Investment Management

Archive for January 2012

Posted on Tuesday, January 31 2012 at 9:00 am by

FINRA’s IARD System Will Be Available on Some Saturdays to Help Accommodate Investment Advisers who Have Waited Until the Last Minute to Register

In addition to being available from 7:00 a.m. to 11:00 p.m. ET Monday through Friday, the IARD system will also be available on Saturday, February 4, 2012, and Saturday, February 11, 2012 between 8:00 a.m. and 6:00 p.m. ET.

The IARD System Availability is available here.

Posted on Friday, January 27 2012 at 9:00 am by

SEC Adopts Revised Net Worth Calculation for Accredited Investor Status

On December 21, 2011, the SEC amended several rules, including those under the private offering safe harbor of Regulation D (the “Rule Amendments”), to conform the SEC’s definition of “accredited investor” to the requirements of the Dodd-Frank Act. Among other things, the Dodd-Frank Act prohibits the inclusion of the value of an individual’s primary residence as an asset when calculating an investor’s net worth to determine whether the investor is an accredited investor.

The Rule Amendments add a couple of new provisions affecting the net worth calculation used to determine whether an investor’s net worth exceeds $1,000,000 for purposes of accredited investor status. The first provision provides that “indebtedness secured by the investor’s primary residence, up to the estimated fair market value of the primary residence, is not treated as a liability,” unless (1) the borrowing occurs in the 60 days preceding the purchase of securities in the private offering, or (2) is not in connection with the purchase of the primary residence. This is intended to prevent investors from artificially inflating their net worth by borrowing money against their primary residence to make investments in private offerings. The second new provision provides that the new accredited investor rules do not apply to an investor who (1) acquired the right to purchase privately offered securities on or before July 20, 2010, and (2) qualified as an accredited investor under the definition in effect at the time. Accordingly, even if such investors not qualify as accredited investors under the new rules, they may continue to exercise certain pre-existing rights to acquire privately offered securities, such as a preemptive rights purchase or the making an investment related to a previous capital commitment. The SEC’s amended accredited investor rules have an effective date of February 27, 2012.

The Rule Amendments are available here.

Posted on Monday, January 23 2012 at 1:00 pm by

SEC Releases Guidance Regarding the Registration Requirements of Certain Entities that are Related to Registered Investment Advisers

On January 18, 2012, the SEC issued a No-Action letter to the American Bar Association, Business Law Section (the “ABA Letter”) that, among other things, provided guidance on the investment adviser registration requirements applicable to commonly-used entities that are closely related affiliates of investment advisers. These entities include (1) general partners of private funds that are advised by a separate registered adviser (“Fund GPs”), and (2) entities that are controlled by, or under common control with, a registered adviser but operate as separate businesses (e.g., a wholly-owned subsidiary of a registered adviser that provides a particular type of investment advice separate from the parent adviser) (“Relying Advisers”).

In the ABA Letter, the SEC confirmed its previous guidance that Fund GPs established by a registered adviser are not required to separately register if they satisfy certain requirements. These requirements are generally designed to ensure that any investment advice given by the Fund GP is subject to the Advisers Act and supervised by the registered adviser. In this regard, many registered investment advisers structure their private funds using an advisory agreement between the Fund GP, the fund and the registered adviser that designates the adviser to manage the private fund’s assets, and monitor and keep books and records regarding any investment advice given by the Fund GP as if it is given through the registered adviser and subject to the Advisers Act.

Similarly, the ABA Letter provides relief to Relying Advisers controlled by or under common control of a registered adviser that provide investment advice subject to the registered adviser’s oversight, monitoring and maintaining books and records as if the investment advice was provided by the registered adviser.

The ABA Letter is available here.

Posted on Tuesday, January 10 2012 at 12:23 pm by

SEC Releases Social Media Guidance for Investment Advisers

After years of avoiding the topic, on January 4, 2012, the SEC’s Office of Compliance Inspections and Examinations issued a “National Examination Risk Alert” regarding “Investment Adviser Use of Social Media” (the “Alert”). Although the Staff explicitly states that the Alert is not a comprehensive summary of all compliance matters related to the use of social media, the Alert provides investment advisers with helpful guidance regarding the use of blogs and websites, including LinkedIn and Facebook.

Of note, the Alert provides a warning regarding third-party content posted on an adviser’s social media web page. In particular, the Staff states that “depending on the facts and circumstances, the use of ‘social plug-ins’ such as the ‘like’ button could be a testimonial,” which is prohibited under the Advisers Act. In addition, the Alert highlights the need for investment advisory firms to develop effective compliance programs that specifically apply to the use of social media by the firm and its employees. The Alert provides guidance on the issues that investment advisers should consider when drafting and implementing such policies. Finally, the Alert discusses the recordkeeping requirements associated with an investment adviser’s use of social media, which should be carefully considered because of the challenges of preserving postings in the fast-moving world of social media.

The Alert, which is only seven pages, is available here.