April 23, 2025

Clients, Friends, and Associates:

With the first quarter of 2026 now behind us, we would like to highlight some noteworthy industry updates that we found to be especially interesting and impactful. As always, we strive to present an informative, albeit brief, overview of these topics. If you have any questions on these items or related matters, we encourage you to reach out.

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CFM Items

CFM Hedge Fund Practice Ranked by Chambers Global for 2026 along with Co-Managing Partner Karl Cole-Frieman. We are thrilled to announce the firm has been ranked in the 2026 edition of Chambers Global as a leader in the USA Hedge Funds category. As Chambers notes, “[CFM has] very deep expertise in hedge funds and cryptocurrency. Their experienced team has a firm grasp of complex and nuanced matters and they are keenly aware of the state of the market.” Co-Managing Partner Karl Cole-Frieman was also ranked for his work advising clients on fund formation, structuring, and regulatory matters.

CoinAlts Fund Symposium. Cole-Frieman & Mallon LLP, along with industry leaders MG Stover, Harneys, and KPMG, is a premier sponsor of the CoinAlts Fund Symposium. This annual event, being held at the Hyatt Regency Hotel in San Francisco on October 14, 2026, is the anchor event of SF Fund Week 2026. It brings together the digital asset community to address investment, legal, and operational issues relevant to private fund managers. It is a must-attend gathering for industry professionals, providing unparalleled insights and networking opportunities. Join us for expert panels, top-notch speakers, and the chance to stay ahead of the curve in this rapidly evolving industry. More information is available at https://coinalts.xyz/.

CFM People. We are pleased to announce the following updates at Cole-Frieman & Mallon: partner Lilly Palmer has been named Chair of the Investment Funds Practice; Ian Potts has joined as Chief Marketing Officer; senior associate Hank Brier and associate Divya Laxman have joined the Investment Funds Practice; associates Hanna May and Jordan Kohn have joined the Intellectual Property Practice; law clerk Alexa Pantelidis has joined the Corporate & Transactional Practice; Athena Anderson has joined the firm as Finance Controller; and Mayerly Garay and Savannah Rodriguez have joined as legal assistants. We are thrilled to have each of them at Cole-Frieman & Mallon.

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SEC Matters

SEC and CFTC Issue Joint Interpretation on Application of Securities Laws to Crypto Assets. On March 17, 2026, the Securities and Exchange Commission (“SEC”), joined by the Commodities Futures Trading Commission (“CFTC”), issued a final interpretation providing a comprehensive token taxonomy and guidance on how federal securities laws apply to crypto assets. The interpretation classifies crypto assets into five categories:

Not Classified as Securities:

• Digital commodities (e.g., Bitcoin, Ether, Solana, XRP);
• Digital collectibles (including meme coins and NFTs);
• Digital tools (e.g., memberships, tickets, credentials); and
• Stablecoins, which are not securities if issued by a permitted payment stablecoin issuer under the GENIUS Act.

Classified as Securities:

• Digital securities (i.e., tokenized securities).

The interpretation also clarifies:

(a) a crypto asset that is not itself a security may be offered or sold as part of an investment contract where the issuer makes specific representations or promises regarding the asset’s value or development; however, once those representations or promises have been fulfilled or abandoned, the crypto asset is no longer considered part of the investment contract and reverts to its status as a non-security;

(b) protocol mining, protocol staking, and wrapping of non-security crypto assets do not involve securities transactions; and

(c) certain airdrops do not involve an “investment of money” under the Howey test. The CFTC confirmed that non-security crypto assets could qualify as “commodities” under the Commodity Exchange Act (“CEA”).

This interpretation supersedes prior staff guidance and marks the first concrete step towards regulatory clarity, the architecture of which has yet to be built. Notably, the CFTC’s confirmation does not, by itself, trigger commodity pool operator (“CPO”) or commodity trading advisor (“CTA”) registration requirements. Those obligations arise from trading in “commodity interests” (e.g., futures, options, swaps) rather than spot commodity holdings.

Fund managers and advisers holding spot digital commodities should assess whether their trading activities involve commodity interests requiring registration. For more information, please refer to our article analyzing possible implications.

SEC Divisions Issue Joint Statement on Federal Securities Law Treatment of Tokenized Securities. On January 28, 2026, the SEC’s Divisions of Corporation Finance, Investment Management, and Trading and Markets issued a joint staff statement clarifying how federal securities laws apply to tokenized securities (i.e., securities with ownership recorded on blockchain networks). The statement addresses both issuer-sponsored and third-party tokenization models, emphasizing that crypto asset format does not alter status as tokenized securities, registration requirements or eligibility rules. This non-binding statement provides a useful framework for evaluating tokenized structures and signals SEC willingness to engage with lawful tokenization.

