questions on this article or if you are interested in starting a hedge fund.  Other related articles include:

NFA Prohibits CPO Firm From Doing Business

For Immediate Release

For more information contact:
Larry Dyekman (312) 781-1372, [email protected]
Karen Wuertz (312) 781-1335, [email protected]

NFA takes an emergency enforcement action against GlobeFX Club, Inc.

March 24, Chicago – National Futures Association (NFA) announced today that it has taken an emergency enforcement action against GlobeFX Club, Inc. (GlobeFX Club), a Commodity Pool Operator located in Homestead, Florida. Effective immediately, the Member Responsibility Action (MRA) is deemed necessary to protect pool participants, customers and other NFA Members because GlobeFX Club has provided contradictory information in regards to whether it is conducting business, has customer accounts and is operating a pool. NFA has been unable to determine the nature of GlobeFX Club’s business, the identities of its customers, the treatment of customer funds and the identity of two individuals who purportedly loaned money to the firm. The firm has also failed to produce books and records requested by NFA and answer questions concerning its operations.

The MRA suspends GlobeFX Club from NFA membership until further notice. GlobeFX Club is prohibited from soliciting or accepting any customer or pool participant funds or placing trades for any pool that its operates or customer accounts that it holds. Additionally, the MRA prohibits GlobeFX Club from disbursing or transferring any funds from any accounts without prior NFA approval.

The MRA will remain in effect until GlobeFX Club has demonstrated that it is in complete compliance with all NFA requirements. GlobeFX Club may request a prompt hearing before NFA’s Hearing Committee.

The complete text of the MRA can be found on NFA’s Website (

NFA is the premier independent provider of innovative and efficient regulatory programs that safeguard the integrity of the futures markets.

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Discussion about Forex Registration and the Series 34 Exam


Creating Series 34 Exam Prep Materials

One central issue in the investment management industry is increases in regulation of previously unregulated or lightly regulated activities.  The major area which will see direct regulation within the next 12 months is the retail off-exchange foreign currency industry.  As we have discussed, forex managers and those parties which solicit retail forex investors are is expected to have to register with the NFA as forex CPOs, forex CTAs or forex introducing brokers.  As part of this process, individuals subject to registration are going to need to pass the Series 34 exam.  This article will discuss the exam and the new exam prep materials I have been creating to help managers pass the exam.

Overview of the Series 34 Exam

The Series 34 exam is a brand new test created by the NFA at the very end of last year. I have talked with the National Futures Association (which is the self regulatory organization in charge of the forex registration process) and they have told me that individuals can now take the Series 34 exam.  To take this exam individuals are going to need to submit a Form U-10, pay the $70 testing fee and sign up with either Pearson Vue or Prometric to actually take the exam.  The exam is 60 minutes long, has 40 questions and requires 70% correct answers for successful completion.

Series 34 Exam Preparation Materials

There are very few Series 34 materials out there for managers to study from.  I have talked with many different groups and they are planning on potentially releasing a Series 34 exam study guide, but these groups will be waiting until they are able to judge the demand for such a product.  Of course we cannot know the demand for the product until the CFTC proposes its forex registration rules, but it is a safe bet that many forex managers will need to take the exam.  Accordingly, I have started creating a free series 34 exam study guide for the general public.

The free series 34 exam study guide will provide an explanation of all of the major concepts that the NFA has stated will be covered in the exam.  I have provided in depth explanations on the concepts through my own research through many available online resources.  I believe that these materials will be strong, especially with regard to the regulatory requirements for forex managers – I have been reporting on these requirements now for over 6 months and have been able to cull together great resources.

In addition to the free guide, I will also have premium materials available for purchase.  These materials will include an outline, notecards, and practice questions.

