Tag Archives: annual report

CPO Annual Report Guidance

CFTC Release Provides Guidance on Annual Report Requirements

CFTC Rule 4.22(c) requires commodity pool operators to provide each investor in the commodity pool with certain information on an annual basis.  These Annual Reports must be provided to investors (generally in hard copy) within 90 days of the end of the CPO’s fiscal year (generally the calendar year).  These Annual Reports must also be filed with the NFA within 90 days of the end of the CPO’s fiscal year.  Because of the technical nature of the Annual Report requirement, the CFTC has released a reminder which provides information on a variety of technical aspects of the Rule.  Continue reading

Hedge Funds in the BVI – new requirement to submit annual information

The British Virigin Islands (BVI) is a popular jurisdiction for many offshore hedge funds to be located.  The BVI is known to have good financial oversight and relatively reasonable offshore hedge fund formation fees.  Over the past year the BVI Financial Services Commission (FSC) has become more involved in hedge fund oversight as political pressure increases.  It is expected that the BVI’s Mutual Funds Law will undergo changes within the next 6 months to a year because of this political pressure.

In addition, on September 9 the FSC surprisingly announced that BVI hedge funds (known as “mutual funds” in the BVI) will need to submit a yearly Annual Return to the FSC which provides information about the fund to the FSC.  This is a new requirement for all BVI based hedge funds.  Before this year the FSC had a voluntary mutual funds survey which requested information similar to the information requested in the Annual Return.  Certain closed end funds (generally private equity funds established in the BVI) will not need to submit the Annual Return.

BVI Annual Return Requirement

The items a fund will need to submit are:

–    Basic information on the fund and its service providers, including the registered agent
–    Financial information including:

Beginning NAV
Total subscriptions
Total redemptions
Net income/ net loss
Dividends/ distributions
Ending NAV
Year end gross assets

–    General description of the fund’s asset allocation (but not individual positions)

The Annual Return will need to be submitted to the FSC by June 30 of 2009.  Funds which do not submit the Annual Return by that date may face an enforcement action.

A sample Annual Return can be found here: sample-annual-return

What this means for offshore hedge funds

With regard to this new requirement, current BVI funds are going to need to complete the Annual Return.  While the Annual Return will not be a huge resource drain, it will take some time to complete.  Generally most of the questions can be answered fairly quickly by the hedge fund manager or by an assistant.  Some of the information may require input from the hedge fund administrator and potentially the hedge fund attorney as well.

In the future, this seems to be the first step towards greater scrutiny and disclosure requirements from offshore hedge fund jurisdictions.  However, it is unclear whether this will affect the number of start up funds which will be based in the BVI as the intrusion is relatively mild.  However, it may mean that other offshore jurisdictions such as Nevis, Guernsey and Dubai become more popular in the future.

Please see guidance from here from Maples and Calder, an offshore law firm: BVI Annual Return Requirement

CFTC Fines Hedge Funds for Failure to File Annual Report with NFA

Certain hedge funds which trade futures and/or commodities as part of their investment program are deemed to be commodity pools and the hedge fund management company must register with the NFA as a commodity pool operator (CPO).  Registered CPOs must file annual reports with the NFA and such reports must be sent to investors in the fund.  Generally this will need to be done within either 45 or 90 days after the end of the fund’s fiscal year.  If a CPO needs extra time to file the report, it can request an extension from the CFTC.

In the cases below, each of the CPOs had filed for and were granted extensions.  Even with these extensions, however, they were not able to file their reports.  The NFA evidently takes such an infraction very seriously as the fines were stiff – ranging from $75,000 to $135,000.  Such a potential monetary penalty should make CPOs especially eager to file the appropriate reports on time.

CFTC Rule 4.22 includes the following major provisions.

  • must distribute an Annual Report to each participant in each pool that it operates, and must electronically submit a copy of the Report and key financial balances from the Report to the National Futures Association pursuant to the electronic filing procedures of the National Futures Association
  • Annual Report must be sent to pool participants within 45 calendar days after the end of the fiscal year
  • financial statements in the Annual Report must be presented and computed in accordance with generally accepted accounting principles consistently applied and must be certified by an independent public accountant

If you are a hedge fund manager registered as a CPO you should make sure you understand this and other CFTC rules.  If you have any questions on the rules or other CPO requirements, including possible CPO exemptions, you should have a conversation with your attorney so that you know what needs to be filed and when so that you can avoid harsh fines like the ones below.

The CFTC release below can be found here.

Release: 5555-08
For Release: September 24, 2008

CFTC Sanctions Four Registered Commodity Pool Operators for Failing to File Timely Commodity Pool Reports with the National Futures Association

Mansur Capital Corp., Persistent Edge Management, LLC, Stillwater Capital Partners, Inc., and Stillwater Capital Partners, LLC Ordered to Pay a Total of $330,000 in Civil Monetary Penalties

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today simultaneously filed and settled charges against four registered commodity pool operators (CPOs), charging them with failing to distribute to investors and file with the National Futures Association (NFA) one or more of their respective commodity pools’ annual reports in a timely manner. Mansur Capital Corporation of Chicago, Persistent Edge Management, LLC of San Francisco, California, and Stillwater Capital Partners, Inc. and Stillwater Capital Partners, LLC, both of New York, were charged in the CFTC action.

The CFTC orders require the CPOs to pay civil monetary penalties in the following amounts: Mansur, $75,000; Persistent Edge, $120,000; and Stillwater I and Stillwater II to jointly and severally pay $135,000.

Under CFTC regulations, CPOs are required to file annual reports with the NFA and distribute them to each pool participant. This must be done within a prescribed period after the close of their pools’ fiscal years. An annual report is designed to “provide [pool] participants with the information necessary to assess the overall trading performance and financial condition of the pool.” (See Commodity Pool Operators and Commodity Trading Advisors, Final Rules, 44 Fed. Reg. 1918 [CFTC Jan. 8, 1979], re the adoption of Rule 4.22.) According to the CFTC orders, without timely reporting, the CFTC’s goal of providing pool participants with complete and necessary data is hampered.

The CFTC orders find that each of the four CPOs operated one or more commodity pools, including pools that operated as funds-of-funds. While each of the CPOs had obtained extensions of the prescribed deadlines for various pools and reporting years, each failed to timely comply with its obligations, in violation of CFTC regulations.

The following CFTC Division of Enforcement staff are responsible for this case: Camille M. Arnold, Alan I. Edelman, Ava M. Gould, Susan J. Gradman, James H. Holl, III, Diane M. Romaniuk, Scott R. Williamson, Rosemary Hollinger, Gretchen Lowe, and Richard B. Wagner.


Please contact us if you have any questions or would like to start a hedge fund.  Other related hedge fund law articles include: