Tag Archives: Investment Advisor

Cole-Frieman & Mallon 2021 Half Year Update

July 13, 2021

Clients, Friends, Associates:

We hope that this message ﬁnds you well and that you are enjoying the ﬁrst months of summer. As we move into the third quarter, we would like to provide you with a brief overview of some items that we hope will help you stay on top of the business and regulatory landscape in the coming months. We are also delighted to report our firm and Co-Managing Partner, Karl Cole-Frieman, were highlighted as leading crypto and blockchain lawyers by Business Insider. For additional firm updates, please follow us on LinkedIn.

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SEC Matters

SEC Revises Qualified Client Threshold. The SEC recently published an order approving adjustments to the tests which define a “Qualified Client” under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Specifically, the “net worth” threshold has been increased from $2,100,000 to $2,200,000 and the dollar amount for the “assets-under-management” test has been raised from $1,000,000 to $1,100,000. The Qualified Client threshold is critically important for investment advisers because in nearly all jurisdictions, including for SEC registered investment advisers, performance fees and incentive allocations can only be charged to investors who are Qualified Clients. The new definitions become effective August 16, 2021 (the “Effective Date”), but will not be applied retroactively to contractual relationships existing as of such date. Additionally, an investor who satisfied the previous Qualified Client test and who subscribed for interests in a private fund prior to the Effective Date will remain subject to any applicable performance fees, and may make additional subscriptions (subject to performance fees) without needing to satisfy the new threshold amounts.

All investment advisers should promptly update their subscription documents to ensure that new investors who agree to make investments on or after the Effective Date have provided accurate representations regarding their Qualified Client status.

SEC adopts Marketing Rule (replaces Advertising Rule and Cash Solicitation Rule). On May 4, 2021, the SEC adopted new marketing rules for investment advisers. The new rules drastically overhaul and replace the prior cash solicitation and advertising rules applicable to investment advisers, their marketing materials, and their advertising practices to replace. SEC no-action letters pertaining to the prior cash solicitation rule will be nullified as the rule is being rescinded in practice. The most significant changes include the allowance of testimonials and endorsements, which under the prior rules were conditionally permitted to be used in advisers’ marketing materials. The new marketing rule now permits such use only if the adviser complies with specific disclosure, oversight, and disqualification provisions. Third-party ratings are now also permitted, though, just like testimonials and endorsements, they are subject to detailed disclosure and other presentation criteria.

The new marketing rule also overhauls how investment advisers can utilize social media. The SEC created concepts of “adoption” and “entanglement” with respect to posts on social media and, depending on whether an investment adviser has “adopted” a social media post or “entangled” itself in one, there are a series of rules applicable to each such post. More importantly, social media posts of persons associated with an investment adviser can also be viewed as the investment adviser’s communication or advertisement. Thus, investment advisers should adopt policies and procedures which distinguish their associated persons’ personal social media posts from those of the investment adviser.

Specific rules and guidance now apply to various types of performance advertising, including gross, net, hypothetical, related, and extractive performance. Many of these rules now codify prior SEC no-action letter guidance on these topics.

Investment advisers have some room to breathe since the compliance period for these new marketing rules begins on November 4, 2022.

SEC Brings Action for Defrauding Investors in Scheme Involving Pre-IPO Shares. On April 27, 2021, the SEC charged a former broker barred by FINRA with fraudulently raising funds. The complaint alleges that the defendant solicited investors by claiming to purchase shares of notable “unicorn” companies prior to their initial public offerings. However, the defendant failed to invest the funds and instead stole the money, using it to pay family members and purchase a Maserati. The defendant is charged with violating the antifraud provisions of Section 10(b) of the Securities and Exchange of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933.

SEC Announces Partially Settled Charges After Investment Adviser Fails to Report Bad Investments. On April 15, 2021, the SEC filed a complaint against the co-founder and COO of an investment adviser for violating the anti-fraud provisions of the Securities Exchange Act of 1934 and the Securities Act of 1933. The SEC alleges the defendant defrauded hedge fund clients by creating fake “performing” loans to replace defaulted loans in order to hide losses. The SEC further alleges that the defendant created liquidity or met redemption requests by selling overvalued loans to new investors to pay off earlier investors. Collectively, the series of fraudulent acts hid tens of millions of losses. The SEC has already obtained final judgement against the investment adviser itself, requiring it to pay in excess of $35 million in prejudgement interest and disgorgement.

SEC Brings Action for Failure to Follow Stated Investment Criteria. In a recent enforcement action , the SEC has alleged that a Texas-based registered investment advisor (“RIA”) defrauded investors by failing to follow stated investment criteria. The complaint alleges that the principal along with its investment adviser representative (“IAR”) targeted older and unsophisticated investors with promises of high returns from secure investments in “proven” companies which met the firm’s stated investment criteria. However, the complaint goes on to allege that the firm only invested in high-risk and fraudulent companies which were affiliated with and owned by the firm’s principal and/or his older brother. The SEC alleges that this Texas-based RIA made materially false and misleading statements to investors about expected financial returns and the financial health of these companies. Moreover, the principal and his older brother allegedly falsified the financial documents of their companies to inflate their assets, misused funds for their own benefit, failed to make adequate disclosures of the conflicts of interests, failed to comply with rules governing the custody of client assets, and overall violated federal securities laws, including antifraud provisions. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains plus prejudgement interest, civil penalties, and any equitable and ancillary relief deemed necessary by the court.

SEC Obtains Asset Freeze After Uncovering Cherry-picking Scheme. On June 17, 2021, the SEC announced that it obtained an asset freeze and filed fraud charges in connection to a cherry-picking scheme where a Miami-based investment professional and two investment firms allegedly funneled trading profits to preferred accounts. The complaint alleges defendants engaged in a long-running fraudulent trade allocation scheme. Approximately $4.6 million in profitable trades were allocated to accounts held by relatives of the defendants while several other investment advisory clients bore first day losses totaling more than $5.5 million. This investigation originated in the Market Abuse Unit’s Analysis and Detection Center, which uses data analysis to detect suspicious activity such as impossibly successful trading. The SEC is currently seeking permanent injunctions, disgorgement, prejudgment interest, and civil penalties. It also intends to recover any unlawful gains and prejudgment interest from the preferred accounts.

