Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

Category Archives: Investment Companies and Investment Advisers

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SEC Issues Risk Alert in Response to WannaCry Ransomware Attack

Posted in Broker-Dealer, Investment Advisers, Investment Companies and Investment Advisers
On May 17, the Securities and Exchange Commission Office of Compliance Inspections and Examinations (OCIE), issued a Risk Alert in response to the widespread ransomware attack known as WannaCry, WCry, or Wanna Decryptor that started on May 12. The attack infected computers and servers of various organizations in more than 100 countries. The Risk Alert… Continue Reading

SEC Increases Dollar Amount of the Net Worth Threshold Test for ‘Qualified Clients’ in Rule 205-3 Under the Investment Advisers Act of 1940

Posted in Investment Companies and Investment Advisers, Private Investment Funds
Section 205 under the Investment Advisers Act of 1940 generally prohibits a federally registered investment adviser (RIA) from receiving compensation based on a share of the capital gains on or appreciation of the assets of an advisory client (i.e., performance fees). Rule 205-3 under the Advisers Act provides an exemption from this prohibition for clients… Continue Reading

SEC Settles With Adviser That Allegedly Overcharged Management Fees and Misled Investors

Posted in Investment Companies and Investment Advisers, SEC/Corporate
On January 19, the Securities and Exchange Commission announced that it had settled with Equinox Fund Management LLC (Equinox). The SEC order found that Equinox, with respect to its managed futures fund (the Fund), had overcharged management fees to investors and failed to follow its valuation methods as disclosed to investors.… Continue Reading

SEC 2016 Examination Priorities Focus on ETFs, Cybersecurity and Liquidity Controls for Fixed-Income Funds

Posted in Investment Companies and Investment Advisers
On January 11, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) released its 2016 examination priorities for investment companies, investment advisers, broker-dealers and transfer agents. The examination priorities highlight new and continuing areas of interest.… Continue Reading

Federal Highway Bill Eliminates Annual Privacy Notice Requirement for Financial Institutions

Posted in Investment Companies and Investment Advisers, SEC/Corporate
On December 4, President Obama signed the “Fixing America’s Surface Transportation Act’’ or the ‘‘FAST Act.” In addition to providing for highway and transportation spending, section 750001 of the FAST Act amended Section 503 of the Gramm-Leach-Bliley Act (GLBA) by eliminating under certain circumstances the GLBA requirement that financial institutions provide annual privacy notices (new… Continue Reading

SEC Proposes Liquidity Management Rules for Mutual Funds and ETFs

Posted in Investment Companies and Investment Advisers
On September 22, the Securities and Exchange Commission proposed a comprehensive package of rule reforms designed to enhance effective liquidity risk management by open-end funds, including mutual funds and exchange-traded funds (ETFs). Under the proposal, mutual funds and ETFs would be required to implement liquidity risk management programs and enhance disclosure regarding fund liquidity and… Continue Reading

IRS Addresses RIC Asset Diversification Requirements

Posted in Investment Companies and Investment Advisers
On September 14, the Internal Revenue Service (IRS) issued final regulations under Internal Revenue Code Section 851 clarifying that control groups under the regulated investment company (RIC) rules may consist of two entities (i.e., the RIC and one subsidiary), rather than two levels of entities, settling a decades-long debate. The IRS also issued Rev. Proc.… Continue Reading

US Reporter Deadlines for Bureau of Economic Analysis BE-180 Report

Posted in Broker-Dealer, Investment Companies and Investment Advisers, SEC/Corporate
Every five years, the US Commerce Department’s Bureau of Economic Analysis (BEA) conducts a survey concerning financial services transactions between US “Financial Services Providers” (defined below) and entities domiciled or incorporated outside the United States (Foreign Persons). Each US entity that (1) is a Financial Services Provider; and (2) either was contacted by the BEA… Continue Reading

SEC Enforcement Action Signifies the Need for Investment Advisers to Adopt Written Expense Allocation Policies

Posted in Investment Companies and Investment Advisers, Private Investment Funds
On June 29, the Securities and Exchange Commission charged Kohlberg Kravis Roberts & Co. (KKR) with violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, as amended, and Rule 206(4)-7 thereunder for the misallocation of broken deal expenses. The charge addressed KKR’s failure to disclose in its flagship funds’ offering materials… Continue Reading

SEC Division of Investment Management Issues Guidance Update Relating to Rule 204A-1 of the Investment Advisers Act

Posted in Investment Companies and Investment Advisers
In June, the Securities and Exchange Commission’s Division of Investment Management issued a Guidance Update relating to Rule 204A-1 under the Investment Advisers Act of 1940. Rule 204A-1 provides that a registered investment adviser must establish, maintain and enforce a written code of ethics that requires, among other things, its directors, officers and supervised persons who… Continue Reading

