Publications
New Form ADV: The Impact on Private Fund Advisers
The Hedge Fund Journal
September 2016
On Aug. 25, 2016, the U.S. Securities and Exchange Commission adopted a final rule that amends Form ADV — the filing that investment advisers registered with the SEC use to apply for and maintain their registration and that exempt reporting advisers utilize to claim and maintain their registration exemption. The SEC also amended its books and records rule to require more documentation with respect to performance reporting records. While these amendments will go into technical effect in this calendar year, the SEC has delayed the substantive effectiveness of the amended ADV and the new books and records requirements until October 2017. This means that many advisers will not implement these new requirements until their first quarter 2018 annual updating amendment. In this article, partner Marc Elovitz and associate Christopher Avellaneda and former Schulte lawyers Brian Daly and Brad Caswell discuss the effects of the SEC's adoption of a final Form ADV amendment on private fund advisers.
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Alerts
On March 1, 2024, Judge Liles C. Burke of the US District Court for the Northern District of Alabama found the Corporate Transparency Act (“CTA”) unconstitutional. The CTA, which was enacted on Jan. 1, 2021, requires certain legal entities (known as “Reporting Companies”) to file beneficial ownership information reports (“BOI Reports”) with the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).[1] Judge Burke’s 53-page opinion concluded that “the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”[2] Judge Burke also issued a final judgment permanently enjoining the US Government from enforcing the CTA against the two plaintiffs —the National Small Business Association, a non-profit trade group that represents more than 65,000 member companies, and one of its members.[3]
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On Feb. 15, 2024, the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) proposed its long-anticipated rule, which will subject certain investment advisers to significant anti-money laundering and counter-terrorist financing-related compliance obligations (“Proposed Rule”). Specifically, the Proposed Rule requires certain investment advisers to (i) establish and implement anti-money laundering and countering the financing of terrorism (“AML/CFT”) programs, (ii) file suspicious activity reports (“SARs”) with FinCEN, and (iii) fulfill recordkeeping, information sharing, investor due diligence and other AML/CFT-related obligations mandated by the Bank Secrecy Act (“BSA”).[1] The Proposed Rule applies to investment advisers registered with the Securities and Exchange Commission (“SEC”), also known as registered investment advisers (“RIAs”) and exempt reporting advisers (“ERAs”) (collectively, “Covered Advisers”). The public comment period will remain open until April 15, 2024.
Alerts
On Jan. 10, 2024, the US Department of Labor (“DOL”) published its final rule on employee or independent contractor classification under the Fair Labor Standards Act (“FLSA”) for purposes of minimum wage and overtime. The final rule became effective March 11, 2024.
Alerts
On Feb. 6, the Staff of the US Securities and Exchange Commission’s Division of Investment Management (“Staff”) issued an updated FAQ (“FAQ”) with respect to Investment Advisers Act Rule 206(4)-1 (“Marketing Rule”), excerpted below,[1] addressing the presentation of gross and net internal rates of return (“IRRs”) when the fund uses subscription lines to fund investments. Although the Staff, for quite some time, has focused during examinations on the methodology used to calculate gross and net IRRs when subscription lines are used to fund investments, the amended Marketing Rule that went into effect in November 2022[2] specifically requires that gross and net performance be calculated and presented using the same methodology and over the same period of time. In the FAQ, the Staff expressed its view that certain historical performance reporting practices are no longer permitted under the Marketing Rule, even with clear disclosure regarding the differences in methodologies utilized to calculate the net and gross performance shown.
Alerts
On March 1, 2024, Judge Liles C. Burke of the US District Court for the Northern District of Alabama found the Corporate Transparency Act (“CTA”) unconstitutional. The CTA, which was enacted on Jan. 1, 2021, requires certain legal entities (known as “Reporting Companies”) to file beneficial ownership information reports (“BOI Reports”) with the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).[1] Judge Burke’s 53-page opinion concluded that “the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”[2] Judge Burke also issued a final judgment permanently enjoining the US Government from enforcing the CTA against the two plaintiffs —the National Small Business Association, a non-profit trade group that represents more than 65,000 member companies, and one of its members.[3]
Alerts
On Feb. 15, 2024, the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) proposed its long-anticipated rule, which will subject certain investment advisers to significant anti-money laundering and counter-terrorist financing-related compliance obligations (“Proposed Rule”). Specifically, the Proposed Rule requires certain investment advisers to (i) establish and implement anti-money laundering and countering the financing of terrorism (“AML/CFT”) programs, (ii) file suspicious activity reports (“SARs”) with FinCEN, and (iii) fulfill recordkeeping, information sharing, investor due diligence and other AML/CFT-related obligations mandated by the Bank Secrecy Act (“BSA”).[1] The Proposed Rule applies to investment advisers registered with the Securities and Exchange Commission (“SEC”), also known as registered investment advisers (“RIAs”) and exempt reporting advisers (“ERAs”) (collectively, “Covered Advisers”). The public comment period will remain open until April 15, 2024.
Alerts
On Jan. 10, 2024, the US Department of Labor (“DOL”) published its final rule on employee or independent contractor classification under the Fair Labor Standards Act (“FLSA”) for purposes of minimum wage and overtime. The final rule became effective March 11, 2024.
Alerts
On Feb. 6, the Staff of the US Securities and Exchange Commission’s Division of Investment Management (“Staff”) issued an updated FAQ (“FAQ”) with respect to Investment Advisers Act Rule 206(4)-1 (“Marketing Rule”), excerpted below,[1] addressing the presentation of gross and net internal rates of return (“IRRs”) when the fund uses subscription lines to fund investments. Although the Staff, for quite some time, has focused during examinations on the methodology used to calculate gross and net IRRs when subscription lines are used to fund investments, the amended Marketing Rule that went into effect in November 2022[2] specifically requires that gross and net performance be calculated and presented using the same methodology and over the same period of time. In the FAQ, the Staff expressed its view that certain historical performance reporting practices are no longer permitted under the Marketing Rule, even with clear disclosure regarding the differences in methodologies utilized to calculate the net and gross performance shown.
Alerts
On March 1, 2024, Judge Liles C. Burke of the US District Court for the Northern District of Alabama found the Corporate Transparency Act (“CTA”) unconstitutional. The CTA, which was enacted on Jan. 1, 2021, requires certain legal entities (known as “Reporting Companies”) to file beneficial ownership information reports (“BOI Reports”) with the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).[1] Judge Burke’s 53-page opinion concluded that “the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”[2] Judge Burke also issued a final judgment permanently enjoining the US Government from enforcing the CTA against the two plaintiffs —the National Small Business Association, a non-profit trade group that represents more than 65,000 member companies, and one of its members.[3]