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Digital Asset Matters

Update on BitMEX Lawsuit. On October 1, 2020, the Department of Justice filed a criminal complaint against specific individuals associated with BitMex for violating and conspiring to violate the Bank Secrecy Act. The CFTC also filed a civil complaint against BitMEX, alleging failure to register with the CFTC and violation of various laws and regulations under the Commodity Exchange Act. Both actions are pending in the U.S. District Court for the Southern District of New York. On February 10, 2021, the Department of Justice intervened in the CFTC case and sought a stay of discovery pending the criminal case’s resolution. On February 11, the CFTC submitted a letter not to oppose the DOJ’s stay. On March 24, United States District Judge Mary Kay Vyskocil granted the motion to permit the DOJ to intervene in the CFTC case for the purpose of seeking a stay of discovery, further noting that the DOJ is permitted to file a motion to stay discovery after the defendants have responded to the complaint. Both cases remain pending. These two lawsuits signal that the DOJ and the CFTC has and will continue to monitor the digital asset market.

SEC Files Action Against Ripple for Unregistered Securities Offering. In December 2020, the SEC filed an action against Ripple Labs Inc. (“Ripple”) and two of its executives in the U.S. District Court for the Southern District of New York, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering. The SEC’s case rests on the proposition that XRP is a security because investors who purchased XRP anticipated that profits would be dependent upon Ripple’s efforts to manage and develop the market for XRP. The case remains pending. The outcome of this lawsuit, although uncertain at this point, may have significant impact on the future regulation on cryptocurrencies and blockchain technologies.

South Korea to Introduce 20% Tax on Crypto Trading Profits. South Korea will implement a 20% capital gains tax on Bitcoin (BTC) and cryptocurrency profits starting January 1, 2022. The tax is expected to be triggered when profits exceed 2.5 million Won, with gain made up to this point being tax-exempt.

Yield Farming Strategies. As decentralized finance (“DeFi”) applications continue to develop, the interest in yield farming has grown exponentially. At a high level, the goal of yield farming is to maximize returns by leveraging various DeFi protocols, and this can be done in a few different ways. To employ a yield farming strategy, a liquidity provider essentially locks its digital assets in a liquidity pool (where users can lend, borrow, or exchange tokens), thus providing liquidity to that pool. In return, the liquidity provider receives an annual percentage return. Liquidity mining, a type of yield farming, provides liquidity providers with reward tokens on top of that annual return. Liquidity providers can then deposit reward tokens into other liquidity pools to earn more rewards and repeat this process countless times. To increase the potential return of an investment, yield farmers can also deposit tokens as collateral to a liquidity pool, then use the borrowed tokens as further collateral to then borrow more tokens, and so on. It is important to note that if a position becomes undercollateralized, there is a risk that the DeFi protocol may liquidate the collateral which could result in a total loss to the liquidity provider. While the potential of impressive returns is enticing, those interested in yield farming strategies should consider the many risks inherent in such strategies, including impermanent loss, price slippage, smart contract code bugs leading to hacks or fraud, “rug pulling” scams, as well as the risk of under collateralization, which can incidentally result from price movements of the borrowed token.

El Salvador Adopts Bitcoin Legal Tender. On June 8, 2021, the Salvadorian Congress approved new legislation, making it the first country to adopt Bitcoin as legal tender. “The purpose of this law is to regulate Bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal person require carrying out,” the law reads. Under the new law, prices can be displayed in Bitcoin, taxes can be paid in Bitcoin, and transactions conducted using the digital currency will not be subject to a capital gains tax. The exchange rate with the U.S. Dollar (El Salvador’s current official currency) will be established by the market. The law also adds that the Salvadorian government will implement trainings and other mechanisms to ensure that its citizens can access Bitcoin transactions.

DeFi “Raises Challenges” for Investors, Regulators, SEC’s Gensler Says. In a written testimony before the House Appropriations Committee, SEC Chairman Gary Gensler discussed the challenges posed by decentralized finance. Examples of the challenges of DeFi given include market volatility and novel product offerings. Gensler’s concerns surrounding DeFi did not come as a surprise. In January, SEC Commissioner Hester Peirce offered the following quote: “It’s going to be challenging to us because most of the way we regulate is through intermediaries and when you really build something that’s decentralized, there’s no intermediary…. It’s great for resilience of a system but it’s much harder for us when we’re trying to go in and regulate to figure out how to do that”. Gensler has also previously suggested establishing a dedicated market regulator for cryptocurrency in order to provide protection against market manipulation and fraud. As DeFi continues to grow, it will be interesting to watch regulator’s approach to DeFi as it may have a large impact on the emerging space.

SEC Petitioned on NFTs as NFT Platform is Sued in Class Action. On April 12, 2021, a broker-dealer registered with the SEC and FINRA issued a petition to the SEC, calling for a concept release of regulations for nonfungible tokens (NFTs) and rules addressing when NFTs are considered securities. The petitioner notes that the existing definition of a security does not explicitly include NFTs, but NFTs that promise a “return on investment from the efforts of others”, could be deemed a security under the Howey test. The petitioner further clarifies that if an NFT “relates to an existing asset and is marketed as a collectible with a public assurance of authenticity on the blockchain, it should not be deemed a security.” To date, the SEC has not issued interpretive guidance on NFTs and has not initiated any enforcement actions against an NFT creator or NFT trading platform.

This petition arrives as Dapper Labs, the creator of the popular NFT marketplace NBA Top Shot, faces a class action lawsuit. The plaintiffs assert that NBA Top Shot’s “moments”, NFTs sold as collectable video highlights, are securities. These allegations center on the argument that moments increase in value as NBA Top Shot rises in popularity, therefore satisfying the Howey Test. The complaint also alleges that Dapper Labs has controlled the marketplace in way that prevents users from “cashing out” their purchases, keeping their value artificially high. It will be interesting to see how these issues are resolved by the SEC and the courts, as if NFTs are determined to be a security either by the SEC or the courts, NFT marketplaces and issuers may be forced to register with the SEC.