Effective Date of Investment Adviser Pay-to-Play Rule Ban on Third-Party Solicitation

Posted in Investment Companies and Investment Advisers
The Securities and Exchange Commission’s Rule 206(4)-5 (Pay-to-Play Rule) under the Investment Advisers Act of 1940, as amended, prohibits, among other restrictions, an investment adviser subject to the rule, and its covered associates, from providing or agreeing to provide, directly or indirectly, payment to any third party for a solicitation of advisory business from any… Continue Reading

SEC 2015 Examination Priorities Focus on Liquid Alternatives and Fixed-Income Funds

Posted in Investment Companies and Investment Advisers
On January 13, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) released its 2015 examination priorities for investment companies, investment advisers, broker-dealers and transfer agents. The examination priorities highlight new and continuing areas of interest, including, but not limited to, liquid alternatives, fixed‑income funds and retirement investing by retail investors.… Continue Reading

SEC Approves New Exchange Traded Mutual Fund Structure

Posted in Investment Companies and Investment Advisers
The Securities and Exchange Commission has noticed Eaton Vance Corp.’s exemptive order application (Eaton Vance Notice) to offer a novel form of mutual fund that includes certain elements of an exchange-traded fund (ETF) to be called an “exchange traded mutual fund” or “ETMF.” Like all mutual funds, ETMFs will not publish daily disclosures of their… Continue Reading

SEC Investment Management Director Speech Focuses on Alternative Mutual Fund Disclosures

Posted in Investment Companies and Investment Advisers
On October 29, Norm Champ, the director of the Securities and Exchange Commission’s Division of Investment Management, spoke before the SIFMA Complex Products Forum in New York. In the speech, Mr. Champ discussed SEC staff concerns regarding the adequacy and accuracy of alternative mutual fund disclosures to investors. The speech was the third since June… Continue Reading

SEC Denies Two Proposed Applications for Non-Transparent Active ETFs

Posted in Investment Companies and Investment Advisers
The Division of Investment Management (Division) of the Securities and Exchange Commission took an unprecedented action on Wednesday in issuing a preliminary denial to two exemptive relief applications under the Investment Company Act of 1940 for the operation of a non-transparent active exchange-traded fund (ETF). The exemptive relief applications, filed by Precidian Investments (Precidian) for… Continue Reading

SEC Issues Guidance on Proxy Voting

Posted in Investment Companies and Investment Advisers
The Security and Exchange Commission’s Divisions of Investment Management and Corporation Finance issued Staff Legal Bulletin No. 20 (IM/CF) on June 30 (SLB 20). SLB 20 provides guidance regarding proxy voting responsibilities of investment advisers and proxy advisory firms’ exemptions from proxy rules. Rule 206(4)-6 under the Advisers Act requires advisers to have written proxy… Continue Reading

SEC Releases Guidance on Affiliated Transactions of Series Investment Companies

Posted in Investment Companies and Investment Advisers
On June 6, the Securities and Exchange Commission’s Division of Investment Management released a Guidance Update clarifying that separate series of a series investment company are each considered an individual company for the purposes of determining whether such series have entered into affiliated transactions. A mutual fund typically operates as a “series company,” in which… Continue Reading

SEC Issues Guidance on Aggregate Advisory Fee Rates for Multi-Manager Funds

Posted in Investment Companies and Investment Advisers
In February 2014, the Securities and Exchange Commission’s Division of Investment Management released a Guidance Update to clarify when a mutual fund using a “multi-manager structure” must obtain shareholder approval for primary and subadvisory advisory fee rates (aggregate advisory rates) paid by the fund. A multi-manager structure is one in which a primary investment adviser… Continue Reading

SEC to Examine Never-Before Examined Registered Investment Advisers

Posted in Investment Companies and Investment Advisers
The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) announced that it is launching an initiative, as part of its existing National Exam Program, to examine investment advisers who have never-before been examined and who have been registered for three or more years (the Target Firms). The SEC press release on this… Continue Reading

SEC Issues Risk Alert on Investment Advisers’ Due Diligence Processes for Selecting Alternative Investments

Posted in Investment Companies and Investment Advisers
The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) issued a risk alert on January 28 regarding the due diligence practices of investment advisers when they recommend or place clients’ assets in alternative investments, including private funds such as hedge funds, private equity funds, venture capital funds, real estate funds and funds… Continue Reading

Government Publishes Study of Systemic Risks in Asset Management

Posted in Dodd-Frank Developments, Investment Companies and Investment Advisers
On September 30, the US Treasury’s Office of Financial Research published a study (Study) commissioned by the Financial Stability Oversight Council (FSOC) that explores possible ways in which asset management firms and their activities might pose, amplify or transmit threats to financial stability. The Study, which is entitled “Asset Management and Financial Stability”, is the first… Continue Reading