Tag Archives: mallon p.c.

Cole-Frieman & Mallon LLP Quarterly Newsletter | 2nd Quarter 2010

Below is our quarterly newsletter.  If you would like to be added to our distribution list, please contact us.

****
July 31, 2010
www.colefrieman.com

Clients and Friends,

We take this opportunity to provide you with a brief overview of the major items we have reported on over the last quarter.  While we are a little late with the newsletter, the past couple of weeks have been especially busy with the passage of the Dodd-Frank reform bill.  There will be continuous rulemaking and proposals over the course of the next 12 months and this newsletter will provide an overview of the issues which we will be discussing in the future.  Also, please be sure to skim the ongoing compliance update below to make sure your firm is up to date with compliance.

****

Financial Reform Bill – The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed by President Obama on July 21, 2010, will meaningfully change the investment management industry in a number of ways. Important changes include:

  • Manager Registration – Managers to hedge funds and private equity funds will generally be required to  register with the SEC by July 21, 2011 if they have $150 million or more in AUM.
  • Accredited Investor Definition – The definition of accredited investor has changed. Now, investors cannot include the value of their primary residence when computing net worth. The qualified client definition may also be changed in the future.
  • BD Fiduciary Standard – The SEC will study and potentially institute a fiduciary standard for broker-dealer representatives.
  • Increased State Regulation of Investment Advisers – Previously, the states only had jurisdiction over managers up to $25 million of AUM. Now the states have jurisdiction over managers with up to $100 million of AUM. We have provided our comments on the increase in state regulatory jurisdiction in light of state budget shortfalls.
  • Regulation of the OTC Derivatives Markets – Previously unregulated contacts (like credit default swaps) will be subject to a clearing requirement. There will be much written on this over the next few months as the CFTC and SEC begin establishing a framework for such clearing.
  • Imposition of Position Limits on Certain Commodities (see below)

In addition to the changes to the securities and commodities laws, there will be a number of rulemaking initiatives by both the SEC and CFTC which will augment the statutory language of the bill.

Busy, Busy SEC – Notwithstanding preparations for the Dodd-Frank bill, the SEC has been especially busy over the last quarter.  The big news was obviously the Goldman settlement, but there were a number of other SEC initiatives as well. These include:

New ADV Part 2 Released – The SEC just released the requirements for the new Form ADV Part 2 which will now be publicly available through the SEC’s Advisor Search program.  New Part 2 will require registered managers to provide a narrative of their investment program and other relevant information. Managers also need to provide investors with supplements detailing certain background information about the representative directing an investor’s account.  Most currently registered managers are required to post a new Part 2 during the first quarter of 2011.

Pay to Play Rule Adopted – The SEC adopted new Rule 206(4)-5 under the Investment Advisers Act prohibiting certain political contributions by investment advisory firms.  Firms are urged to update their compliance policies and procedures to account for the new rule.

Advisor Representative Disclosures – The SEC updated its Advisor Search program so that information on investment adviser representatives will now be publicly available online.  Prior to the update, disciplinary and other background information was only publicly available to the extent it was disclosed on the adviser’s Form ADV.

Futures/ Commodities Issues – Like the SEC, the CFTC has been very busy over the last quarter and will continue to be busy proposing rules under the Dodd-Frank bill. Accordingly, there are a number of interesting items concerning both the CFTC and NFA. These include:

Position Limits – Dodd-Frank mandates the CFTC to impose position limits across different markets including traditional futures markets, agricultural markets, and with respect to certain swap instruments. The CFTC will be releasing orders or proposed rules establishing limits within 180 days for energy commodities and within 270 days for agricultural commodities.  Position limits will affect commodities transactions that have previously qualified for broad statutory exemptions and traders will need to closely monitor trading activity to avoid violating the limits when they are established and implemented.

CFTC Releases Report on NFA – The CFTC audited the NFA in 2009 to gauge how successfully the self regulatory organization implemented certain CFTC regulations.  The CFTC noted a number of areas where the NFA should improve procedures.  We have already seen some of the suggestions implemented and, accordingly, the registration process (in certain instances) is taking a little longer than usual.

CTA & CPO Disclosure Document Bios – For CTAs and CPOs registering with the CFTC, one area where the NFA seems to spend considerable time is the biography portion of the disclosure documents.  Because of common deficiencies with respect to the biographies (or manager backgrounds), the NFA released guidance on how this part of a disclosure document should be completed.

Form 8-R Revised – Form 8-R applications for principal and associated person registration has been revised to include demographic information on the registrant.  The newly added information includes sex, race, eye color, hair color, height and weight.  The purpose of the additions was to help speed up the background check process for principals and associated persons.

NFA Forex Workshop Announced – In expectation of the CFTC finalizing the forex registration rules for forex CTAs, CPOs and IBs, the NFA is conducting a registration and compliance workshop for forex managers.  The workshop will take place on September 25th, 2010 at Caesar’s Palace in Las Vegas. NFA staff will be on hand to discuss the registration process and to take questions from managers.

Other Notes

Hedge Fund Carried Interest – Every few months the taxation of the carried interest becomes a political football.  Early in the quarter it looked like the carried interest tax would be changed as part of an unemployment extension bill.  However, that bill never passed and the proposal to tax the carried interest as ordinary income died.  We expect to probably hear another proposal like this in the next 12 to 18 months.

