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SEC Charges Private Equity Fund Manager with Misallocation of Expenses

In the presence exam initiative, the Securities and Exchange Commission identified conflicts of interest as a high risk area. Included in that high risk area is the allocation of fees and expenses. The SEC just brought charges against a private equity fund manager for the improper allocation of fees and expenses. The SEC charged Scott […]

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More Guidance on Knowledgeable Employee Exemption for Private Funds

A new no-action letter from the SEC’s Division of Investment Management should allow more employees of a fund manager to invest in their firm’s private funds under the Investment Company Act. Even better for the compliance department, compliance staff could fit the expanded definition of a “knowledgeable employee.” When operating under the Section 3(c)(7) exemption […]

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Publicly Traded Partnerships and a Qualified Matching Service

If a fund has frequent transfers by its limited partners, it risks being classified as a publicly traded partnership. That’s a bad result because the fund then becomes taxable as a corporation, subject to a qualifying income test. You might be surprised how low the threshold is for being treated as a publicly traded partnership. […]

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compliance and licensing

Are Your Private Fund Employees Licensed?

I think many real estate fund managers and private equity fund managers may be concerned that there are some additional licensing requirements now that they are registered with the Securities and Exchange Commission as an investment adviser. If you didn’t require licensing with your current business model before Dodd-Frank you likely don’t require licensing post-Dodd […]

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Private Equity Funds in the Hot Seat

Debevoise & Plimpton LLP put on an excellent seminar focused on enforcement actions against private equity funds. Moderator: Kenneth J. Berman Speakers: Eric R. Dinallo Robert B. Kaplan Shannon Rose Selden Each fund manager is designated with a risk rating by the Securities and Exchange Commission. The Form ADV filing gives the SEC the background […]

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Don’t Secretly Change Your Fund Structure

New Stream Capital took the unusual step or restructuring its fund structure in secret. The restructuring put its biggest investor into a preferred position, to the disadvantage of its other investors. At least according to the complaint filed by the Securities and Exchange Commission. The SEC alleges that New Stream’s co-owners David Bryson and Bart […]

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California Redefines “Private Fund”

I’ve spent a great deal of brain power on the definition of “private fund” under the Investment Advisers Act. California has added its own twist on the definition. It’s a twist that is very important to real estate fund managers. Working through the definition of “private fund” requires wading through the Investment Company Act. Congress […]

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Preliminary Results of Dodd-Frank Act Changes to Investment Adviser Registration Requirements

The Securities and Exchange Commission has released some statistics on the effect of Dodd-Frank on the registration of investment advisers (.pdf). March 30, 2012 was the compliance date for several provisions of the Dodd-Frank Act that amended the registration provisions of the Investment Advisers Act. Registered private fund advisers advise 30,617 private funds with total […]

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Dawn of the Zombie Funds

The Securities and Exchange Commission has a shotgun in its hand and is looking for zombies. “We are going to take a close look at that and see whether or not there’s a problem,” said Robert Khuzami, the SEC’s enforcement director. Khuzami is the one pointing the shotgun. Many private investment funds either prevent redemptions […]

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Comments on Advertising Restrictions for Private Funds

Section 201 of the recently passed Jumpstart Our Business Startups Act will change the advertising limits on private funds and any other company that raises capital through the private placement safe harbor in Rule 506 of Regulation D. That rule has historically prevented the use of general solicitation and advertising in selling private fund interests. […]

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