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As many of you know the SEC is adopting new rules and regulations for investment advisers at a fairly rapid pace. I thought you might want a brief synopsis of some of the new rules. They can be found below along with links to the final rules. Please feel free to contact us with any questions.
1. Discussion of the SEC's Large Trader Release: On July 26, 2011, the SEC adopted a new rule establishing large trader reporting requirements to enhance the agency’s ability to identify large market participants, collect information on their trading, and analyze their trading activity. A “large trader” will be defined as a person whose transactions in exchange-listed securities equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month. The Rule requires large traders to register with the Commission through a new form, Form 13H whereby the SEC will assign the trader a unique identification number. The Rule also imposes record keeping, reporting, and limited monitoring requirements on certain registered broker-dealers through whom large traders execute their transactions.
http://sec.gov/rules/final/2011/34-64976.pdf
2. Family Office Rule: The SEC recently adopted new Rule 202(a)(11)(G)-1 under the Investment Advisers Act to define the term "Family Office." Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, entities meeting the new definition of "Family Office" will be excluded from the term "investment adviser" under the Investment Advisers Act and, thus, will not be subject to SEC registration and regulation as investment advisers. This update examines the new "Family Office Rule."
http://sec.gov/rules/final/2011/ia-3220.pdf
3. New ADV Part I: The SEC is adopting new rules and rule amendments under the Investment Advisers Act of 1940 to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules and rule amendments are designed to give effect to provisions of the Title IV of the Dodd-Frank Act that, among other things, increase the statutory threshold for registration by investment advisers with the Commission, require advisers to hedge funds and other private funds to register with the Commission, and require reporting by certain investment advisers that are exempt from registration.
http://sec.gov/rules/final/2011/ia-3221.pdf
Tuesday, September 13, 2011
Thursday, July 22, 2010
New Accredited Investor Rule
I received the following information to day from an associate of mine.
"Broker-dealers handling private offerings on behalf of securities issuers need to know that the calculation of an accredited investor's net worth was materially changed by Congress, effective immediately, with no transition period. A natural person may no longer include the value of his or her primary residence in the $1 million net worth test. The change was made in Section 413 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama today, July 21, 2010.
The SEC staff's position is that the exclusion of a primary residence from an investor’s net worth is effective upon enactment of the law – today. Securities issuers relying on the definition of “accredited investor” in SEC Rule 501(a)(5) of Regulation D or SEC Rule 215 under the Securities Act of 1933 should consider immediately revising their disclosure and subscription documents before proceeding with the offering. Broker-dealers handling these private distributions should re-examine subscriptions in offerings that have not yet closed to determine whether each investor still meets the accredited investor definition without counting the current fair market value of their residence.
Informally, the SEC staff has indicated their belief that the amount of any mortgage or other indebtedness secured by an investor's primary residence may be netted against the current fair market value of the residence. Indebtedness secured by the primary residence does not need to be deducted from an investor’s net worth unless the outstanding debt exceeds the value of the residence and the investor is personally liable to the lender for any deficiency. If, however, the investor's mortgage is “underwater,” then the excess liability must be deducted from the investor’s net worth.
The other provisions of the accredited investor definition, including the net income test for natural persons, remain unchanged for now. In the new law, Congress directed the SEC to review the accredited investor definition and make appropriate adjustments, though it may not raise the $1 million net worth threshold for the next four years. Further, the U.S. Comptroller General must conduct a study to assess the financial thresholds and other criteria used to qualify for accredited investor status and eligibility to invest in private funds. The report to Congress must be made within three years from today."
"Broker-dealers handling private offerings on behalf of securities issuers need to know that the calculation of an accredited investor's net worth was materially changed by Congress, effective immediately, with no transition period. A natural person may no longer include the value of his or her primary residence in the $1 million net worth test. The change was made in Section 413 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama today, July 21, 2010.
The SEC staff's position is that the exclusion of a primary residence from an investor’s net worth is effective upon enactment of the law – today. Securities issuers relying on the definition of “accredited investor” in SEC Rule 501(a)(5) of Regulation D or SEC Rule 215 under the Securities Act of 1933 should consider immediately revising their disclosure and subscription documents before proceeding with the offering. Broker-dealers handling these private distributions should re-examine subscriptions in offerings that have not yet closed to determine whether each investor still meets the accredited investor definition without counting the current fair market value of their residence.
Informally, the SEC staff has indicated their belief that the amount of any mortgage or other indebtedness secured by an investor's primary residence may be netted against the current fair market value of the residence. Indebtedness secured by the primary residence does not need to be deducted from an investor’s net worth unless the outstanding debt exceeds the value of the residence and the investor is personally liable to the lender for any deficiency. If, however, the investor's mortgage is “underwater,” then the excess liability must be deducted from the investor’s net worth.
The other provisions of the accredited investor definition, including the net income test for natural persons, remain unchanged for now. In the new law, Congress directed the SEC to review the accredited investor definition and make appropriate adjustments, though it may not raise the $1 million net worth threshold for the next four years. Further, the U.S. Comptroller General must conduct a study to assess the financial thresholds and other criteria used to qualify for accredited investor status and eligibility to invest in private funds. The report to Congress must be made within three years from today."
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