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The SEC’s Division of Investment Management has posted Coronavirus (COVID-19) Response FAQs (the “FAQs”), which have been updated through April 14, 2020. The FAQs summarize and provide links to various forms of relief granted by the SEC and the Division to registered investment companies and investment advisers. A list of the questions addressed is provided below.…

On June 5, 2019, the U.S. Securities and Exchange Commission (“SEC”) adopted a package of rules and interpretations relating to the standards of conduct for broker-dealers and investment advisers, including a new “best interest” rule for broker-dealers. The package was adopted by a 3-1 vote, with Commissioner Robert J. Jackson Jr. as the lone dissenter. Chairman Jay Clayton, who supported the package, stated that the SEC was not adopting a uniform fiduciary rule for broker-dealers and investment advisers. Instead, Chairman Clayton explained that “Regulation Best Interest incorporates fiduciary principles, but is appropriately tailored to the broker-dealer relationship model and will preserve retail investor access and choice.” Chairman Clayton, as well as the SEC’s press release, emphasized that Regulation Best Interest cannot be satisfied by disclosure alone, but rather through compliance with each of the rule’s four substantive obligations.

The actions taken on June 5 include the following:

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My first post discussed the SEC’s Office of Compliance Inspections and Examination’s (“OCIE’s”) recent Risk Alert (the “Alert”) and specific fund categories in its crosshairs. This post will cover the three remaining fund categories and general examination issues identified by OCIE in the Alert.
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Late last fall, Congress faced a serious crisis in trying to pass a comprehensive transportation bill, designated as the Fixing America’s Surface Transportation (FAST) Act.  Amendments to various Federal securities and banking laws were added to the FAST Act during the reconciliation process. These amendments had not been the subjects of serious hearings in either house of Congress and were such narrow, rifle-shot changes as to deserve to be considered special pleading. Some commentary has already been published regarding amendments to  the Securities Act of 1933, which included codification in Section 4(a)(7) of what had been previously referred to as the Section 4(1½) exemption: a long-standing interpretation permitting the resale of unregistered securities to sophisticated investors without causing the seller to be an underwriter. Certain Silicon Valley investors apparently considered Section 4(1½) too delimiting, leading to the statutory changes that should facilitate greater liquidity for those investors, hopefully making it easier for early state start-ups to raise additional capital.

The FAST Act also amended two provisions of the Investment Advisers Act of 1940 (“Advisers Act”).  Readers will recall that the Dodd-Frank Act included exemptions from SEC registration for venture capital advisers, family offices and certain hedge fund advisers. The SEC promptly adopted regulations to implement these exemptions. Section 203(l) exempts investment advisers whose only clients were one or more “venture capital funds” as defined in Rule 203(l)-1. Rule 203(m)-1 exempts investment advisers solely to private funds that had assets under management in the United States of less than $150 million.…

As of January 1, 2016, a person defined as a “finder” will become exempt from the broker-dealer provisions of the California Securities Law of 1968, as amended. Under that law, the Commissioner of Business Oversight regulates the activities of broker-dealers. Assembly Bill No. 667, Section 25206.1 will exempt a “finder” from registration with the Commissioner as a broker-dealer.…

The Family Office Rule states that a family office cannot have any clients other than family clients. The term “family client” is defined in paragraph (d)(4) of the Family Office Rule to include any family member, any key employee, certain non-profit organizations, certain irrevocable and revocable trusts, and certain wholly-owned companies, all as set forth in subparagraphs (i), (iii), (v), and (vii) – (xi) of that paragraph. It was intended that a person who was a “family client” would never cease to be a client of the family office except under unusual circumstances. To that end, there are exceptions in subparagraphs (ii), (iv), and (vi) of that paragraph for former family members, for former key employees, and for the estates of family members, former family members, and former key employees.…

My initial post examined the risk of miscalculating regulatory assets under management (“RAUM”) for purposes of registering with the SEC as an investment adviser. This post shows that the SEC is highly motivated to bring reasonably punitive enforcement proceedings against investment advisers that “voluntarily” register with the SEC instead of with the appropriate state.…

I intend to share musings on fiduciary matters from time-to-time on our blog. Not regarding deep and complex matters such as the current DOL proposal or the SEC’s forthcoming uniform fiduciary standard. My fiduciary questions are more fundamental, and sometimes lead me to despair of formulating sensible views of such proposals. I suspect I am not alone in struggling to develop a framework for understanding fiduciary regulation, so I’m sharing my struggles.…