One of the first questions that new private fund advisers often ask me is whether they will need to “register” with the SEC. They are often thinking in terms of registration as an investment adviser. However, even if a fund adviser is exempt from registration as an investment adviser with the SEC, he or she also needs to understand the impact of other federal securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940, as well as the impact of state securities laws, including state investment adviser registration requirements. I often hear new fund advisers say that they intend to rely on a particular exemption from one law and assume this exemption applies across the board to all securities laws. This post will explore the different statutes and regulations that govern private fund advisers and the registration exemptions which are usually relied upon.[Read more…]
Recently, there has been a lot of buzz involving so-called “Initial Coin Offerings” (ICOs), which are crowdfunded offerings powered by distributed ledger technology (a.k.a. “the blockchain”), which is also the technology behind cryptocurrencies, such as Bitcoin. Instead of selling equity, companies that use ICOs sell digital “tokens” to investors. These tokens entitle the holders to certain rights, such as the right to a portion of the future cashflow of the company or voting rights. Unlike a traditional legal contract, the rights of token holders are not enforced through courts but rather through software code (also called “smart contracts”). Although the ICO concept has gained traction very quickly and allowed various companies to raise over a billion dollars’ worth of digital currency directly from investors, many have suspected that ICOs, like their IPO counterparts, involve the issuance of securities; however, until recently, the Securities and Exchange Commission (SEC) had not yet weighed in.
On July 25, 2017, the SEC, in order to “caution the industry and market participants,” released an investor bulletin highlighting the risks of an ICO for investors and publicized an in-depth investigative report on a recent ICO that the SEC determined involved a sale of securities. [Read more…]
In October, the SEC finally completed its implementing regulations to Title III of the JOBS Act, more commonly known as the “crowdfunding” exemption. The 600-page release can be found here. I’m not going to bother summarizing these regulations, as so many others have done a very good job doing of that already. So, as I previously did with the proposed regulations, I’ll instead offer some of my thoughts on and reactions to the final rules: [Read more…]
On May 20, 2015, the SEC issued proposed amendments to Form ADV and the Investment Advisers Act rules. In the release, the SEC proposed amendments to Form ADV that would require advisers to disclose additional information, such as information about separately managed account business, and allow private fund adviser entities operating a single advisory business to file one Form ADV. The release also contains proposed amendments to the Advisers Act books and records rule. [Read more…]
Back in March, I wrote about proposed revisions to Regulation A, commonly known as “Regulation A+”, which were designed to implement Section 401 of the Jumpstart Our Business Startups Act (JOBS Act). Since then, the SEC issued its final rule, which went into effect earlier in the month. Back in March, I had two main thoughts regarding the proposed rule. First, by proposing that Regulation A+ offerings preempt state registration requirements, the SEC had proposed a securities exemption that may actually prove useful and had a chance to be used in the real world (as opposed to the old Regulation A, which was rarely used). While this aspect of the proposed rule would be attractive to companies raising capital, it would also be controversial with state regulators and investor advocates, so I was concerned that in the final rule preemption of state laws would be rolled back. Second, I was concerned that companies that used Regulation A+ would likely be subject to ongoing Securities Exchange Act reporting (as a fully public company would be), which would reduce the attractiveness of the exemption. [Read more…]