Tag Archives: DOL rule

Hedge Fund Bits and Pieces for June 16, 2017

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We are a day late but hope you had a happy Friday.  As has been the trend, we are seeing a large focus on cryptocurrency assets and this update reflects that focus.

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Speaking on Cryptocurrency Hedge Funds – I will be in New York next week to speak Thursday at the Blockchain, Accounting, Audit & Tax Conference.  The conference will have panels speaking throughout the day on various blockchain related issues.  I will be part of a panel entitled “Digital Asset Management and New Financial Products” where we will discuss current and future investment vehicles as well as how investors are (and should be) viewing these products.  More information on the event can be found here.

California BitLicense – continuing the trend toward increased regulation of digital assets, California has proposed (for a second time) a regulatory regime for certain exchanges dealing with bitcoin and other “virtual currency”.  This legislation comes on the heels of New York’s BitLicense requirement, along with other regulators beginning to look at blockchain based digital assets.  As described below, we believe the SEC will be addressing the industry soon with questions and comments regarding certain aspects of the FinTech industry.  For more on the California BitLicense requirement, please see here.

Industry asks SEC to Publish Concept Release on Regulation of Digital Assets – a FINRA registered broker-dealer recently petitioned the SEC to provide guidance with respect to the regulation of digital assets (to be called Regulation DA).  The broker-dealer asked that the SEC also consider adopting a regulatory sandbox for certain FinTech companies, similar to what is being employed in the UK and Singapore (the latter of which has seen a large influx of oversight/regulation of ICOs).  The broker-dealer also mentioned that the regulation of digital assets should be consistent with crowdfunding regulations given that digital assets (ICOs specifically) share many characteristics in common with the crowdfunding industry.  You can access the full petition here.

Financial CHOICE Act of 2017 – on June 8, the House of Representatives passed the Financial CHOICE Act which is aimed at rolling back many of the changes implemented by the Dodd-Frank Act.  There are a number of interesting things that this bill introduces, including: structural changes to the SEC, repeal of the Department of Labor’s (DOL’s) fiduciary rule, restructure the CFPB, and repeal the Volker Rule.  All of the above would affect the investment management industry in profound ways but it is unlikely we will see any movement on this bill in the Senate any time soon.  When and if we do, we will provide more analysis on the content of any legislation that is likely to pass and be implemented.  An executive summary of the bill can be found here. The full text can be found here.

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Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP and focuses his legal practice on the investment management industry. He can be reached directly at 415-868-5345.

Hedge Fund Bits and Pieces for May 26, 2017

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Happy Friday.  Best wishes for a happy and safe Memorial Day weekend!

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Initial Coin Offerings – Bitcoin and other cryptocurrencies took center stage this weeks as new high prices were reached in volatile trading and euphoria around the Consensus Conference earlier this week. Initial coin offerings (or ICOs) were a major topic discussed and should be a major topic going forward.

Artificial Intelligence Hedge Funds – perhaps lost over the last couple of weeks in the discussion of cryptocurrencies has been the general movement in finance toward utilizing artificial intelligence in the investment process. We recently wrote about artificial intelligence hedge fund strategies and detailed the issues that managers should consider when launching a fund in this space.

DOL Rule Effective June 9 – the delay of the DOL rule was short lived.  The DOL recently published a news release announcing that initial implementation of the rule would begin on June 9 (as opposed to April 10, the originally scheduled implementation date) and that “advisers to retirement investors will be treated as fiduciaries and have an obligation to give advice that adheres to “impartial conduct standards” … [t]hese fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services and refrain from making misleading statements.”

For hedge fund managers, life does not change to a large extent (managers will likely need to update their subscription documents and may need to obtain additional representations from IRA and ERISA investors for any new investment made after June 9, 2017).  SMA managers will need to be careful and should review their relationship with retirement investors.  More information on this will be forthcoming on this blog and in our client updates.

CFTC Focus on FinTech – the CFTC launched a LabCFTC Initiative which “aimed at promoting responsible FinTech innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees.”  The overall goal of the program is to promote innovation for new FinTech products while providing the sponsors of such products more insight into the potential regulatory oversight of those products.  Central to that goal will be GuidePoint which will act as “dedicated point of contact for FinTech innovators to engage with the CFTC, learn about the CFTC’s regulatory framework, and obtain feedback and information on the implementation of innovative technology ideas for the market.”  This sort of proactive approach to innovation by regulators should be a welcome sight to new product sponsors.

Other Items

Cooperman Insider Trading Settlement – Leon Cooperman settled his insider trading case with the SEC, which released an interesting statement on the settlement.  While the settlement allows Cooperman’s fund, Omega, to continue operating, Cooperman and Omega were subject to a $1.7M fine for insider trading.  More importantly, the firm must retain an onsite independent consultant for the next 5 years to guard against insider trading.  There were a couple of additional requirements of the settlement which, with the various fines and independent consultant requirement, have to make the SEC feel like they got a big win here.  It will be interesting to see how or if this settlement is used as precedent in future cases.

SEC Issues Cybersecurity Alert – on the heels of the WannaCry ransomeware attack, the SEC issued a Cybersecurity Alert.   The alert is geared more towards smaller broker-dealers and investment advisory firms and provides background and links to other SEC resources on this issue.

New York Employers Cannot Ask About Salary History – on May 4, New York Mayor de Blasio signed a bill making it illegal (and subject to fines) for an employer to ask questions about a candidate’s prior compensation.  Hedge fund managers located in New York will want to discuss this issue with their internal HR persons, as well as their outside counsel.  The bill is called “Intro. 1253” and  goes into effect 180 days after the signing. A cached version of the de Blasio press release can be found here.

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Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP and focuses his legal practice on the investment management industry. He can be reached directly at 415-868-5345.