SEC Delays Form SHO Compliance to January 2, 2028. On December 3, 2025, the SEC granted an extension to the compliance deadline under Rule 13f-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for short position reporting on Form SHO. Institutional investment managers will not be required to file Form SHO until February 14, 2028.

SEC Staff Issues Guidance on Broker-Dealer Custody of Crypto Asset Securities. On December 17, 2025, the SEC’s Division of Trading and Markets issued a statement explaining what broker-dealers must do to maintain custody of crypto asset securities on their customers’ behalf, and satisfy the “physical possession or control” requirement of Rule 15c3-3 (the “Customer Protection Rule”). The statement sets forth five necessary measures for compliance:

• Have the ability to access the crypto assets and transfer them on the blockchain;
• Adopt written policies to assess the relevant blockchain technology before taking custody and on an ongoing basis;
• Not maintain possession when aware of significant security vulnerabilities or operational weaknesses with the blockchain;
• Implement written policies and controls consistent with industry best practices to prevent theft, loss, or unauthorized use of private keys; and
• Develop written contingency plans for ensuring continued safekeeping and accessibility of the crypto asset securities in the event of disruption.

This statement is a first step in clarifying the application of federal securities laws to crypto asset securities and broker-dealer custody. Broader approval could lead more firms to offer services in this area, strengthening the crypto asset security industry.

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CFTC Matters

CFTC Reinstates Registration Relief to Certain SEC-RIAs Operating Commodity Pools. On December 19, 2025, the CFTC’s Market Participants Division issued No-Action Letter 25-50, providing interim relief from CPO registration for certain SEC-RIAs that limit their commodity pool participants exclusively to qualified eligible persons (“QEPs”) and are not otherwise subject to a statutory disqualification. The relief allows qualifying advisers to forego CPO registration while the CFTC considers formally reinstating the QEP exemption previously found in CFTC Rule 4.13(a)(4). It also provides regulatory flexibility to commodity pool structures marketed to sophisticated investors and reduces the risk of duplicative CPO registration requirements in the near term.
 
SEC and CFTC Enter Harmonization MOU and Launch Joint Initiative. On March 11, 2026, the SEC and CFTC announced a Memorandum of Understanding (“MOU”) and Joint Harmonization Initiative to coordinate oversight, reduce duplication, and provide clearer rules across their shared jurisdiction. The MOU focuses on aligning product definitions, streamlining reporting, reducing friction for dually registered firms, and providing a more fit-for-purpose framework for crypto assets. It also establishes regular information sharing and coordinated examinations and enforcement, signaling a shift toward a more unified regulatory approach that should reduce compliance friction for advisers, funds, and other market participants.

CFTC Chairman Announces Senior Staff Appointments Focused on Crypto and Policy. On January 20, 2026, CFTC Chairman Selig appointed two senior advisors: Michael Passalacqua, who brings extensive crypto asset and blockchain regulatory experience, and Cal Mitchell, a legislative and political strategist. These appointments signal the CFTC’s intent to expand digital asset oversight, pursue clearer rulemaking, and engage more closely with Congress on regulatory relief and compliance expectations for derivatives and spot-adjacent products.

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Digital Asset Matters

Crypto Market Structure Bills Advance in Senate. On January 29, 2026, the Senate Agriculture Committee approved a crypto market structure bill granting the CFTC authority over most spot crypto trading and establishing a federal licensing regime for digital asset trading platforms, tracking the House-passed framework from July 2025. The Senate Banking Committee is advancing its own version, expected to clear committee by late April after compromises on stablecoin yield restrictions and DeFi security provisions. Once approved, both versions will be reconciled before a full Senate vote, expected by year-end. These developments signal Congress’ willingness to treat crypto market structure as a policy issue rather than an extension of traditional securities law.

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Other Items

Fifth Circuit Rejects IRS Functional Test for “Limited Partner” Self-Employment Tax Exception Sirius Solutions, L.L.L.P. v. Commissioner, No. 24-60240 (5th Cir. Jan. 16, 2026). On January 16, 2026, the Fifth Circuit rejected the United States Tax Court’s functional analysis test for the partnership self-employment tax exception, ruling that a “limited partner” is a partner in a state-law limited partnership with limited liability, not just a “passive investor” as the IRS had asserted. See our partner Kevin Leiske’s update here.

California DFPI Suspends Diversity Reporting Requirements for Venture Capital Companies. On March 17, 2026, the California Department of Financial Protection and Innovation (“DFPI”) suspended implementation and enforcement of the Fair Investment Practices by Venture Capital Companies Law (“FIPVCC”). The FIPVCC requires covered venture capital companies primarily investing in startup, early-stage, or emerging growth companies with a California nexus to register with the DFPI and report demographic data on portfolio company founders. As a result of the suspension, covered entities were not required to submit registrations or file reports by the original April 1, 2026 deadline. The DFPI plans to initiate formal rulemaking later this year with stakeholder input; once initiated, rulemaking must be completed within one year. Clients should monitor DFPI communications for updates. For additional guidance, please refer to our firm’s blog post from earlier this year.