  • The series 34 outline will be similar to an outline that you might see prepared for a law school exam – I have taken numerous exams (including many FINRA sponsored exams – Series 3, Series 7, Series 24, Series 63, Series 65) and have found that an outline is a great way to make sure all of the basic concepts are ingrained prior to taking the exam.
  • The series 34 notecards will be an exact replica of the notecards which I will use to study.  You can either print out the notecards and cut them out or you can copy the information onto individual notecards yourself.  I would recommend you write out the information onto individual notecards – in this way you enforce the learning process.  Probably my favorite way of studying is through notecards.  I can take them with me anywhere I am going and then study them when I am in line at a store, on a bus, during a TV commercial, etc.
  • The series 34 practice questions will be similar in style to the questions which you will expect to see on the exam.  I am going to write practice exam questions before I take the exam based on what material I think will be covered in the exam.  I am going to try to write toward areas of expected weakness so I anticipate the questions will be more difficult than those to be seen on the exam.  Additionally, I plan to go back and add more questions after I take the exam to best reflect the nature and difficulty of the questions on the exam.

Information on How to Study for the Series 34 Exam

The ultimate goal of the above exam prep materials is to provide forex managers with the tools they need in order to pass the test on the first try.  It is a waste of time and money to study and then not pass the test on the first time because of lack of preparation or study materials.  If the manager does not pass the exam on the first try, they will need to wait 30 days before they can take it again; if a manager does not pass the exam on the second try, they will need to wait 60 days before they can take it again.

As I have coached managers through the test taking process numerous times before I understand what is needed to pass on the first time – it is simply not enough to only read an exam prep guide.  You must read an exam prep guide and proactively study the concepts which will be tested.  Very smart people have failed the regulatory exams because of not properly studying.   You will need to over-study.

A common joke in the industry is that the perfect score is 70% because it means that you didn’t study too much to pass.  If someone else is paying for you to take the exam, and if you are still considered “on the clock” if you take time off of work to go take the exam, then this thinking may be fine (if you don’t mind taking tests) – however, for busy forex managers your time is too valuable to waste by not passing on the first try.  You should go into the test confident that you will pass and not hoping that you studied “just enough” to pass.

Series 3 Exam – A Pre-Requisite

While anyone can take the Series 34 exam, forex managers will likely need to have passed the Series 3 in addition to the Series 34 exam.  [HFLB Note: the CFTC has not promulgated rules on this issue so this is not a for sure requirement yet.]  I have taken the Series 3 exam and passed and provided more information here (general guidelines on how to study for a FINRA exam can be found here) – please review these articles in addition to the other resources linked on this page.

Timing of Materials Release

I should be able to release the materials later on this week.  I am currently planning to take the exam sometime this week.  I will update this article once the materials have been posted on our other websites.  In the meantime, please feel free to contact us with any questions you might have.

Other related hedge fund law articles:

Hedge Fund Law – State Law Issues

Dealing with Ambiguous State Securities Laws

An issue which often arises during the planning phase of the hedge fund formation process is whether certain state securities or investment advisory laws or regulations apply to a certain fact situation.  Many times these issues arise in the context of investment advisor registration (especially with regard to “custody” and net worth requirements), but they can also apply to less common issues (such as spot forex registration and matters involving commodities and futures licensing).  The problem is not only that the laws and regulations may not apply to a specific situation (many state laws are based on a model code which was written over 50 years ago), but also that there are no judicial or administrative actions which can provide valuable insight into how the state or the enforcement division would view a similar situation.

Unfortunately it can be very hard to receive clarification on these laws and regulations  and sometimes reaching out to state regulators can be an exercise in futility.  In a recent call with the California Department of Corporations (which is in charge of, among other things, administering the state securities laws) I was practically scolded by the staff attorney for first reaching out to the state to determine if they had any informal thoughts on my question.  In situations where we cannot receive informal guidance from a state, the client may choose to request a no-action letter from the state with regard to their situation.