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CFTC Matters

Changes for Form CPO-PQR. Beginning with the March 31, 2021 reporting date, a revised and streamlined Form CPO-PQR will be used based on recent CFTC amendments. The revised Form CPO-PQR has been reduced to one schedule (Schedule A), and all reporting commodity pool operators (“CPOs”) will file the revised Form CPO-PQR every quarter, regardless of size. Technical updates have also been made, which make the form easier to fill out.

Default Judgment Entered Against Operator of Cryptocurrency Pool. On March 29, 2021, the U.S. District Court for the District of Nevada entered a default judgement against an Australian national and his Nevada corporation in connection with a cryptocurrency fraud and misappropriation scheme. The court concluded that the defendants made false claims about the individual’s trading acumen and baselessly guaranteed high rates of return in soliciting investors into a pool operated by the Nevada corporation. The pool engaged in off-exchange binary options trading on forex and cryptocurrency pairs; however, the defendants also stole participants’ funds and comingled assets in the individual’s personal cryptocurrency wallet. Additionally, the defendants effected a Ponzi scheme by paying investor redemptions with funds from other investors. Although the default judgment orders the defendants to pay restitution, disgorgement of profits and penalties totaling more than $32 million, the CFTC cautions investors that such order does not guarantee participants a full recovery.

CFTC Establishes Climate Risk Unit. In March, Acting CFTC Chairman Rostin Behnam announced the establishment of the Climate Risk Unit (“CRU”), which will assess the efficacy of derivatives products in addressing climate and weather-related risks in the financial system. Also, in an effort to reduce carbon emissions world-wide, the CRU will represent the CFTC in industry discussions in furtherance of this mission. The CRU also intends to, inter alia, facilitate dialogue regarding emerging climate risks, develop new products to help transition to a “net-zero” economy, support development of climate-related market risk data, and evaluate the utility of other tools (e.g., regulatory sandboxes) in accelerating such products and services.

NFA’s New Notice Requirements for CPOs Became Effective as of June 30, 2021. The NFA’s newly adopted Compliance Rule 2-50 requires CPOs to notify the NFA upon the occurrence of certain events such as a commodity pool’s ability to fulfill its obligations to investors or a potential unplanned liquidation of the pool. CPOs are now required to notify the NFA if they: (1) operate a pool that cannot meet a margin call, (2) operate a pool that cannot satisfy redemption requests in accordance with their subscription agreements, (3) operate a pool that has stopped redemptions unrelated to existing lockups or gates, and pre-planned cessation of operations or (4) receive notice from a swap counterparty that a pool operated by the CPO is in default. This rule applies to all pools operated by a CPO, including pools that meet the “de minimis” threshold pursuant to CFTC Regulation 4.13(a)(3). Generally, notice of a specified event must occur no later than 5:00 pm CT of the next business day; provided that, Interpretive Notice 9080 gives examples of when notice is not required (e.g., if a CPO reasonably expects to meet the margin call within the time prescribed by its FCM).

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Other Matters

Corporate Transparency Act Requires Disclosure of Ownership Information of Certain Entities. Overriding President Trump’s veto, Congress enacted the National Defense Authorization Act for Fiscal Year 2021 on January 1, 2021, which, among other things, includes the Corporate Transparency Act (the “CT Act”) requiring certain ‘reporting companies’ to report their beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”). Today, the CT Act excludes from the definition of ‘reporting companies’ registered investment advisers, venture capital fund advisers that file Form ADV, and private investment funds advised by investment advisers and identified by name on such advisers Form ADV. However, investment advisers relying on the private fund exemption are not exempt from the CT Act and, absent changes in the regulations adopted by the U.S. Treasury, will be required to report their beneficial ownership information to FinCEN. The CT Act goes into effect on the date regulations are issued by the U.S. Treasury, which shall occur no later than January 1, 2022. FinCEN is currently soliciting public comment on questions about the new reporting requirements.

Executive Orders Prohibit the Purchase of Publicly Traded Communist Chinese Military Company Securities by U.S. Persons. President Trump signed Executive Order 13959 on November 12, 2020, and subsequently amended it with Executive Order 13974 on January 13, 2021, to prohibit the purchase of publicly traded Communist Chinese Military Company (“CCMC”) securities, including securities that are derivative of or designed to provide investment exposure to such CCMC securities. The orders prohibit the purchase by U.S. persons of any such securities beginning 60 days after an entity is designated as a CCMC, and require U.S. persons to divest from those securities within one year of such designation. Therefore, for the CCMCs initially designated on November 12, purchase of such securities was prohibited beginning January 11, 2021, and all U.S. persons must divest by November 11, 2021. While the Office of Foreign Asset Control has issued an FAQ clarifying the orders, neither the orders nor the FAQ provide clarity on whether U.S. persons must divest from foreign private funds that hold CCMC securities, and it remains to be seen if the new administration will seek to amend the order before divestment is required. A list of entities designated CCMCs as of June 16, 2021 can be found here.

New York Eliminates Pre-Offer Filing Requirements for Rule 506 Offerings under Regulation D. The New York Attorney General announced on December 1, 2020, an amendment to New York’s antiquated and controversial securities regulations applicable to offerings made under Rule 506 of Regulation D. The old rule required issuers to file a Form 99 prior to any sale or offering of such “covered securities” in the state. Beginning on December 2, 2020, the updated rule eliminated the Form 99 requirement and provided that notice filings shall be made within 15 days following the date of the first sale of applicable securities via the North American Association of Securities Administrators electronic filing depository system. The filing fee continues to be based on the offering amount and is unchanged from the fees required prior to the adoption of the new rule.