The Incentivizing New Ventures and Economic Strength Through Capital Formation (“INVEST”) Act of 2025 Passes the House. On December 11, 2025, the U.S. House of Representatives passed the INVEST Act of 2025, which proposes to raise several exemption thresholds, including:

• increasing the crowdfunding exemptive offering threshold requiring accountant review from $100,000 to $250,000 (with discretion up to $400,000);
• raising the Investment Advisers Act of 1940, as amended (the “Advisers Act”) exemption threshold from $150 million to $175 million with inflation indexing; and
• expanding the qualifying venture capital fund size from $10 million to $50 million and increasing the investor cap from 250 to 500 investors.

The INVEST Act aims to expand capital access for small businesses, broaden private market investor participation, strengthen public markets, and reduce transaction costs.

Alternative Investments in 401(k) Plans: Proposed Regulation. On March 30, 2026, the U.S. Department of Labor (“DOL”) issued a proposed regulation to allow alternative assets in 401(k) plans under ERISA. The proposed regulation reflects the views of both the SEC and DOL and is the starting point for implementing President Trump’s Executive Order, discussed in our 2025 Q3 Quarterly Update. It details the steps that 401(k) plan managers should take when considering alternative assets in investment portfolios and establishes process-based safe harbors to use when selecting these alternative asset investments. The proposed regulation requires that plan fiduciaries “objectively, thoroughly, and analytically consider, and make determinations on factors including, performance, fees, liquidity, valuation, performance benchmarks, and complexity” consistent with ERISA. This would reduce regulatory uncertainty, greatly expand retirement investment options for over 90 million Americans, emphasize protection of American retirees, and lower litigation risks for prudent plan fiduciaries. Comments are being accepted on the proposed regulation until June 1, 2026. 

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Compliance Calendar

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

April 30, 2026

• Form ADV Part 2A Delivery to Existing Clients. 
• Audited Financials Distribution to Private Fund Investors (excluding Funds of Funds).
• Form PF Quarterly Filing for Large Hedge Fund Adviser, if applicable.
• Form PF Annual Filing for all advisers other than Large Hedge Fund Advisers. Filing is for the fiscal year end December 31, 2025, and should be submitted within 120 days of the fiscal year end. 

May 15, 2026

• Form 13F Quarterly Filing. Filing is for the calendar quarter that ended March 31, 2026, and should generally be submitted within 45 days of quarter end.
• Form 13G Amendment Filing. Filing is for the calendar quarter that ended March 31, 2026, and should generally be submitted within 45 days of quarter end if any material changes occurred.
• CTA Form-PR Filing with the NFA, which can be filed through the NFA’s EasyFile.

May 29, 2026

• CPO-PQR Form Filing with the NFA, which can be filed through the NFA’s EasyFile.
• Form PF Quarterly Filing for Large Hedge Fund Adviser, if applicable.

June 30, 2026

• Audited Financials Distribution to Fund of Funds Investors. 

Periodic

• Fund Managers should perform “Bad Actor” certifications annually.
• Form D and Blue Sky Filings should be current.
• CPO/CTA Annual Questionnaires must be submitted annually, and promptly upon material information changes, through NFA Annual Questionnaire system.

Consult our complete Compliance Calendar for all 2025 critical dates as you plan your regulatory compliance timeline for the year.

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

Sincerely,

Karl Cole-Frieman, Bart Mallon, John T. Araneo, Brett Bunnell, Garret Filler, Scott Kitchens, Kevin Leiske, Frank J. Martin, Lilly Palmer, Daniel M. Payne, David Rothschild, Bill Samuels, Tony Wise, and Alex Yastremski

Cole-Frieman & Mallon LLP is a leading, Chambers Global-ranked investment management law firm known for providing top-tier, innovative, and collaborative legal solutions for complex financial services matters. Headquartered in San Francisco, Cole-Frieman & Mallon LLP services both start-up investment managers and multibillion-dollar funds. The firm provides a full suite of legal services to the investment management community, including fund formation (hedge, VC, PE, real estate), investment adviser and CPO registration, counterparty documentation (digital and traditional prime brokerage, ISDA, repo, and vendor agreements), SEC, CFTC, NFA and FINRA matters (inquiries, exams, and compliance issues), seed deals, cybersecurity regulatory matters, full-service intellectual property counsel, manager due diligence, employment and compensation matters, routine business matters, and related tax matters. The firm also publishes the prominent Hedge Fund Law Blog. For more information, please add us on LinkedIn, follow us on X, and visit us at colefrieman.com.