Requesting a No-Action Letter or Interpretive Opinion

NASAA, the North American Securities Administrators Association, has provided this description of no-action letters and interpretive opinions:

Many state securities regulators have the authority issue “no-action letters” in which staff confirms that a transaction carried out under a set of assumed facts will not result in a recommendation for enforcement action.  Some states also issue “interpretive opinions” in which staff provides guidance by indicating how a provision of law applies to a situation presented.

Generally states will allow groups to submit either request.  The request letter will include a restatement of the applicable facts and laws and an argument as to why the requested relief or opinion should be granted.  The attorney will draft this letter on behalf of the manager.  The manager will also need to pay a fee to the state, usually $100-$300 to receive an answer to the request letter.  There is no guarantee that the state will agree with manager and grant any relief.  It will usually take a minimum of 30 days to receive an answer from the state.

Unfortunately the process is both expensive and time consuming.

Fixing the Problem

There are many problems with the federalism system with regard to securities regulation.  One of the biggest issues is the lack of uniformity between the state laws and the disparity between states with regard to enforcement.  I posted an article yesterday about what NASAA is doing this area.  I commend NASAA for taking this step forward – it will be a big improvement over the current system and hopefully will lead to more uniform laws (and application of those laws) throughout the states.  However, this is not a panacea and we are unlikely to see truly fair and efficient enforcement of laws unless there is a wholesale scrapping of the current system and unfortunately even then we are still left with federalism which provides state securities commissions with powers that most do not understand how to deal with.

Ultimately this increases costs to the managers and ultimately investors.

NASAA Proposes Multi-State No-Action Request Process

Currently each state has their own securities laws and their own interpretation of those laws.  While many of the laws and regulations are based on the same set of model rules, no two states seem to take the same interpretation with regard to the rules.  Enforcement is completely different as well.  This presents many problems for those involved in the securities and investment management industries because of the disparate treatment under similar circumstances in different states.

NASAA is taking a step forward to try to unify the laws of the states through a multi-state no-action request process.  Basically questions on the application or interpretation of state securities laws would be decided on a multi-state level instead of at just a single state(each state would have the ability to issue a distinct opinion or opt out of the discussion, see below for more details).  This is good because it (1) allows all states to address an issue which may be applicable (currently or in the future) to a resident of their state and (2) it will promote discussion between the states as to how to handle certain situations.  Hopefully this create a more uniform set of laws between the states which will decrease lawyer fees in the future and will increase certainty in the application of current laws and regulation.

With regard to the specific proposal we will likely respond to the NASAA with the following comments:

Section 5, number 7 – this section should be deleted unless it goes directly to an issue with the request at hand.  Disclosing this information otherwise would serve no purpose with regard to the request.

Suggestion – NASAA should also create a database on their website to track all of requests as well as the rulings on the requests.

We will be covering this in greater detail over the next few weeks.  Please contact us if you have questions or ideas with regard to the proposal.


Notice of Request for Public Comment on NASAA’s Proposed Adoption of a Statement of Policy Regarding Multi-State Review of Requests for Interpretive Opinions and No-Action Letters

The NASAA Coordinated Interpretations Project Group requests comment from the public on the adoption of a new Statement of Policy Regarding Multi-State Review of Requests for Interpretative Opinions and No-Action Letters.

The comment period begins February 20, 2009 and will remain open for 30 days.  Accordingly, all comments should be submitted on or before March 22, 2009.  Comments should be directed by email or in writing to:

Rick A. Fleming
General Counsel
Office of the Securities Commissioner
618 S. Kansas Avenue
Topeka, Kansas  66603
[email protected]

Rex Staples
General Counsel
750 First Street, NE, Suite 1140
Washington, DC  20002-4251
[email protected]

Background and Purpose of the Proposed Statement of Policy

Many state securities regulators have the authority issue “no-action letters” in which staff confirms that a transaction carried out under a set of assumed facts will not result in a recommendation for enforcement action.  Some states also issue “interpretive opinions” in which staff provides guidance by indicating how a provision of law applies to a situation presented.  These types of no-action letters and interpretive opinions are authorized by subsection 413(e) of the Uniform Securities Act of 1956, as amended, and subsection 605(d) of the Uniform Securities Act (2002).