Registration of New York IARs. Starting February 1, 2021, IARs who engage in business within or from New York and principals or supervisors of New York-state registered investment advisers must register with the New York Investor Protection Bureau (the “NYIPB”) by filing a Form U4 or updating an existing Form U4, and must also meet certain exam requirements. IARs with a place of business in New York that represent SEC-registered investment advisers that notice-file in New York must also register with the NYIPB. The new regulations grant IARs operating in New York prior to February 1, 2021, a grace period to submit their Form U4 until August 31, 2021, and such IARs may continue such service without an approval until December 2, 2021.

Employers can Inquire about the Vaccination Status of Employees. On May 28, 2021, the U.S. Equal Employment Opportunity Commission (“EEOC”) updated its guidelines on the COVID-19 vaccine and Americans with Disabilities Act (“ADA”) compliance. The guidelines reaffirmed the EEOC’s previous position that employers can ask their employees whether or not they have received the COVID-19 vaccine but added that any vaccination status documentation must be kept confidential and stored separately from the employee’s personnel file. It is recommended for employers to only ask for the bare minimum, such as a vaccination card or survey response, to prevent employees from providing additional medical information and implicating the ADA. Additionally, employers can “encourage” employee vaccinations by providing information on approved vaccines, addressing common questions and concerns, or by offering incentives to employees who receive the vaccine. As of the date of publication, there are no examples of states passing laws conflicting with EEOC guidance, but this may change as companies continue to return to the office.

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Compliance Calendar

Please consult our Compliance Calendar for key dates as you plan your regulatory compliance timeline for the coming months and contact us with any questions for assistance with any of the above topics.

We wish you and yours a safe and healthy summer.

Sincerely, Karl Cole-Frieman, Bart Mallon, Lilly Palmer, David Rothschild, & Scott Kitchens

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Cole-Frieman & Mallon LLP is one of the top investment management law firms in the United States, 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 multi-billion-dollar firms. The Firm provides a full suite of legal services to the investment management community, including hedge fund, private equity fund, venture capital fund, mutual fund formation, adviser registration, counterparty documentation, SEC, CFTC, NFA and FINRA matters, seed deals, hedge fund due diligence, employment and compensation matters, and routine business matters. The Firm also publishes the prominent Hedge Fund Law Blog, which focuses on legal issues that impact the hedge fund community. For more information, please add us on LinkedIn and visit us at colefrieman.com.

Aspect Advisors & CFM Compliance Update – January 23, 2020

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IA / BD 2020 Compliance Overview & Networking Event

We would like to take this opportunity to introduce you to Aspect Advisors, a firm that focuses on regulatory compliance services for investment managers. Aspect started at the beginning of 2019 and brings compliance solutions to broker-dealers, fintech companies, and traditional investment managers (hedge, PE, VC, real estate). In conjunction with Justin Schleifer (President and Co-Founder of Aspect), we’d like to invite you to a compliance update presentation and networking event at the offices of Cole-Frieman & Mallon LLP on January 23rd. The event will address the following topics:

2020 compliance calendar (including Form ADV annual update)
Major issues from the SEC and courts in 2019
SEC focus on crypto / digital assets in 2020
Fintech regulations and best practices
Regulation Best Interest
Other hot topics

We are planning an engaging event with audience participation and discussion so come ready with questions! If you are interested in joining, please review the information below and contact us for more information.

Best regards,
Bart

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Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Cole-Frieman & Mallon has been instrumental in structuring the launches of some of the first digital currency-focused hedge funds. For more information on this topic, please contact Mr. Mallon directly at 415-868-5345.

California Investment Advisor Annual Compliance Reminder | 2010

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(www.hedgefundlawblog.com)

State registered investment advisory firms usually have annual compliance requirements. The following discusses the major issues for investment advisors (both hedge fund and separately managed account managers) who are registered in California. In general, there is (i) an annual updating requirement and (ii) an annual financial filing requirement.

Annual ADV Updating Amendment

Registered investment advisers will need to update Form ADV (including Part II and Schedule F) on an annual basis. For California registered investment advisers the annual update is due within 90 days after the end of the firm’s fiscal year end (which will normally end on December 31). In general the advisor should review the entire ADV, Part II and Schedule F to make sure everything is accurate as of the date of filing. The advisor may want to make this filing itself (usually the chief compliance officer of the firm will complete) or the advisor may want to have its law firm or compliance firm complete the update for them.

Note: in additional to annual update, each advisor will need to make sure that certain information is updated on a continuous basis. If the information contained in Part I, Items 1, 2, 3, 4, 5, 8, 11, 13A, 13B, 14A and 14B of Form ADV, Form U-4 or any representation or undertaking contained in any affidavit filed with the state securities division, changes in any respect, or if the information contained in Part I, Items 9 and 10 and all items of Part II of Form ADV changes in any material respect, an amendment shall be filed promptly with the state securities division. Such amendment must be filed in writing no more than ten business days after the registrant has knowledge of the circumstances requiring such notification.

Annual Financial Filing Requirement

California registered advisors will also need to submit annual financial reports to the California Securities Regulation Division. Such advisors must submit the following to the division:

a balance sheet prepared in accordance with generally accepted accounting principles
an income statement prepared in accordance with generally accepted accounting principles
CA Minimum Financial Requirements Worksheet
CA Financial Verification Form

The above items should be sent directly to the California Securities Regulation Division at:

California Financial Services Division
1515 K Street
Suite 200
Sacramento, CA 95814

Note: in general both hedge fund managers and separately managed account advisors (who directly debit fees from client brokerage accounts) will be deemed to have “custody” of client assets and would need to make sure that, among other requirements, the balance sheet above is audited. Most advisors, however, will institute certain procedures (including a gatekeeper arrangement) which will allow them to submit unaudited financials. If you have questions, please contact your lawyer or compliance professional.

Other Compliance Issues

In California, like most of the states, there are a number of items that advisors will need to do a continuous basis. The most important is probably to properly maintain their books and records. California has also provided an overview of important issues for California investment advisor and has also provided an overview of the post-effective requirements.

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

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog and has written most all of the articles which appear on this website. Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund. Cole-Frieman & Mallon LLP will also help state based Investment Advisors to register with their state securities division. If you are a hedge fund manager who is looking to start a hedge fund or an investment advisor looking to register, please call Mr. Mallon directly at 415-868-5345.

Hedge Fund Manager Registration to Cost Taxpayers $140 Million (at least)

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CBO Calculates Cost of House Hedge Fund Bill

This past week the Congressional Budge Office (“CBO”) released a cost estimate of H.R. 3818, the Private Fund Investment Advisers Registration Act of 2009. In a number of private conversations I have had about hedge fund registration over the last 9-12 months one of the issues that was continually raised was appropriate funding for the SEC. As we have seen recently (most notably from the Inspector General’s Madoff report), the SEC’s budget is not large enough to adequately fulfill their investor protection mandate. Adding hedge fund registration would obviously further burden the cash-strapped agency (for more see Schumer Proposal to Double SEC Budget). According to the CBO, and based on the SEC’s estimates that it will need to add 150 employees, the estimated outlays over four years will be equal to $140 million.

However, taxpayers should understand that this assumes that registration will only be required for those managers with at least $150 million in assets under management. At the $150 million AUM level, the CBO expects that 1,300 hedge fund managers would be required to register. The current draft of the Senate hedge fund registration bill calls for managers with $100 million in AUM to register – lowering the AUM exemption threshold will increase the amount of managers required to register. Additionally, there are outstanding political issues. First, it is unclear whether the final bill will require private equity fund managers and venture capital fund managers to register – we do not necessarily understand the arguably arbitrary carve-out for these industries. Second, it is clear that a majority of the state securities commissions are unable and unwilling to be responsible for overseeing managers with up to $100 million in assets. Hedge fund managers who would subject to state oversight would rightly want to be subject to SEC oversight (which does not say much for many state securities commissions). These issues will continue to be addressed during the political sausage-making process.

Of additional interest – the CBO estimates that hedge fund registration is likely to cost around $30,000 per each SEC registrant which is welcome news to investment adviser compliance consultants and hedge fund lawyers!

For full report, please see full CBO Hedge Fund Cost Estimate.

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Other related hedge fund law articles include:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog and provides hedge fund manager registration service through Cole-Frieman & Mallon LLP He can be reached directly at 415-868-5345.

Section 204A | Investment Advisers Act of 1940

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Section 204A — Prevention of Misuse of Nonpublic Information

Every investment adviser subject to section 204 shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent the misuse in violation of this Act or the Securities Exchange Act of 1934, or the rules or regulations thereunder, of material, nonpublic information by such investment adviser or any person associated with such investment adviser. The Commission, as it deems necessary or appropriate in the public interest or for the protection of investors, shall adopt rules or regulations to require specific policies or procedures reasonably designed to prevent misuse in violation of this Act or the Securities Exchange Act of 1934 (or the rules or regulations thereunder) of material, nonpublic information.

H.R. 3818 | Hedge Fund Registration

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Bart Mallon, Esq. (http://www.hedgefundlawblog.com)

Private Fund Investment Advisers Registration Act of 2009 (text of act)

Below is the final text of the hedge fund registration bill as passed by the House Financial Services Commission.

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111th CONGRESS

1st Session

H. R. 3818

To amend the Investment Advisers Act of 1940 to require advisers of certain unregistered investment companies to register with and provide information to the Securities and Exchange Commission, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

October 15, 2009

Mr. KANJORSKI introduced the following bill; which was referred to the Committee on Financial Services

A BILL

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Private Fund Investment Advisers Registration Act of 2009′.

SEC. 2. DEFINITIONS.

Section 202(a) of the Investment Advisers Act of 1934 (15 U.S.C. 80b-2(a)) is amended by adding at the end the following new paragraphs:

`(29) PRIVATE FUND- The term `private fund’ means an investment fund that–

`(A) would be an investment company under section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(a)) but for the exception provided from that definition by either section 3(c)(1) or section 3(c)(7) of such Act; and

`(B) either–

`(i) is organized or otherwise created under the laws of the United States or of a State; or

`(ii) has 10 percent or more of its outstanding securities by value owned by United States persons.

`(30) FOREIGN PRIVATE FUND ADVISER- The term `foreign private fund adviser’ means an investment adviser who–

`(A) has no place of business in the United States;

`(B) during the preceding 12 months has had–

`(i) fewer than 15 clients in the United States; and

`(ii) assets under management attributable to clients in the United States of less than $25,000,000, or such higher amount as the Commission may, by rule, deem appropriate in the public interest or for the protection of investors; and

`(C) neither holds itself out generally to the public in the United States as an investment adviser, nor acts as an investment adviser to any investment company registered under the Investment Company Act of 1940, or a company which has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. 80a-53) and has not withdrawn such election.’.

SEC. 3. ELIMINATION OF PRIVATE ADVISER EXEMPTION; LIMITED EXEMPTION FOR FOREIGN PRIVATE FUND ADVISERS; LIMITED INTRASTATE EXEMPTION.

Section 203(b) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(b)) is amended–

(1) in paragraph (1), by inserting `, except an investment adviser who acts as an investment adviser to any private fund,’ after `any investment adviser’;

(2) by amending paragraph (3) to read as follows:

`(3) any investment adviser that is a foreign private fund adviser;’;

(3) in paragraph (5), by striking `or’ at the end; and

(4) in paragraph (6)–

(A) in subparagraph (A), by striking `or’;

(B) in subparagraph (B), by striking the period at the end and adding `; or’; and

`(C) a private fund.’.

SEC. 4. COLLECTION OF SYSTEMIC RISK DATA.

