Hedge and Private Equity Funds

The Chief of the SEC’s Enforcement Division’s Asset Management Unit, recently, indicated that the SEC Staff is now looking at identifying hedge and private equity fund RIAs, who may have higher risk issues like previous fraud allegations.  See http://www.sec.gov/news/speech/2012/spch121812bk.htm

In particular, the SEC is looking at when RIA managers delay fund liquidation to continue to receive

The SEC announced that it will most likely look at four main areas when examining newly registered hedge fund advisers.

Those areas are marketing and advertising, portfolio management, conflicts of interest, and client asset safety.  This approach will be followed as a result of certain risk assessments made by the SEC Staff.  Essentially, the SEC Staff does

The SEC’s Division of Investment Management has publicly stated that it will review the regulations relating to the Investment Advisers Act of 1940 given the large influx of new RIAs as a consequence of the registration of hedge and private equity fund managers.

These new RIAs, now, account for roughly 40% of all RIAs.  IM is looking

Recently, in a settled SEC enforcement action, a mutual fund manager allegedly used an option strategy, but the SEC believed it was more speculative than hedging.  See http://www.sec.gov/litigation/admin/2012/33-9377.pdf.

The SEC focused on the fact that the prospectus only permitted options for hedging, instead, the SEC claimed option trading was used to speculate.  The SEC

Despite past false starts and losses, the SEC has announced that it will continue to bring actions against individuals and control persons.

Many believe that such a focus by the SEC will lead to more litigation.  Further, an individual’s ability to defend these actions has been severely limited since the passage of the Dodd-Frank Act.  The

As many know, the Dodd-Frank Act confirmed the SEC’s power to seek and/or impose certain penalties and remedies.  A recent case against a hedge fund manager, In the Matter of John W. Lawton, illustrates just how far the SEC is willing to go.

The manager was accused of fraud.  After a hearing, the SEC

The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a release directed to newly registered investment advisers (“RIAs”).  The release was a “hello” to these RIAs to make them aware of the National Exam Program (“NEP”) and explain the Presence Exams Initiative (“PEI”).  An RIA is “newly registered” if it registered with the SEC

The SEC’s Division of Investment Management has announced that nearly 4,000 investment advisors have registered with the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 

In fact, with the switch to state registration, Investment Management estimates that there will be over 10,000 RIAs with approximately $8.6 trillion in assets under management.  These RIAs

In recent days, industry and investor advocates have been fighting over the general solicitation and advertising exemptions in private placements that went into effect with the JOBS Act.

Further, these advocates are also discussing the definition of the accredited investor standard.  Investor groups are looking to tighten these standards while industry advocates are seeking flexibility. 

In an interesting no-action letter, the SEC Staff stated it would not recommend enforcement action if a company did not register as an investment adviser where the company provided investment advisory services solely to its parent company and subsidiaries.  See Allianz of America, Inc., dated May 25, 2012, at http://www.sec.gov/divisions/investment/noaction/2012/allianzamerica052512-203a.htm.

The SEC Staff found