Monthly Archives: April 2013

New Jersey Investment Adviser Annual Exam

State Releases Web Version of Annual Written Examination for Registered Investment Advisers

Investment Advisers registered with the State of New Jersey will now be able to complete their Annual Written Examination online. In addition to answering the examination questions, advisers now have the ability to upload related documents online, negating the need to send paper mailings to the state.

A release issued by the New Jersey Bureau of Securities states that “the answers to [the examination] questions are used to determine the need for an on-site or desk examination, as well as to monitor the different approaches used to render the investment advice.”

The examination questions cover topics related to the adviser’s business model, including:

  • Clients and business activities
  • Policies and procedures that the adviser has in place
  • Personnel, associated persons and other business activities
  • Client complaints
  • Advertising and promotional activities
  • Custody and financial condition

Instructions and a link to the examination can be found here.  If you have questions or concerns about the new examination format or the questions contained in the examination, please do not hesitate to contact us.


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.

First Quarter 2013 Business & Regulatory Update

Below is the first quarter update we have sent out to our mailing list.  If you would like to be added to the mailing list, please contact us here.


Cole-Frieman & Mallon First Quarter Update

Clients and Friends:

The early months of 2013 have been a busy time in the world of investment management regulatory compliance.  As we head into the second quarter, we take this opportunity 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.


Form ADV Annual Updating Amendment was due on March 31.  All registered investment advisers or managers filing as exempt reporting advisers 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. For most advisers, this deadline passed on March 31, 2013. Registered investment advisers or exempt reporting advisers who have not filed their annual update should attend to the filing as soon as possible.

Foreign Account Tax Compliance Act (“FATCA”) Regulations Issued. The long-awaited FATCA regulations have been issued, and the timelines for fund compliance have been set. The regulations require certain financial institutions to either (i) identify and disclose direct and indirect U.S. investors and withhold U.S. income tax on nonresident aliens and foreign corporations, or (ii) be subject to a 30% FATCA tax.  Foreign financial institutions (“FFIs”), which include hedge funds, funds of funds, commodity pools and other offshore investment vehicles, will be required to enter into agreements with the IRS by January 1, 2014 to avoid being subject to the FATCA tax. The IRS’s online registration portal will be available by July 15, 2013, and offshore funds and other FFIs must be registered by October 25, 2013 to be included on the IRS’s first list of FATCA compliant FFIs, which will be published on December 2, 2013. Managers should also consider updating their fund documents to include FATCA disclosures and representations.

Electronic Schedule K-1s. The IRS has authorized partnerships and limited liability companies taxed as partnerships to use exclusively electronic means to distribute Schedule K-1s to investors, as long as the partnership first obtains the investor’s affirmative consent. Partnerships must obtain consent in a manner that demonstrates that investors can access the electronic format in which the K-1 is furnished. States may have different rules regarding electronic K-1s, so funds should check with their counsel or service providers 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.

SEC Update.  The SEC has been extremely busy over the last quarter. The biggest news is the Obama administration’s nomination of Mary Jo White as the SEC’s new chairman. White, a former U.S. attorney in Manhattan, will be the first prosecutor to head the SEC, and her nomination signals the administration’s resolve to hold Wall Street accountable for any wrongdoings.  Other SEC related items include:

  • JOBS Act.  One purpose of the Jumpstart Our Business Startups Act (the “JOBS Act”) was to reduce the regulatory restrictions around the general solicitation and advertising of private securities offerings.  However, a year has passed since the bill was signed into law, and the SEC still has not promulgated rules to implement the JOBS Act. Absent guidance from the SEC, we caution fund managers against relying on the JOBS Act to engage in general solicitation and advertising of interests in their funds.
  • SEC Presence Exams.  The SEC’s two-year “Presence Exam” initiative is currently underway.  The initiative, which aims to examine the conduct of most newly registered investment advisers, gives the SEC the ability to reach a large percentage of new registrants by focusing on a limited number of higher risk issues, including: (i) marketing, (ii) portfolio management, (iii) conflicts of interest, (iv) safety of client assets and (v) valuation.  Most newly registered managers should expect to be examined within the next two years.  Information about Presence Exams can be found here.
  • Common Adviser Custody Rule Deficiencies.  The SEC recently released a risk alert that addresses the common deficiencies related to Rule 206(4)-2 under the Investment Advisers Act of 1940, known as the “Custody Rule”. The risk alert identifies four primary categories of deficiencies: (i) failure by an adviser to recognize situations in which it has custody under the Custody Rule; (ii) failure to meet the Custody Rule’s surprise examination requirements; (iii) failure to satisfy certain “qualified custodian” requirements under the Custody Rule; and (iv) failure to properly engage independent auditors or otherwise comply with the requirements for audits of pooled investment vehicles under the Custody Rule.  Managers should carefully review the requirements of the Custody Rule and make sure that the deficiencies highlighted by the risk alert do not apply to their firms.  The risk alert can be found here.
  • Form PF. While advisers with at least $1.5 billion assets under management were required to file their initial Form PFs by March 1, 2013, most other advisers are required to file an initial Form PF by April 30, 2013. Compiling the information necessary to prepare the Form PF is burdensome and may take substantial time and effort.  If you are looking for last-minute assistance with any aspects of the filing, please do not hesitate to contact us or your service providers.