Section 204 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-4) is amended–

(1) by redesignating subsections (b) and (c) as subsections (c) and (d), respectively; and

(2) by inserting after subsection (a) the following new subsection:

`(b) Records and Reports of Private Funds-

`(1) IN GENERAL- The Commission is authorized to require any investment adviser registered under this Act to maintain such records of and file with the Commission such reports regarding private funds advised by the investment adviser as are necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk as the Commission determines in consultation with the Board of Governors of the Federal Reserve System. The Commission is authorized to provide or make available to the Board of Governors of the Federal Reserve System, and to any other entity that the Commission identifies as having systemic risk responsibility, those reports or records or the information contained therein. The records and reports of any private fund, to which any such investment adviser provides investment advice, maintained or filed by an investment adviser registered under this Act, shall be deemed to be the records and reports of the investment adviser.

`(2) REQUIRED INFORMATION- The records and reports required to be maintained or filed with the Commission under this subsection shall include, for each private fund advised by the investment adviser–

`(A) the amount of assets under management;

`(B) the use of leverage (including off-balance sheet leverage);

`(C) counterparty credit risk exposures;

`(D) trading and investment positions;

`(E) trading practices; and

`(F) such other information as the Commission, in consultation with the Board of Governors of the Federal Reserve System, determines necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk.

`(3) OPTIONAL INFORMATION- The Commission may require the reporting of such additional information from private fund advisers as the Commission determines necessary. In making such determination, the Commission may set different reporting requirements for different classes of private fund advisers, based on the particular types or sizes of private funds advised by such advisers.

`(4) MAINTENANCE OF RECORDS- An investment adviser registered under this Act is required to maintain and keep such records of private funds advised by the investment adviser for such period or periods as the Commission, by rule or regulation, may prescribe as necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk.

`(5) EXAMINATION OF RECORDS-

`(A) PERIODIC AND SPECIAL EXAMINATIONS- All records of a private fund maintained by an investment adviser registered under this Act shall be subject at any time and from time to time to such periodic, special, and other examinations by the Commission, or any member or representative thereof, as the Commission may prescribe.

`(B) AVAILABILITY OF RECORDS- An investment adviser registered under this Act shall make available to the Commission or its representatives any copies or extracts from such records as may be prepared without undue effort, expense, or delay as the Commission or its representatives may reasonably request.

`(6) INFORMATION SHARING- The Commission shall make available to the Board of Governors of the Federal Reserve System, and to any other entity that the Commission identifies as having systemic risk responsibility, copies of all reports, documents, records, and information filed with or provided to the Commission by an investment adviser under this subsection as the Board, or such other entity, may consider necessary for the purpose of assessing the systemic risk of a private fund. All such reports, documents, records, and information obtained by the Board, or such other entity, from the Commission under this subsection shall be kept confidential.

`(7) DISCLOSURES OF CERTAIN PRIVATE FUND INFORMATION- An investment adviser registered under this Act shall provide such reports, records, and other documents to investors, prospective investors, counterparties, and creditors, of any private fund advised by the investment adviser as the Commission, by rule or regulation, may prescribe as necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk.

`(8) CONFIDENTIALITY OF REPORTS- Notwithstanding any other provision of law, the Commission shall not be compelled to disclose any report or information contained therein required to be filed with the Commission under this subsection. Nothing in this paragraph shall authorize the Commission to withhold information from the Congress or prevent the Commission from complying with a request for information from any other Federal department or agency or any self-regulatory organization requesting the report or information for purposes within the scope of its jurisdiction, or complying with an order of a court of the United States in an action brought by the United States or the Commission. For purposes of section 552 of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section.’.

SEC. 5. ELIMINATION OF DISCLOSURE PROVISION.

Section 210 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-10) is amended by striking subsection (c).

SEC. 6. EXEMPTION OF AND REPORTING BY VENTURE CAPITAL FUND ADVISERS.

Section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3) is amended by adding at the end the following new subsection:

`(l) Exemption of and Reporting by Venture Capital Fund Advisers- The Commission shall identify and define the term `venture capital fund’ and shall provide an adviser to such a fund an exemption from the registration requirements under this section. The Commission shall require such advisers to maintain such records and provide to the Commission such annual or other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors.’.

SEC. 7. CLARIFICATION OF RULEMAKING AUTHORITY.

Section 211 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-11) is amended–

(1) by amending subsection (a) to read as follows:

`(a) The Commission shall have authority from time to time to make, issue, amend, and rescind such rules and regulations and such orders as are necessary or appropriate to the exercise of the functions and powers conferred upon the Commission elsewhere in this title, including rules and regulations defining technical, trade, and other terms used in this title. For the purposes of its rules and regulations, the Commission may–

`(1) classify persons and matters within its jurisdiction based upon, but not limited to–

`(A) size;

`(B) scope;

`(C) business model;

`(D) compensation scheme; or

`(E) potential to create or increase systemic risk;

`(2) prescribe different requirements for different classes of persons or matters; and

`(3) ascribe different meanings to terms (including the term `client’) used in different sections of this title as the Commission determines necessary to effect the purposes of this title.’; and

(2) by adding at the end the following new subsection:

`(e) The Commission and the Commodity Futures Trading Commission shall, after consultation with the Board of Governors of the Federal Reserve System, within 6 months after the date of enactment of the Private Fund Investment Advisers Registration Act of 2009, jointly promulgate rules to establish the form and content of the reports required to be filed with the Commission under sections 203(i) and 204(b) and with the Commodity Futures Trading Commission by investment advisers that are registered both under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) and the Commodity Exchange Act (7 U.S.C. 1 et seq.).’.

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Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs hedge fund law blog and has written most all of the articles which appear on this website. Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund. Cole-Frieman & Mallon LLP helps hedge fund managers to register as investment advisors with the SEC or the state securities divisions. If you are a hedge fund manager who is looking to start a hedge fund or register as an investment advisor, please contact us or call Mr. Mallon directly at 415-868-5345.

Investment Adviser Representative Registration Requirement

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Employees of Registered IAs Must Generally be Registered

State-registered investment advisory firms need to make sure that their employees who are deemed to be “investment advisory representatives” are appropriately registered. This means that any employee (or owner) of the IA firm who provides investment advice or who has supervisory authority will generally need to be registered with the state as a representative of the firm. In order to register, the applicant will need to have certain qualifications and generally the series 65 will be sufficient for these purposes.