Subsection 420(b)(7) of the 1956 USA and subsection 608(c)(9) of the 2002 USA authorize the states to cooperate with each other in the development of no-action letters and interpretive opinions in order to encourage uniform interpretation of laws and maximize the effectiveness of regulation.  Toward those ends, NASAA proposes this Statement of Policy.

Summary of the Proposed Statement of Policy

The proposed Statement of Policy describes the application and review process for multi-state consideration of requests for interpretive opinions and no-action letters.  The proposed Statement of Policy contains the following major elements:

  • Section II contains definitions, including the terms “interpretive opinion” and “no-action letter.”
  • Section III places restrictions on the types of matters that qualify for multi-state review.  For example, it prohibits requests concerning purely hypothetical situations and transactions that have already occurred.
  • Sections IV and V contain rules governing the content of the request letter, citation to state laws, payment of fees, etc.
  • Section VI describes the review process.  Conference calls and a list-serve will be used to facilitate communication between states, and responses to requests for interpretive opinions and no-action letters should be generated within 60 days.
  • Section VII contains optional disclaimers for the states to consider using.

The full policy statement, reprinted below, can also be found here.



(Adopted ____)


1. This Statement of Policy of the North American Securities Administrators Association (NASAA) describes the application and review process for multi-state consideration of requests for Interpretive Opinions and No-Action Letters.

2. The policy is intended to promote efficiency in the review of applications and produce responses to requests within 60 days.

3. This policy is intended to promote consistency in the interpretation of blue sky laws, particularly when the laws are based upon uniform or model provisions. However, the issuance of Interpretive Opinions and No-Action Letters is done solely at the discretion of each state, and each state is ultimately responsible for interpreting and enforcing its own law.


1. “Interpretive Opinion” means a letter that states a conclusion regarding the applicability of a relevant provision of law to a situation presented. An Interpretive Opinion represents a judgment based solely on the fact situation as described by the applicant and an analysis of existing law and judicial, legislative, and administrative history.

2. “No-Action Letter” means a letter by which a person is advised that a transaction carried out under a set of assumed facts will not result in a recommendation by staff that an enforcement action be taken. An Interpretive Opinion often includes an assurance of “no action;” however, a No-Action Letter does not necessarily include any interpretation of law.

3. “Participating Jurisdictions” means those states that have agreed to accept applications for multi-state review of requests for Interpretive Opinions or No-Action Letters in accordance with this Statement of Policy. Authority for a multi-state review is provided in section 608(c)(9) of the Uniform Securities Act of 2002 and section 420(b)(7) of the Uniform Securities Act of 1956, as amended by NASAA. All Participating Jurisdictions are listed on Form MS-ONA.

4. “Selected Jurisdictions” means the states from whom an applicant seeks an Interpretive Opinion or No-Action Letter, as indicated by the applicant on Form MS-ONA.


1. An application for multi-state review of a request for an Interpretive Opinion or No-Action Letter shall not involve a hypothetical situation, a past transaction, or an issue that is currently subject to or in preparation for litigation.

2. An application shall not involve a matter that the applicant knows or should know is currently under investigation or subject to regulatory action.

3. An application shall not relate to an interpretation of antifraud provisions.


1. To apply for multi-state review of a request for an Interpretive Opinion or No-Action Letter, the applicant shall file the following documents with each Selected Jurisdiction and the Program Administrator:

a.  A copy of “Form MS-ONA – Application for Multi-State Review of Request for Interpretive Opinion or No-Action Letter.” The form is available on the NASAA web site at [insert current web address] and contact information for each state is available at [insert current web address].

b.  A request letter that complies with the requirements set forth below; and

c.  Any supporting materials.

