Tag Archives: hedge fund law

Another Commodity Pool Operator Fraud – Lesson in Hedge Fund Due Diligence

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We frequently discuss scams involving the investment management and hedge fund industry as a warning to potential hedge fund investors to take the hedge fund due diligence process seriously.  In the CFTC release posted below, we have a classic scam where the sponsors of a commodity/futures fund acted in a fraudulent manner and used the assets of the fund for their own personal reasons.  We have listed the items which the consent order found and how an experienced hedge fund due diligence team could have protected the investor from fraud. Continue reading →

Oregon Hedge Funds – Investment Advisor Issues

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Questions and Answers on Oregon Investment Advisor Registration For Hedge Funds

Some states will provide a good source of information to start up hedge fund managers which details whether the hedge fund manager will need to register as an investment adviser in the state of residence.  The following resource is from the Oregon Division of Finance and Corporate Securities and answers common questions that potential Oregon hedge fund managers would have regarding the Oregon investment advisor registration requirements.

Specifically this set of questions and answers shows us that there is no de minimis rule which would allow managers to escape investment advisor registration in Oregon; the Q&A also details the notice filing requirements in Oregon.  Even though SEC registered investment advisors will not need to register with the state securities division, the firm will need to “notice file” and pay a filing fee and investment advisor representatives of the firm will usually need to have the Series 65 and the investment advisory firm will need to pay a filing fee for the representative.  Continue reading →

Hedge Fund Managers and Investment Advisor Registration Status

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Many hedge fund managers who are registered as investment advisors with the SEC have experienced losses this year as well as investor redeptions.  For some managers the losses combined with investor redemptions may have the effect of decreasing an advisor’s assets below the $25million threshold for SEC investment advisor registration.  Generally an investment advisor is not allowed to be registered with the SEC if the manager’s assets under management do not exceed $25 million. Continue reading →

Non-Accredited Investors in Hedge Funds

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Many start-up hedge fund managers want to know if their friends and family can invest in the start-up hedge fund.  Most of the time, such friends and family do not fall within the definition of accredited investor under the Regulation D rules. The regulation D rules allow a maximum of 35 non-accredited investors to invest in any single offering.  Because a hedge fund offering is continuous, the limit of 35 non-accredited investors is cumulative.  That means that over the life of the fund there can be no more than 35 non-accredited investors (as opposed to 35 non-accredited investors in the fund at any single point in time). Continue reading →

BVI Offshore Hedge Fund – BVI Entity Formation and Costs

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British Virgin Islands Hedge Funds

The British Virgin Islands (BVI) is the second most popular jurisdiction for offshore hedge funds behind the Cayman Islands.  In many ways the offshore hedge fund formation process is better in the BVI, and it is certainly much cheaper.  This article will detail the costs to establish a management company and a hedge fund in the BVI.  It will also detail to costs for BVI registered agent services. Continue reading →

Hedge Funds Blindsighted by Massive Ponzi Scheme

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According to a SEC release this morning (and every other financial news agency), major hedge funds, banks and other financial institutional were caught in a Ponzi scheme of epic proportions.  While it is hard to believe that such large groups were blindsighted by this, it does showcase the fact that fraud can happen to even sophisticated investors and that hedge fund due diligence (an ongoing due diligence) is absolutely required.  The SEC release is reprinted below. Continue reading →

Alabama Hedge Fund Law – Regulation D Filings

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In our continuing effort to expand our hedge fund law resources on this blog, we will be posting statutes and other legal resources from each of the states.  Because each state has different laws and enforces those laws differently, hedge fund lawyers often discuss state specific hedge fund issues with the securities division prior to providing advice to clients.  The post below provides information on Alabama’s regulation D requirements.  Please contact us if you would like to establish an Alabama hedge fund or have questions on Alabama investment advisory issues. Continue reading →

Segregated Portfolio Companies for Offshore Hedge Funds

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Hedge Fund Segregated Portfolio Companies

A segregated portfolio company (SPC) is a single entity structure which contains a series of segregated portfolios (sometimes referred to as “cells”), each of which is regarded as a separate legal entity for asset protection purposes.  For offshore hedge funds, the segregated portfolio company is the functional equivalent to the domestic hedge fund series LLC.  This article will detail: SPC jurisdictions, SPC Offshore structures, SPC offering documents, SPC advantages and SPC disadvantages. Continue reading →

NFA Makes Two Separate Announcements on New Forex Rules

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(www.hedgefundlawblog.com) Today the NFA made two separate announcements regarding proposed new forex rules.  The announcements follow a series of similar announcements last week regarding new forex rules (see NFA Continues to Pursue Forex Regulation for Current Forex Dealer Members).  The first announcement dealt with additions to Compliance Rule 2-36 and related Interpretive Notice Changes.  The second announcement dealt with a completely new forex Compliance Rule 2-43.

NFA Proposes Addition to Compliance Rules 2-36 and Related Interpretive Notices – this announcement contained a hodge-podge of different rules the NFA staff felt needed to be addressed.  The announcement centrally focuses on (i) requirement that forex hypothetical results be subject to the anti-fraud provisions of NFA Compliance Rule 2-29(c),* (ii) require FDMs to have an Associated Person file the required weekly reports, (iii) require FDMs to adopt written policies regarding the calculation of rollover interest charges and payments, and (iv) prohibits FDMs from trading a customer’s account when they are a counterparty to the trade.  Continue reading →

Hedge Fund Series LLC

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The Series LLC

Most hedge funds are structured as either limited partnerships or as limited liability companies (LLCs).  Some hedge funds, however, are structured as series limited liability companies.  The series limited liability company is a relatively new statutorily created entity.  The series LLC is one entity with a group of series each of which is bankruptcy remote from each other series.  This means that the assets of one group or series of assets are protected in the event another group or series of assets becomes subject to suit or other action.  This article discusses the primary uses for the Series LLC in the hedge fund industry, the advantages and disadvantages of the series LLC and other issues involved with the formation of a hedge fund as a series LLC. Continue reading →