There are consequences for not properly registering employees as investment advisor representatives. In an earlier article on whether IA firms can have silent owners, we discussed the fact that many state administrators have the power to censure or fine IA firms if they do not follow the registration rules. I recently stumbled across an example of a state taking such an action.

In the attached [intentionally removed], the Texas State Securities Board (“Board”) concluded that the “unregistered employee” of the registered investment advisory firm provided investment advice to IA clients for compensation and that the IA firm failed to maintain a supervisory system reasonably designed to ensure compliance with the Texas Securities Act and Board Rules. The Board reprimanded the IA firm and also ordered an administrative fine of $5,000. The firm was required to comply with the Act and Board Rules moving forward.

The two important take-aways from this order are:

Always make sure employees are registered or clearly exempt from registration, and
Always ensure that you have an up-to-date compliance program that helps to ensure that the firm will operate within all applicable laws and regulations.

We always recommend that registered IA firms discuss any registration and compliance related matters with an experienced investment management attorney with detailed knowledge of the laws of the state where the firm is registered.

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IARD Fee Waiver for 2010

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The press release below from NASAA, the representative body of the state securities administrators, announces an IARD (Investment Adviser Registration Depository) fee waiver for next year. The fee waiver will cover both the IARD fees for registering investment advisory firms as well as the fees for individuals. Previously firms had to pay an IARD fee to use the IARD system. Now, firms which are registering as investment advisors for the first time (as well as firms filing investment adviser renewals) will not need to pay any IARD fees. However, firms will still need to pay any applicable state fees.

Chief compliance officers of investment advisory firms should begin getting ready for the IA renewal process which begins in earnest in the beginning to middle of next month. Keep checking in for more information on investment adviser registration and compliance.

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October 13, 2009

NASAA Announces IARD System Fee Waiver

WASHINGTON (October 13, 2009) – The North American Securities Administrators Association (NASAA) today announced it will waive the initial set-up and annual system fees paid by investment adviser firms (IAs) and investment representatives (IARs) to maintain the Investment Adviser Registration Depository (IARD) system.

Denise Voigt Crawford, NASAA President and Texas Securities Commissioner, said, “The IARD system promotes effective and efficient investor protection through readily accessible disclosure of important information to the public while at the same time offering a consistent and streamlined registration process for investment advisers and their representatives. Given the current economic climate, we are pleased that the IARD system’s continued success will allow us to maintain the system fee waivers put in place in 2005 for investment adviser firms and also to fully waive for a second year the system fees paid by investment adviser representatives.”

NASAA’s Board of Directors approved the system fee waiver and will continue to monitor the system’s revenues to determine whether future fee adjustments are warranted.

The IARD system is an Internet-based national database sponsored by NASAA and the SEC and operated by FINRA in its role as a vendor. IARD provides a single nationwide database for the collection and dissemination of information about individuals and firms in the investment advisory field and offers investment advisers and representatives a single source for filing state and federal registration and notice filings. The system contains the employment and disciplinary histories of more than 25,000 investment adviser firms and nearly 250,000 individual investment adviser representatives. IARD system fees are used for user and system support and for enhancements to the system.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

For more information:
Bob Webster, Director of Communications
202-737-0900

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Other related articles on investment advisers:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog. Mr. Mallon’s law firm provides registration and compliance services to start up investment advisory firms. If you are interested in starting your investment adviser, please contact us or call Mr. Mallon directly at 415-868-5345.

Hedge Fund Regulation IT Solutions

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Technology Solutions for Registered Hedge Fund Managers

http://www.hedgefundlawblog.com

It is the final quarter of this year’s political season and it has become clear that the earlier clamor for hedge fund registration has been overshadowed by larger political issues – namely health care legislation and the cap and trade bill. Recent events, however, have shown that the registration issue is not dead and the venture capital industry has been able to potentially secure an exemption from the registration provisions. Even though we don’t know where regulation will take us in the next 6 to 18 months, it is likely that many hedge fund managers will need to institute compliance and IT programs as a result of forthcoming laws and regulations.

The article below, submitted by Meyer Ben-Reuven, CEO of Chelsea Technologies, details some issues which managers will need to be ready to handle once legislation and regulations go into effect. State registered investment advisors should take note as they may already be required (under state law) to maintain such compliance programs.

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How is President Obama’s New Hedge Fund Regulation Plan affecting you?
By Meyer Ben-Reuven, CEO Chelsea Technologies

The challenging question Hedge Fund Managers should ask themselves is what should they be doing to be compliant with President Obama’s Hedge Fund Regulation Plan? There are many questions and many tasks to accomplish, but most important is to understand the main points of the plan, what needs to be done and what are the costs associated. In this paper I present you with a summary of the President’s plan and what a Chief Compliance Officer needs to face in conjunction with the IT department to be compliant with regulations. Costs are important, but I will keep them away from this paper.

Obama’s New Hedge Fund Regulation Plan

In June 2009, President Obama presented a proposal for new regulations that affect Hedge Funds and fund managers. The most important part of this new regulation will be to require Hedge Fund, Private Equity, and VC Fund Managers to register with the SEC as investment advisors.

Although it is a proposal, all fund managers will have to start thinking about the re-registration and the process to keep the fund compliant.

The plan’s 5 main goals are:

Promote robust supervision and regulation of financial firms.
Establish comprehensive supervision and regulation of financial markets.
Propose comprehensive regulation of all OTC derivatives.
Protect customers and investors from financial abuse.
Raise international regulatory standards and improve international cooperation.

The idea is to require advisers to report financial information on their fund and its management and thus have the ability to assess whether the fund poses a threat to the stability of the financial system and at the same time strengthen investor protection.

The specific goals regarding hedge funds are as follows:

Data collection
SEC should conduct regular, periodic examinations of hedge funds
Reporting AUM and other fund metrics to the SEC
SEC would have ability to assess whether the fund or fund family is so large, highly leveraged, or interconnected that it poses a threat to financial stability

How will IT Departments have to help keep the funds within regulation rules?