Hedge Fund Court Case – Earlier this year a court case was decided in favor of a hedge fund manager when that manager suspended redemptions and was subsequently sued by an investor.  We discussed the facts of the case and the manager takeaways.

Ongoing Compliance – At the end of every quarter, managers should take time to address any ongoing compliance matters.  Managers who are registered in any capacity (state, SEC or CFTC) should review their compliance calendar or policies and procedures to ensure that all quarterly compliance matters are completed.  Additionally managers should always be sure to complete all state blue sky filings and commodity pool operators should make sure they complete their Rule 2-46 quarterly filings.

****

For assistance with any compliance, registration, or planning issues with respect to any of the above topics, please contact Bart Mallon of Mallon P.C. (www.mallonpc.com) at 415-868-5345 or [email protected]

Cole-Frieman & Mallon LLP is a hedge fund law firm with a national client base and is focused on the investment management industry.  Our clients include hedge fund managers, investment advisers, commodity advisors, and other investment managers.  We also provide general business and start up legal advice and have an emerging practice in real estate and cleantech.

150 Spear Street, Suite 825
San Francisco, CA 94105
Telephone: (415) 352-2300
Fax: (646) 619-4800

Cole-Frieman & Mallon LLP Quarterly Newsletter | 1st Quarter 2010

Below is our quarterly newsletter.  If you would like to be added to our distribution list, please contact us.

****

April 1, 2010
www.colefrieman.com

Cole-Frieman &  Mallon LLP Quarterly Newsletter

Clients and Friends,

We take this opportunity to provide you with a brief overview of the major items we have reported on over the last quarter.  We have also provided a list of some of the major compliance issues that managers should be aware of during this time period.

****

New Quarterly Reporting Rule for CPOs – new NFA Rule 2-46, which became effective on March 31, 2010, requires registered commodity pool operators (including registered CPOs managing 4.7 or 4.12 pools) to provide a quarterly report to the NFA through the NFA’s EasyFile system.  Managers will report information on key relationships, a statement of the change in the fund’s NAV, monthly ROR, and a schedule for major investments.  The report will need to be filed within 45 days of March 31 and the process will be familiar to those groups who have filed their annual returns with the NFA previously.

For a complete overview of the new rule, click here.

Proposed Forex Regulations – for forex managers, the announcement of the CFTC’s proposed forex regulations was the major topic of conversation over the last quarter.  The proposed regulations include a number of new requirements for forex managers: (i) registration requirements for forex CTAs, CPOs, and IBs; (ii) net capital requirements for forex dealers; (iii) reduction in leverage from 100:1 to 10:1; and, (iv) a guarantee requirement for all forex IBs.

Overview of the proposed regulations can be found here.

Mallon P.C. comments on the proposed regulations can be found here.

Compliance Reminders

Form D Update – managers should be aware that for continuous offerings (most hedge funds), Form D needs to be updated on an annual basis.  Managers who have not updated Form D within the last year should check whether the fund’s Form D needs to be updated. For more information please click here.

Blue Sky Filings – managers need to make sure they are up to date with all blue sky filings.  Mallon P.C. has a team devoted to blue sky filings and compliance and is happy to answer any questions you may have. For more information on blue sky filings, please click here.

Investment Advisers – investment advisers should have completed their annual update of Form ADV through the IARD system by March 31, 2010 for 2009.  Managers who have not done this yet will need to do so immediately. Additionally, some states will require managers to submit other information such as updated financials. The requirements for California registered investment advisers can be found here.

CFTC Registrants – managers who are registered with the CFTC and members of the NFA have a number of yearly compliance requirements.  Generally these managers will have already done the following: (i) submitted annual reports (if required to be filed with the NFA); (ii) sent out a physical copy of their privacy policy to all investors/clients; (iii) completed the yearly NFA Self-Exam Checklist; and, (iv) updated their compliance policies and procedures accordingly.  Some CFTC registrants will have a requirement to review the procedures with respect to bunched orders on a quarterly basis.

Cleantech & Carbon – a recent 100 Women in Hedge Funds event focused on the cleantech industry and how hedge funds and VC funds are looking at investments in this space.  We wrote a summary of the event and were encouraged by the turnout and industry participation.  We look forward to greater interest in this sector by hedge funds.  Additionally, we are closely watching Congress as cap and trade legislation and energy bills become a topic of consideration.  We will continue to monitor any cap and trade legislation and will report on how this may impact the investment management industry.

2nd Quarter Events – New York CTA Expo April 21 – Mallon P.C. sponsors the CTA Expo which was established in 2008 to help professional capital raisers and allocators identify futures trading talent and to promote investing in managed futures. It is a one day conference consisting of speakers and panels combined with a schedule of thirty minute presentations by individual CTAs.  The New York event will take place on April 21, 2010 at the CME Group Building.  For more information, please see the CTA Expo website.

****

For assistance with any compliance, registration, or planning issues on any of the above topics, please contact Bart Mallon of Cole-Frieman & Mallon LLP (www.colefrieman.com) at 415-868-5345 or [email protected]

Cole-Frieman & Mallon LLP is a law firm with a national client base and is focused on the investment management industry.  Our clients include hedge fund managers, investment advisers, commodity advisors, and other investment managers.  We also provide general business and start-up legal advice and have an emerging practice in real estate and cleantech.

Cole-Frieman & Mallon LLP
150 Spear Street, Suite 825
San Francisco, CA 94105
Telephone: (415) 352-2300
Fax: (646) 619-4800