April 9, 2025

Clients, Friends, and Associates:

As we move into 2025 and the first quarter comes to a close, we would like to highlight noteworthy industry updates that we found to be both interesting and impactful. This update includes key developments that may shape the business and regulatory landscape in the months ahead. As always, we strive to present an informative, albeit brief, overview of these topics, and we are available should you have any related questions.

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CFM Items

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 Four Seasons Hotel in San Francisco on October 29, 2025, is the anchor event of SF Fund Week 2025. 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 thrilled to announce the promotion of Brett Bunnell to Partner and the elevation of Daniel Payne from Of Counsel to Partner. We are also pleased to share that Riwana Totah has been promoted to Director of Administration. Additionally, we are excited to introduce the newest member of our dedicated team at CFM, Emilee Siegl, who recently joined us as an Associate. Please join us in congratulating Brett, Daniel, and Riwana, and extending a warm welcome to Emilee!

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SEC Matters

SEC Charges Firms with Recordkeeping Failures. On January 13, 2025, the Securities and Exchange Commission (the “SEC”) announced charges against 12 firms, including both investment advisers and broker-dealers, for violating the recordkeeping requirements of the Investment Advisers Act of 1940 (the “Advisers Act”) and the Securities and Exchange Act of 1934, as amended (the “Securities Act”). The investigations revealed widespread use of unauthorized communication channels and systematic failures in maintaining required records of business communications, with violations occurring across multiple organizational levels. Out of the 12 charged firms, only one firm was given a reduced civil penalty for self-reporting. These charges are part of the SEC’s continued effort to minimize unsanctioned communications and actions. SEC-regulated firms should maintain relevant policies and procedures and regularly review such policies with employees.

SEC Files Charges Against Two Private Companies and One Investment Adviser for Failure to File Forms D. On December 20, 2024, the SEC announced charges against three parties – an SEC-registered investment adviser and two privately held companies – for failing to timely file Forms D for securities offerings. The SEC emphasized that these filings are essential for monitoring private capital formation and market compliance, noting that the charged parties failed to provide information about nearly $300 million of unregistered securities offerings. The charged parties agreed to cease violations and pay civil penalties ranging from $60,000 to $195,000, without admitting or denying the findings. This enforcement action underscores the SEC’s commitment to maintaining transparency in private securities offerings and enforcing compliance with filing requirements.

SEC Charges Asset Manager for Improperly Withholding Investor Funds. On December 23, 2024, the SEC charged an asset manager (the “Manager”) and its principal with violating the Advisers Act for improper management of a private fund (the “Fund”). The SEC alleges that beginning in November 2016, the Manager blocked investors from withdrawing from the Fund while simultaneously making long-term investments in small-cap equities that the principal owned in a personal capacity. The complaint states that the principal was personally incentivized for the Fund to hold these securities, but did not disclose this conflict to investors. This case demonstrates the SEC’s continued focus on protecting investors from misleading practices and undisclosed conflicts of interest. Fund managers should ensure they have robust compliance policies to avoid similar enforcement actions.

SEC Amends the Customer Protection Rule. The SEC has adopted amendments to Rule 15c3-3 (the “Customer Protection Rule”), requiring larger broker-dealers to increase the frequency of their customer reserve computations from weekly to daily. The new requirements, adopted on December 20, 2024, will apply to broker-dealers with average total credits of $500 million or more, calculated as a 12-month rolling average from their FOCUS Reports. In certain cases, they also include provisions allowing qualifying broker-dealers to reduce their customer-related receivables charge from 3% to 2% in their reserve computations. Broker-dealers exceeding the $500 million threshold from July 31, 2024, through June 30, 2025, must begin daily computations by December 31, 2025. The amendments aim to address potential mismatches between cash inflows and reserve account deposits that could pose risks to customers if a broker-dealer were to fail financially.

SEC Adopts Amendments to Form PF. The SEC recently announced that the compliance date for the new Form PF amendments has been extended to June 12, 2025.The amendments include substantial changes to the Form PF, requiring filers to collect and report more detailed information about the funds they advise, including their beneficial ownership. Managers who must file the Form PF (SEC-registered investment advisers with more than $150 million in assets under management) should begin collecting this information from existing investors and updating their subscription documents and other investor onboarding materials.