As of February 2006, Hedge Fund Advisors were obliged to comply with SEC Rule 203(b)(3)-2 requiring registration under the Investment Advisor Act. Under these rules, the Hedge Funds were advised to retain all internal and external email and IM business communications. In June 2006, the Goldstein ruling against the SEC pushed several funds to de-register. With the failure of the financial system since the end of 2007, the new administration has been poised to regulate the industry more than ever.

What needs to be done?

Take a look at all the ways communications are conducted in the fund
What are the devices used to communicate
Always be on the lookout for new technologies

Afterwards, insure you have control over the different communication methods. As stated, all electronic communication in and out of the fund has to be retained for future review. This means that if it cannot be controlled and retained, it must be prohibited.

All internal rules have to be specified in IT policies and procedures, otherwise no one can be held accountable.

The following is how data needs to be archived for SEC purpose audits:

Incoming/Outgoing Data must be kept in its original form
Data has to be easily retrievable and searchable
Data has to have a date and time stamp
Data has to be retained in the main office for first 2 years
Data has to be retained for 5 years
Data has to be put into tamper proof media (meaning non-rewritable and non-erasable)
Data has to be stored in a secondary backup location (preferably away from the same grid)
Be able to produce data promptly (within hours)
Be able to provide data in its original format in either view or print form
Implement annual review of the system

It is highly recommended that data be tested for integrity including testing retrieval and searching, as well as accuracy. The test should be conducted on a yearly basis, but better if on a more frequent basis.
Although the IT department is in charge of conducting the process, it is ultimately the Chief Compliance Officer who is responsible for this area. The Chief Compliance Officer needs to dictate the test frequency as well as to advise everyone in the firm about the policies and make sure everyone understands the consequences of failure to comply.

All these internal policies have to be in writing and any violations have to be documented and fixed. The regular testing and reviews have to be documented and be ready for presentation in case of an audit.

NOTE: TAPE BACKUP IS NOT A SUBSTITUTE FOR MESSAGE ARCHIVING

What are the different communication venues that exist and can be controlled and thus archived?

Email and IM from Exchange
Email and IM from Bloomberg and Reuters
Blackberry archiving of Pin-to-Pin , SMS, Call Detail logs
E-Faxes
Blogs
Chat Rooms
Message Boards
Twitter
Facebook
LinkedIn

Since all of the above require certain technologies and software for archiving and retaining, you have to make an effort to comply with the regulations or otherwise prohibit the usage of such technologies in the work place.

How do you implement compliance?

There are two schools of thought to achieve compliance:

Build an in-house system
Use a third party system

The in-house system is more complex and often requires a larger upfront investment to build and maintain. Keep in mind you will have to have the following:

Servers, storage, and software
Backup Servers, storage, and software in a location out of the main location grid
Replication system
Maintain both the main and backup location

The responsibility and costs can escalate, but depending on the size of the firm, it might be the most cost efficient.

The third party systems, which have built an infrastructure that is scalable, keep on growing as more clients join their list. The time to implement is a fraction of building an in-house system. Depending on the third party provider, there are several ways of getting the data:

Have the data arrive to the email server and from there delivered to the third party provider
Have the data arrive to the third party provider and then to the email server

Both methods of delivery have issues of their own. The first method requires you to be diligent about monitoring the email flow and ensure data is routed to the archiving provider – the responsibility is shifted completely to you. The second method, where the provider requires the email to be routed through their system before it arrives to your server, usually poses a different challenge where emails might get delayed at the provider.

If you decide on any of the above systems, you should try to utilize an external anti-spam solution to keep your storage usage to a minimum as well as to make sure that non-account emails do not reach your email server. These measures will keep all spam from being part of your retention data.

References and information used from the following sources: Global Relay, Zantaz, LiveOffice, NextPage, Hedge Fund Law Blog

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Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog. Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund. If you are a hedge fund manager who is looking to start a hedge fund or if you are a current hedge fund manager with questions about ERISA, please contact us or call Mr. Mallon directly at 415-868-5345. Other related hedge fund law articles include:

IA Compliance Fall Conference 2009

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Over the past few months I have written extensively about the new regulatory environment and the likelihood that many hedge fund managers will need to register with the SEC within the next year or so (assuming that Congress passes one of many proposed registration bills). Anticipating this requirement, my team and I at Cole-Frieman & Mallon LLP have been preparing for registrations and as part of that preparation I am attending the IA Compliance Fall Conference today at the Loews Philadelphia Hotel.

The conferne is designed to provide lawyers and compliance professionals with more context on how firms need to deal with compliance issues in this hype-sensitive environment. Today’s conference hosts a number of renowned speakers, including top SEC officials:

John Walsh – SEC’s Office of Compliance Inspectrions and Examinations
Gene Gohlke – OCIE’s Associate Director
Andrew Donohue – director of the SEC’s Division of Investment Management

There are a number of items on the adgenda which I am particularly excited to hear about and discuss with my colleagues including some of the hot-button issues and recent reports from SEC examinations. I will be taking notes throughout the event and will be writing blog posts about the conference in the coming days. I will also be providing more information on Mallon P.C.’s investment adviser registration and compliance services for hedge fund managers.

Other attendees include representatives from: The Carlyle Group; Westover Capital Advisors, LLC; Oppenheimer Funds, Inc; State Street; Penbrook Management, LLC; Trilogy Capital; Bridgewater Associates; AXA Investment Managers; Strategic Value Partners, LLC; Pershing Square Capital Management; Guggenheim Advisors, LLC; Lone Pine Capital; Parkway Advisors; Vicis Capital LLC; The Swathmore Group; Abbott Capital Management, LLC; Redwood Investments; Tocqueville Asset Management; RNK Capital LLC among others.

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

Bart Mallon, Esq. runs hedge fund law blog and has written most all of the articles which appear on this website. Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund. If you are a hedge fund manager who is looking to start a hedge fund, or if you have questions about investment adviser registration with the SEC or state securities commission, please call Mr. Mallon directly at 415-296-8510.