Futures and Derivatives. Like the SEC, futures and derivatives regulators and self-regulatory organizations have been very busy over the last quarter.  Important developments include:

  • ISDA August 2012 Dodd-Frank Protocol. The International Swaps and Derivatives Association’s Dodd-Frank Documentation Initiative aims to facilitate compliance with the Dodd-Frank Act. The Documentation Initiative minimizes the need for bilateral negotiations and reduces disruptions to trading by providing a standard set of amendments, referred to as protocols, to update existing swap documentation. The D-F Protocol is the first of such protocols, and it facilitates industry compliance with seven final rulemakings.  Because certain final rules have an effective compliance date of May 1, 2013, managers whose portfolios include swaps and who have existing relationships with swap dealers should adhere to the D-F Protocol as soon as possible to give swap dealers ample time to integrate information provided through the protocol.  To indicate their participation in the protocol arrangement, market participants must submit an adherence letter and pay an adherence fee of $500.00 through the online ISDA Amend system.  Detailed instructions on the submission of the Adherence Letter through ISDA Amend can be found here.
  • Swap Data Reporting and Recordkeeping. Swap dealers registered with the CFTC are obligated to report all swaps to which they are a party.  Under new CFTC rules, investment funds that are U.S. persons may need to report swaps when trading with (i) other financial entities that are not swap dealers, (ii) non-financial entities or (iii) non-U.S. swap dealers.  The new rules require that all swap counterparties keep detailed records of their swaps for the life of the swap and for five years following its termination. All investment funds who intend to transact in swaps must obtain a CFTC Interim Compliant Identifier (“CICI”) by April 10, 2013.  Investment funds may obtain CICIs here.
  • ERISA Relief for Cleared Swap Transactions.   The U.S. Department of Labor recently issued an advisory opinion addressing the application of the Employee Retirement Income Security Act of 1974 (“ERISA”) to certain “cleared swap” transactions conducted pursuant to provisions of the Dodd-Frank Act.  The advisory opinion clarifies the ERISA fiduciary status of futures commission merchants and clearing organizations that perform swap transactions on behalf of ERISA plans.  It alleviates the concern that fiduciary obstacles could keep ERISA plans out of the swap market.  The full text of the opinion is available here.
  • CFTC CTA and CPO Reporting Deadlines.  All CTAs that were required to be registered on or before December 31, 2012, had to file a Form CTA-PR annual report with the NFA by February 14, 2013.  Each CPO that was required to be registered on or before December 31, 2012, was required to complete and file applicable schedules of CFTC Form CPO-PQR by March 31, 2013.  NFA Rule 2-46 requires each CPO member to file Form CPO-PQR on a quarterly basis.  If you are a CPO or CTA and have not met these obligations and would like our assistance with the filings, please do not hesitate to contact us.

Other Notes.

  • European Union’s Alternative Investment Fund Managers Directive (“AIFMD”).  Starting July 22, 2013, in order to continue marketing to EU investors, non-EU managers will be required to comply with reporting and disclosure obligations under the AIFMD for each fund that is marketed in one or more EU jurisdictions. These obligations consist of providing pre-investment and ongoing disclosures to investors, and annual and regular reports to an EU national regulator.  If you are marketing to EU investors, you should carefully review the directive’s provisions to make sure you comply with its requirements.
  • California LLC Penalties for Unregistered Companies.  The California Franchise Tax Board recently announced that it will assess a $2,000 penalty on unregistered limited liability companies that are conducting business in California. Advisers doing business in California should make sure that they have filed the necessary registration paperwork, and should remain current with all their tax payments. Advisers registered outside of California that do business within the state must make sure to file the required California Statement of Information, which must be renewed every two years. Many taxpayers are unaware that they are “doing business” in California. If you are unsure whether or not you are doing business in California you should consult your legal adviser or service provider. The Tax Board’s release 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
March 31, 2013 Form ADV annual updating amendment deadline
April 10, 2013 CFTC Interim Compliant Identifier deadline for all funds who intend to transact in swaps
April 30, 2013 Form PF deadline for smaller SEC registered private fund advisers
May 1, 2013 D-F Protocol adherence deadline
Variable Distribute annual audited financial statements and 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,


Karl Cole-Frieman & Bart Mallon


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.

Hedge Fund Events April 2013

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.


April 3

April 3-4

April 4

April 8-10

April 9

April 9

April 10

April 10-11

April 10-12

April 15-17

April 16

April 16

April 16-18

April 17

April 17

April 17-19

April 18

April 18

April 22

April 22

April 22-23

April 23

April 24

April 24

April 25

April 25-26

April 28-May 1

April 29-May 1

April 30


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.