2. The applicant shall submit an application fee directly to each Selected Jurisdiction in the amount indicated on Form MS-ONA.


1. A request for an Interpretive Opinion or No-Action Letter shall succinctly present the issue to be considered and provide a thorough recitation of all material facts. The request shall contain the applicant’s reasoning and legal analysis, including references to applicable law and previous Interpretive Opinions or No-Action Letters that support the interpretation or relief requested. Additionally, the request should include a discussion of previous Interpretive Opinions or No-Action Letters that militate against granting the interpretation sought or relief requested and set forth the applicant’s reasoning and legal analysis distinguishing them from the facts and issues presented in the request.

2. The request should be limited to one legal issue and should be narrowly tailored to resolve the specific issue. The request should not attempt to discuss every possible situation.

3. The request must identify the persons or entities that are the subject of the request or will rely upon the response and identify the states in which such persons reside or maintain their principal places of business. The request may state that the person or entity seeks confidential treatment to the extent permitted by the open records or public records laws of the Selected Jurisdictions (e.g., state laws modeled after section 607 of the Uniform Securities Act of 2002). However, the applicant should take note that the laws of some states do not permit confidential treatment, and this Statement of Policy does not assure that any state will maintain the confidentiality of the person or entity or any other information contained in the application.

4. If a request for an Interpretive Opinion or No-Action Letter relates to a definition, exemption, or other provision that is derived from the Uniform Securities Act of 1956, the Uniform Securities Act of 2002, a NASAA model rule, or a NASAA Statement of Policy (SOP), the request letter shall include in the heading a citation to the relevant provision(s) of each applicable uniform act, model rule, or SOP.

5. The request shall set forth in tabular form, as an appendix, a specific citation to the relevant laws of each Selected Jurisdiction.

6. The request shall include a representation that any proposed transaction has not yet been consummated, that the matter is not currently subject to or in preparation for litigation, and that the applicant is not aware of any regulatory investigation involving the matter.

7. The request shall disclose whether any of the persons who are the subject of the request or will rely upon the response, or any of the persons’ predecessors, affiliates, directors, officers, general partners, beneficial owners of 10 percent or more of any class of its equity securities, any promoter presently connected with the persons in any capacity, any underwriter to be involved in a transaction described in the request, or any partner, director or officer of the underwriter:

a.  Within the last five years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator or the United States Securities and Exchange Commission;

b.  within the last five years, has been convicted of any criminal offense in connection with the offer, purchase or sale of any security, or involving fraud or deceit;

c.  is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five years, finding fraud or deceit in connection with the purchase or sale of any security; or

d.  is currently subject to any order, judgment or decree of any court of competent jurisdiction, entered within the last five years, temporarily, preliminary or permanently restraining or enjoining such party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.

8. If the applicant has communicated with any state securities administrator concerning the transaction or subject matter that is the subject of the request, the applicant shall disclose the nature of the communication and any response received from the state. If a separate request for an Interpretive Opinion or No-Action Letter has already been filed with one or more states in connection with the same transaction or subject matter, the applicant shall (1) provide a copy of any requests that have been filed and disclose the status of each state’s response; (2) provide a copy of any response that has been issued by a state; and (3) explain the reason that it did not initially seek multi-state review.


1. Within 5 business days after receipt of an application, the Program Administrator will determine whether the application is eligible for multi-state review and in proper form. If the application is ineligible or deficient, the Program Administrator will notify the applicant and the Selected Jurisdictions. If the application is eligible for multi-state review, the Program Administrator will notify the applicant and Selected Jurisdictions of the deadline to review the application and issue responses in accordance with paragraph VI.3. The Program Administrator will also send a copy of the application to any other state that provides contact information in accordance with Paragraph VI.6.

