SEC Enforcement Division’s Asset Management Unit’s Chief Anticipates Increase in Private Equity Enforcement

Bruce Karpati, the Chief of the SEC Enforcement Division’s Asset Management Unit, held a Q&A session entitled “Private Equity Enforcement Concerns” at the Private Equity International Conference held in New York on January 23, 2013. He addressed private equity firm activities of concern, how the SEC is tracking those activities, and ways firms can avoid getting into trouble. [Read more…]

SEC Enforcement Division’s Asset Management Unit Chief Reveals New Priorities in Regulation of Private Funds

Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit, gave a speech entitled “Enforcement Priorities in the Alternative Space” on December 18, 2012. The recently established 75-member Asset Management Unit (AMU) is dedicated to investigating investment advisers, investment companies, hedge funds, mutual funds, and private equity funds making up the “alternative space” referred to in the speech’s title. Karpati addressed current enforcement priorities, touching upon, among other topics, the AMU’s enhanced expertise, investor risks, and how the hedge fund operating model incentivizes misconduct. As outlined in Karpati’s speech, the AMU’s current priorities indicate that, while traditionally hedge funds and private equity funds were lightly regulated, this will likely no longer be the case. [Read more…]

Maryland Securities Commissioner Issues New Order Adopting a Private Fund Exemption Based on Model NASAA Rule

On June 15, 2012, the Maryland Securities Commissioner issued an order adopting the NASAA model rule exemption for investment advisers to private funds.

Like the model rule, the new order issued by the Maryland Securities Commissioner, provides for an exemption from registration for “private fund advisers”, which is any investment adviser who provides advice solely to one or more private funds (i.e. a 3(c)(1) fund or a 3(c)(7) fund).   A private fund adviser must not be subject to disqualification from prior bad acts such as fraud or other securities law violations.  The private fund adviser must also make the same Form ADV filings as an exempt reporting adviser would. [Read more…]

Missouri Commissioner of Securities Proposes New Private Fund Exemption Based on Model NASAA Rule

On April 26, 2012, the Missouri Commissioner of Securities proposed revised regulations exempting certain private fund managers from investment adviser registration with the State of Missouri.

Background

Prior to the repeal of the federal 15-client exemption, Missouri had an exemption for fund managers who were exempt under the old federal 15-client exemption and who managed investments solely for private funds with at least $5 million under management.  After the repeal of the federal 15-client exemption, fund managers have relied on a No-Action Determination by the Missouri Commissioner of Securities dated July 20, 2011, which allowed private fund managers in Missouri to continue to rely on Missouri’s old exemption, until the earlier of June 28, 2012 or the promulgation of a new exemption, notwithstanding the repeal of the federal 15-client exemption.  Now, it appears that the Missouri Commissioner of Securities is ready to adopt that new exemption. [Read more…]

The SEC Increases the Net Worth Requirement of the Definition of “Qualified Client” Impacting Both Registered and Some Unregistered Private Fund Managers

Private fund managers who are registered with the SEC are required to follow federal regulations on performance compensation.  Generally, if a registered fund manager desires to collect fees based on fund performance (such at the typical 20% carried interest), then each investor in the fund must be a “qualified client.”  Prior to the passage of the Dodd-Frank Act, a qualified client was defined as either (i) an individual or company that immediately after investing into the fund has at least $ 750,000 under the management of the fund manager or (ii) an individual or company that has a new worth of $1.5 Million or more or qualifies as a “qualified purchaser.”[1]  The Dodd-Frank Act required that the SEC update these two thresholds for inflation, which it did, effective September 19, 2011.  It updated the thresholds to $1 Million and $2 Million respectively. [Read more…]