SEC Issues No-Action Letter on Rule 506(c) Offerings. On March 12, 2025, the SEC’s Division of Corporation Finance issued a no-action letter that provides a new safe harbor for Rule 506(c) offerings. The new guidance simplifies the rule’s accredited investor verification requirements, provided three conditions are met: (i) investors must represent their investment is not being financed by a third party specifically for this investment; (ii) minimum investment thresholds must be met ($1 million for entities, $200,000 for natural persons); and (iii) and the issuer must have no actual knowledge that a purchaser is not an accredited investor or has financed the investment. We anticipate this may make Rule 506(c) offerings more prevalent, especially for private funds that previously found verification requirements to be a roadblock. This no-action letter is particularly important in today’s environment where fund managers increasingly engage in public outreach through social media, podcasts, and other channels.

SEC Issues New Marketing Rule FAQs. The SEC has issued new guidance on Rule 206(4)-1 under the Advisers Act (the “Marketing Rule”). The revised FAQs permit an adviser to present gross-only extracted performance without calculating corresponding net figures if the adviser also presents the portfolio’s total net and gross performance in equal prominence. The FAQs further clarify that investment characteristics like yield or Sharpe ratios can be presented without net equivalents if the adviser satisfies specific requirements and the presentation does not mislead investors.

EDGAR Next Launched on March 24th. EDGAR Next, the SEC’s new electronic filing access and account management platform, launched on March 24, 2025. Existing filers will have until September 12, 2025, to enroll in EDGAR Next, after which they can no longer use the old EDGAR system. The new platform requires individual login credentials through Login.gov with multi-factor authentication, and filers must designate account administrators (at least two for most filers) who will manage accounts, delegate filing authority, and perform annual confirmations. There will be a streamlined enrollment process for existing filers until December 19, 2025, after which those who have not enrolled will need to reapply with a new Form ID. Companies are advised to begin preparations to ensure a smooth transition before the September 2025 deadline.

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CTA Updates

Corporate Transparency Act Reporting Requirements Scaled Back. On March 21, 2025, the Financial Crimes Enforcement Network (“FinCEN”) adopted an interim final rule that significantly narrows the scope of the Corporate Transparency Act (“CTA”) beneficial ownership information (“BOI”) reporting requirements. The new rule exempts all domestic entities and U.S. person beneficial owners from BOI reporting obligations, and redefines “reporting company” to include only foreign entities registered to do business in the United States. Notwithstanding, foreign reporting companies with only U.S. person beneficial owners are exempt from reporting requirements. For foreign entities still subject to reporting, the filing deadline for existing entities has been extended to April 25, 2025, and newly formed entities will have 30 days from the date of formation to file their initial BOI report. FinCEN is currently accepting comments on the interim final rule and intends to issue a final rule later in 2025.

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Digital Asset Matters

Form ADV Filings Following a Delayed Audit. As you may know, investment advisers in the digital asset space often receive their audited financials after the March 31 deadline for annual Form ADV amendments. If you filed your Form ADV before your audit was completed, please remember that you must submit an other-than-annual amendment once the audit is finalized to document its completion.

SEC Rescinds Staff Accounting Bulletin 121. In January 2025, the SEC rescinded Staff Accounting Bulletin 121 (“SAB 121”), which suggested that financial institutions report client digital assets held in custody as balance sheet liabilities. The new guidance, Staff Accounting Bulletin 122 (“SAB 122”), eliminates this digital asset-specific treatment and brings these institutions under standard accounting practices. Under SAB 122, financial institutions need only consider the risk of loss of such assets, calculated using their own data and risk assessments consistent with existing Financial Accounting Standards Board and International Accounting Standards guidance. The rescission comes after significant industry pushback, including opposition from a bipartisan congressional group and SEC Commissioner Hester Peirce.

SEC Announces New Digital Asset Task Force. On January 21, 2025, the SEC’s Acting Chairman, Mark T. Uyeda, launched a new task force to develop an improved regulatory framework for digital assets. This initiative aims to address the SEC’s previous approach of using enforcement actions to regulate the digital asset industry. The task force will focus on establishing clear guidelines and creating practical pathways for companies to register with the SEC. Industry insiders are optimistic that new common-sense regulations in the United States will help foster digital asset innovation and fight fraudulent activity.

President Trump to Establish Strategic Bitcoin Reserve. President Donald Trump announced in a March 6, 2025 executive order that the United States will establish a Strategic Bitcoin Reserve and a Digital Asset Stockpile to manage the federal government’s digital asset holdings. The order mandates that Bitcoin seized through criminal or civil asset forfeiture be transferred to the Strategic Bitcoin Reserve and maintained as long-term reserve assets. Other digital assets will be placed in the Digital Asset Stockpile, where the Treasury Department is tasked with determining appropriate management strategies. The Secretary of the Treasury and the Secretary of Commerce have also been directed to develop budget-neutral strategies for acquiring additional Bitcoin.

Third Circuit Orders the SEC to Explain its Lack of Crypto Rulemaking. On January 7, 2025, the U.S. Court of Appeals for the Third Circuit in Philadelphia ruled partially in favor of Coinbase in its case against the SEC. The three-judge panel determined that the SEC’s dismissive response to Coinbase’s request for explicit crypto regulations was “arbitrary and capricious.” While the court did not force the SEC to create new crypto-specific rules, it ordered the agency to provide a more detailed explanation for why it has refused to do so. Coinbase’s Chief Legal Officer Paul Grewal expressed satisfaction with the court’s decision on social media, while the SEC spokesperson indicated they are reviewing the decision to determine next steps.

CFM Partner Daniel Payne recently opined on the case in his article “4 Potential Effects of 3^rd. Circ.’s Coinbase Ruling.” Daniel’s article explores how the ruling marks a pivotal moment in digital asset regulation, with implications rippling through multiple aspects of the legal and regulatory landscape. The immediate impact is already visible in pending cases as courts grapple with the ruling’s assertion that securities laws “fit crypto awkwardly.” This judicial skepticism arrives at a crucial legislative juncture, with a new pro-crypto administration in place and Congress poised to act on digital asset regulation, making the court’s rebuke of the SEC’s approach likely to shape upcoming policy discussions. The ruling may also reinvigorate the legal strategy of “fair notice” defenses in digital asset cases, with the concurrence’s rejection of both the Howey test and the 2017 DAO report as adequate guidance, potentially changing how future cases are argued and decided.

SEC Charges a Cayman Islands Corporation with Negligently Misleading Investors About Stability of Terra USD. Almost two years after the collapse of Terra Luna and a year after the bankruptcy of Terraform Labs PTE Ltd. (“Terraform”), the SEC charged a Cayman Islands corporation (“CaymanCo”) with misleading investors about Terra USD’s (“UST”) stability and for conducting unregistered securities transactions involving LUNA cryptocurrency. According to the SEC’s order, when UST lost its $1 peg in May 2021, CaymanCo entered into an agreement with Terraform for incentivized UST purchases in exchange for discounted LUNA purchase options. The SEC alleges that CaymanCo’s purchases of over $20 million in UST negligently deceived the market by making it appear that Terraform’s algorithmic mechanism was maintaining stability. In the settlement, CaymanCo agreed to pay disgorgement penalties with prejudgment interest and civil penalties while neither admitting nor denying the SEC’s findings.

Cayman Islands Introduces Phase 2 of VASP Regime. The Cayman Islands published the Virtual Asset (Service Providers) (Amendment) Act (the “Act”) on December 19, 2024, establishing phase two of their Virtual Asset Service Provider (“VASP”) regime and introducing licensing requirements for virtual asset trading platforms and custodians. Under this new legislation, existing registered providers must apply for a license within 90 days of the Act’s commencement, and all VASPs must comply with expanded operational requirements.

The Act implements several key operational changes, including the requirement: (i) for VASPs to maintain at least three directors (at least one being independent), (ii) to obtain prior approval from the Cayman Islands Monetary Authority (“CIMA”) for business plan modifications, (iii) to notify CIMA of litigation within 30 days, (iv) to hold client fiat currency in regulated banks with proper fund segregation, and (v) to avoid making misleading representations about their virtual asset activities. These measures aim to strengthen the regulatory framework for virtual asset services in the Cayman Islands while ensuring proper oversight and consumer protection.

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CFTC Matters

Court Rules Against Digital Asset Exchange. On December 30, 2024, the United States District Court for the Southern District of Florida entered orders of final default judgment against a digital asset exchange and trading platform and its owner for “fraudulent digital asset solicitation and trading scheme and misappropriation.” The default judgment order found that the digital asset exchange convinced customers to transfer their Bitcoin and other funds to the digital asset exchange under the false pretense that the digital asset exchange had millions of dollars in assets under management. The order also indicated that the digital asset exchange misled customers by advertising “win” rates that were merely hypothetical projections and lied about maintaining partnerships and broker agreements with certain other digital asset exchanges.

CFTC Withdraws Swap Execution Facility Registration Advisory. The Division of Market Oversight of the Commodity Futures Trading Commission (“CFTC”) announced the immediate withdrawal of its Swap Execution Facility Registration Advisory (the “Advisory”). This withdrawal restores the pre-Advisory regulatory framework for swap execution facility (“SEF”) registration requirements and comes amid Acting Chairman Caroline Pham’s broader effort to provide regulatory clarity. The withdrawal brings relief to market participants (such as commodity trading advisors and introducing brokers that facilitate swap executions for clients), many of whom felt that the Advisory created uncertainty in the market.

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State Privacy Act Rules

New Year Round-Up on State Consumer Privacy Law. Several states enacted comprehensive data privacy statutes throughout 2024, and many laws enacted in 2023 went into effect at the start of this year. These laws are generally consistent with earlier consumer data privacy laws, which provide consumers with similar rights to request, delete, know, etc. Covered businesses also have broadly consistent obligations concerning the personal information they collect. A few notable updates in the privacy space are as follows:

• Delaware: The Delaware Personal Data Privacy Act went into effect on January 1, 2025, and applies to entities that control or process data of at least 35,000 Delaware consumers. Notably, the consumer threshold is among the lowest for state privacy laws.
• Colorado: The Colorado legislature passed amendments to the Colorado Privacy Act (the “CPA”) related to biometric data and minors’ online activity. Such amendments will be effective July 1, 2025, and October 1, 2025, respectively. The CPA amendments also establish processes, effective January 30, 2025, by which entities subject to the CPA may request opinion letters or interpretive guidance from the Attorney General. 
• Minnesota: The Minnesota Consumer Data Privacy Act (the “MNCDPA”), effective July 31, 2025, specifically excludes individuals acting in a commercial employment context from the definition of “consumer” for purposes of the MNCDPA. The law also applies to entities acting as “technology providers” as part of efforts to ensure that entities that provide technology to public schools are adequately covered.

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Other Items

Implications of Denham Capital Management LP v. Commissioner. The U.S. Tax Court issued a significant opinion in December 2024 in the case of Denham Capital Management LP v. Commissioner, addressing when partnership distributive shares to limited partners can be excluded from self-employment income. The court upheld the standard set in the 2023 Soroban Capital Partners LP v. Commissioner case, which requires a “functional analysis” to determine whether partners are functioning as true limited partners or are limited partners in name only.

In Denham, the court found that the petitioner’s limited partners were more akin to employees than passive investors, and, therefore, their partnership allocations were subject to self-employment tax. The evidence showed that the petitioner’s limited partners were actively involved in managing the petitioner’s investment advisory business and were essential to the firm’s operations. The court noted that most of the petitioner’s limited partners had made no capital contributions and derived their income from services rather than passive investment.

By focusing on the economic reality that the partners were operating the petitioner’s business as self-employed persons, the court emphasized that the limited partner exception to the self-employment tax was intended to apply to truly passive investors, not active participants in a partnership’s management.

DFI Issues Notice on Use of Third-Party Platforms for Managing Held-Away Assets. On March 17, 2025, the Washington State Department of Financial Institutions (“DFI”) issued a notice regarding the use of third-party platforms to manage held-away assets. According to the notice, when state-registered investment advisers access platforms that require clients to share their unique usernames and passwords, often without the knowledge or permission of the 401(k) custodian, the investment adviser is likely conducting a dishonest or unethical business practice under Washington state regulations. According to the DFI, investment advisers are responsible for conducting thorough due diligence on third-party platforms to verify their security, reliability, and compliance with applicable laws. The notice also highlighted the importance of clear communication with clients about the use of these platforms and any associated risks. This notice is a reminder to investment advisers to maintain robust policies and procedures that safeguard client information and assets.

New Amendments to the BVI Business Companies Act. The BVI Business Companies (Amendment) (No. 2) Act, retroactively effective as of September 1, 2024, tackles logistical challenges and expands the authority of the British Virgin Islands Financial Services Commission (the “FSC”) to improve the management of annual financial returns filings. The key modification empowers the FSC to grant filing extensions for up to nine months.

Companies originally required to submit their first annual returns by September 30, 2024, will have until June 30, 2025, to make this initial filing. This automatic extension does not apply to entities with different year-end dates, so such entities should act to either request an extension from the FSC or make their initial filing.

What to Expect from the UK’s Cyber Security and Resilience Bill. The UK government announced that it intends to introduce a Cyber Security and Resilience Bill in 2025 to strengthen the UK’s cross-sectoral cyber security legislation and to keep pace with updates to EU laws, which took effect late last year. While the draft bill hasn’t been published yet, early indications suggest it will bring digital managed services under its purview, broaden incident reporting obligations beyond service disruptions, and adopt a risk-based regulatory approach. The government is currently gathering stakeholder input and, given recent high-profile cyber-attacks on UK institutions, aims to expedite the legislative process with potential implementation in early 2026.

New Format for Form 13D and 13G Filings. Effective December 18, 2024, all Schedule 13D and 13G filings must be made using an XML-based language in order to improve data accessibility and analysis. This update coincides with broader 13D and 13G amendments, including new, accelerated filing deadlines. For a refresher on these accelerated filing deadlines, refer to CFM’s 2024 end of year update.

Final U.S. Outbound Investment Rules for Private Fund Managers and Limited Partners. The Treasury Department’s final rule on outbound investment screening, effective January 2, 2025, established new restrictions on U.S. investments in Chinese and Chinese-controlled companies involved in three critical technology sectors: semiconductors/microelectronics, quantum information technologies, and artificial intelligence. The rule applies to U.S. persons and their controlled foreign entities, and covers various types of transactions involving covered foreign persons. “Covered foreign person” is broadly defined, encompassing Chinese entities and citizens and non-Chinese companies that derive significant revenue or expenses from China. To comply, U.S. persons must conduct reasonable due diligence and submit notifications to the Treasury Department for covered deals (unless an exception applies).

New York’s Legislature Continues Push to Ban Non-Competes. On February 10, 2025, the New York Senate introduced a bill to ban most non-compete agreements in the state, following Governor Hochul’s veto of similar legislation in 2023. The current bill includes key exceptions, including for most “Highly Compensated Individuals” earning a minimum of $500,000 annually and for non-competes related to business sales when the seller owns at least 15% of the business. Other agreements like client non-solicitation covenants and those protecting trade secrets would remain lawful. The legislation intends to create a private right of action for violations with potential remedies including liquidated damages up to $10,000 per affected individual, lost compensation, and attorneys’ fees. The bill would also prohibit employers from using non-New York choice-of-law provisions to circumvent the ban for employees who worked in New York for at least 30 days prior to employment termination.

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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 10, 2025

• Form 13H quarterly filing. The filing is for the calendar quarter that ended on March 31, 2025, and should be submitted within 10 days of quarter end. 

April 15, 2025   

• Form PF quarterly filing for large liquidity fund advisers. The filing is for the calendar quarter that ended March 31, 2025.

April 30, 2025

• Form ADV Part 2A delivery to existing clients. 
• Audited financials to be distributed to private fund investors (excluding funds of funds).
• Form PF annual filing. The filing is for fiscal year end December 31, 2024, and should be submitted within 120 days of fiscal year end. 

May 7, 2025

• Form N-MFP filing for monthly schedule of portfolio holdings of money market funds, if applicable.

May 15, 2025

• Form 13F quarterly filing. The filing is for the calendar quarter that ended March 31, 2025, and should generally be submitted within 45 days of quarter end.
• Form 13G quarterly filing for material changes. The filing is for the calendar quarter that ended March 31, 2025, and should generally be submitted within 45 days of quarter end.
• CTA Form-PR filing with the NFA, which can be filed through NFA’s EasyFile.

May 30, 2025

• CPO-PQR Form filing with the NFA, which can be filed through NFA’s EasyFile.
• Form PF quarterly filing for large hedge fund traders and large liquidity fund advisers, if applicable.
• Form N-PORT filing monthly schedule of portfolio holdings of funds other than money market funds and SBICs, if applicable. 

June 7, 2025

• Form N-MFP filing for monthly schedule of portfolio holdings of money market funds, if applicable. 

June 29, 2025

• Audited financials to be distributed to fund of funds investors. 

Periodic

• Fund managers should perform “Bad Actor” certifications annually.
• Form D and Blue Sky filings should be kept 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, Frank J. Martin, Lilly Palmer, Daniel M. Payne, David Rothschild, Bill Samuels, Tony Wise, and Alex Yastremski

Cole-Frieman & Mallon LLP (CFM) is a leading investment management law firm known for providing top-tier, innovative, and collaborative legal solutions for complex financial services matters. Headquartered in San Francisco, CFM services start-up investment managers, multibillion-dollar funds, and everything in between. The firm provides a full suite of legal services to private funds and their managers across a diverse range of asset classes, including fund formation, regulatory compliance, counterparty documentation (digital and traditional prime brokerage, ISDA, repo, and vendor agreements), employment and compensation matters, and routine business matters.  CFM is particularly well known for its pioneering work with digital asset funds and their managers. The firm’s corporate and intellectual property (IP) practice groups advise founders, management teams, and investors during all stages of a business’s lifecycle including fundraising, M&A, governance, IP, employment, tax, and regulatory compliance for service and product launches. CFM 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.