2. Within 45 days after receipt of a proper application by the Program Administrator, the Program Administrator shall arrange for a conference call to discuss the application and shall provide notice of the call to all states who submit contact information in accordance with paragraph VI.6. The Program Administrator may appoint a facilitator for the conference call, and the Program Administrator or facilitator may schedule additional conference calls as needed.

3. Within 60 days after receipt of a proper application by the Program Administrator, each Selected Jurisdiction shall use its best efforts to issue its response to the applicant. The response may include an Interpretive Opinion, No-Action Letter, or letter declining to give any such assurance. Failure of a Selected Jurisdiction to issue a response does not indicate assent to the granting of the interpretation or relief requested. A copy of the response should be sent to the Program Administrator and added to an electronic library containing the Interpretive Opinions and No-Action Letters issued under this Statement of Policy.

4. The Program Administrator may seek additional information from the applicant on behalf of any Selected Jurisdiction, and the applicant shall file copies of all supplemental material with each Selected Jurisdiction and the Program Administrator. If supplemental material is requested, the review period may be extended up to 30 additional days after receipt of the supplemental material at the discretion of the Program Administrator. The Program Administrator will notify the applicant and Selected Jurisdictions of the extension and send copies of the supplemental material to states that are not Selected Jurisdictions.

5. The timelines contained herein may be postponed at the discretion of the Program Administrator in extenuating circumstances. The Program Administrator will notify the applicant and the Selected Jurisdictions of the new deadlines and the reasons for any postponement.

6. Each Participating Jurisdiction and any other state that wants to receive notices from the Program Administrator must provide and update the Program Administrator with the name, title, address, phone number, fax number, and e-mail address of one or more contact persons. The Program Administrator will maintain a list-serve or other electronic system to facilitate communication between such persons.


1. Each Participating Jurisdiction is encouraged to use the following disclaimers in any letter issued under this policy:

a.  The letter applies only to the party requesting it, and persons having similar fact situations should submit a separate request.

b.  The letter is conditioned upon the specific facts set forth in the request and the accuracy of any representations that are required to be made under this Statement of Policy.

c.  The conclusions are based upon current law, should not be regarded as precedent, and are not binding on any court, agency, or tribunal.

d.  The letter does not preclude investors, other regulatory agencies, or other persons from asserting their rights under the law.

Schwab Drops Hedge Fund Platform

Self Directed IRA Investments in Funds Likely to Become Harder to Accomplish

In an earlier article about hedge fund IRA investments I discussed the general process which an investor will need to go through in order to invest their IRA assets in a hedge fund.  As a gross generalization the investor’s custodian will need to make the actual investment into the hedge fund.  In the past I have helped many clients navigate the hurdles which are sometimes involved in this process.  While the process is not exactly easy, it may become more difficult in the future based on anticipated regulatory changes.  These developments may make it harder for investors to invest in a hedge fund with their IRA assets.

In addition, Schwab has recently announced that they will no longer allow self-directed IRA investors to invest in alternative investments such as hedge funds.  This news comes as a big surprise to both advisors and investors.  Schwab was known for having a very good platform for self-directed IRAs.  In fact, out of all of the custodians that my clients have used for these transactions, Schwab was by far the best.  Their representatives were well versed in the mechanics of these investments where many other firms seemed to be learning on the job.  There was more than one time when a client’s investor had to switch IRA custodians in order to find a group which allowed a self-directed IRA investment into a hedge fund.

With Schwab exiting this space it may be more difficult for some investors to try to find good custodians who are able to process these transactions.  I have known at least a couple of well name groups who difficult to work with and lost business because of that.  The article I linked to above noted the backlash by RIAs and hopefully Schwab will reconsider based on the community support for their platform – I do believe that the reason for the backlash is because of good support which was provided to both the managers and customers.  So many times we face horrible customers service and it is always refreshing to find groups who do value the customer.

Hopefully we will be able to continue to rely on Schwab for these services in the future.

Other related hedge fund law articles include: