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Gerente de fundos de hedge.
O que é um 'Gestor de Fundos de Hedge'?
Um gestor de fundos de hedge é o indivíduo que supervisiona e toma decisões sobre os investimentos em um fundo de hedge. Administrar um fundo de hedge pode ser uma opção de carreira atraente devido ao seu potencial de ser extremamente lucrativo. Para ser bem sucedido, um gestor de fundos de hedge deve considerar como ter uma vantagem competitiva, uma estratégia de investimento claramente definida, capitalização adequada, um plano de marketing e vendas e uma estratégia de gerenciamento de risco.
QUEBRANDO PARA BAIXO 'Hedge Fund Manager'
Empresas de gestão de fundos de hedge são frequentemente de propriedade dos gerentes responsáveis pela carteira, o que significa que eles têm direito a uma grande quantidade de lucros que o fundo de hedge faz. Ao entrar em um fundo de hedge, os investidores financiam as taxas de administração que cobrem as despesas operacionais, bem como as taxas de desempenho que normalmente são distribuídas aos proprietários como lucro. O que diferencia os gestores de fundos de hedge de outros tipos de administração de fundos é o fato de que o valor pessoal e os fundos dos gerentes de fundos de hedge geralmente estão vinculados diretamente ao próprio fundo.
Indivíduos que desejam investir em fundos de hedge devem atender aos requisitos de renda e patrimônio líquido. Os fundos de hedge podem ser considerados de alto risco porque buscam estratégias de investimento agressivas e são menos regulamentados do que muitos outros tipos de investimentos. O gestor do fundo de hedge é responsável pelas decisões de investimento e pelas operações do fundo.
Os maiores gestores de fundos de hedge possuem algumas das posições mais bem pagas em qualquer setor, ultrapassando de longe os CEOs de grandes empresas. Alguns dos gestores de maior bilheteria ganham cerca de US $ 4 bilhões por ano. Os gestores de fundos de hedge têm o potencial de serem alguns dos executivos mais bem pagos do setor financeiro, se permanecerem competitivos e sempre saírem como vencedores. No outro extremo do espectro, alguns gerentes de fundos de hedge não chegam a fazer tanto quanto os gerentes mais bem pagos, porque se eles falharem em seus empreendimentos financeiros, eles não serão pagos.
Estratégias de fundos de hedge.
Os gestores de fundos de hedge podem usar várias estratégias para maximizar os retornos de suas empresas e clientes. Uma estratégia popular é usar algo chamado investimento macro global. A ideia é investir em conjunto com uma grande participação ou posição considerável nos mercados que estão lidando com a previsão de tendências macroeconômicas globais. Esse tipo de estratégia usada pelos gerentes de fundos de hedge lhes dá a flexibilidade necessária de que precisam, mas a estratégia depende muito de um timing excelente.
Outra estratégia popular que fez vários bilionários de gestores de fundos hedge é uma estratégia orientada a eventos. Isso significa que os gerentes estão procurando grandes oportunidades para capitalizar em um ambiente corporativo. Alguns exemplos disso incluem fusões e aquisições, falências e iniciativas de recompra de acionistas. Os gerentes que trabalham nessa estratégia estão capitalizando em qualquer inconsistência de mercado, semelhante ao uso de uma abordagem de investimento em valor. Gerentes de fundos de hedge geralmente seguem esse caminho por causa dos vastos recursos que têm por trás deles.

Fundo de Hedge.
O que é um 'Fundo de Hedge'?
Os fundos de hedge são investimentos alternativos que usam fundos comuns que empregam várias estratégias diferentes para obter retorno ativo, ou alfa, para seus investidores. Os fundos de hedge podem ser gerenciados agressivamente ou fazer uso de derivativos e alavancagem nos mercados doméstico e internacional com o objetivo de gerar retornos elevados (seja em sentido absoluto ou acima de um benchmark de mercado especificado). É importante notar que os fundos de hedge geralmente só são acessíveis a investidores credenciados, já que exigem menos regulamentos da SEC do que outros fundos. Um aspecto que destaca a indústria de hedge funds é o fato de que os fundos de hedge enfrentam menos regulamentação do que os fundos mútuos e outros veículos de investimento.
QUEBRANDO PARA BAIXO 'Hedge Fund'
Cada fundo de hedge é construído para aproveitar certas oportunidades de mercado identificáveis. Os fundos de hedge usam diferentes estratégias de investimento e, portanto, são frequentemente classificados de acordo com o estilo de investimento. Há diversidade substancial em atributos de risco e investimentos entre estilos.
Legalmente, os fundos de hedge são mais frequentemente estabelecidos como sociedades limitadas de investimento privado que estão abertas a um número limitado de investidores credenciados e exigem um grande investimento mínimo inicial. Os investimentos em fundos de hedge são ilíquidos, pois geralmente exigem que os investidores mantenham seu dinheiro no fundo por pelo menos um ano, um período conhecido como período de lock-up. Os levantamentos também podem ocorrer apenas em determinados intervalos, como trimestral ou semestralmente.
A história do fundo de hedge.
A antiga empresa do escritor e sociólogo Alfred Winslow Jones, A. W. Jones & amp; Co. lançou o primeiro fundo de hedge em 1949. Foi enquanto escrevia um artigo sobre as tendências atuais de investimentos da Fortune em 1948 que Jones se inspirou para tentar administrar o dinheiro. Ele arrecadou US $ 100.000 (incluindo US $ 40.000 do próprio bolso) e decidiu tentar minimizar o risco de manter posições acionárias de longo prazo vendendo a descoberto outras ações. Esta inovação de investimento é agora referida como o modelo clássico de acções longas / curtas. Jones também empregou alavancagem para melhorar os retornos.
Em 1952, Jones alterou a estrutura do seu veículo de investimento, convertendo-o de uma parceria geral para uma sociedade limitada e adicionando uma taxa de incentivo de 20% como compensação para o sócio-gerente. Como o primeiro gestor de recursos a combinar venda a descoberto, o uso de alavancagem, risco compartilhado por meio de uma parceria com outros investidores e um sistema de remuneração baseado no desempenho do investimento, Jones conquistou seu lugar na história do investimento como o pai do fundo de hedge.
Os fundos hedge passaram a superar drasticamente a maioria dos fundos mútuos nos anos 60 e ganharam mais popularidade quando um artigo de 1966 da revista Fortune destacou um investimento obscuro que superou todos os fundos mútuos no mercado em números de dois dígitos no ano passado e de dois dígitos. nos últimos cinco anos.
No entanto, à medida que as tendências dos fundos de hedge evoluíram, em um esforço para maximizar os retornos, muitos fundos se afastaram da estratégia da Jones, que se concentrou na coleta de ações associada à cobertura e optou por estratégias mais arriscadas baseadas na alavancagem de longo prazo. Essas táticas levaram a grandes perdas em 1969-70, seguidas por uma série de fechamentos de fundos de hedge durante o mercado de urso de 1973-74.
O setor ficou relativamente quieto por mais de duas décadas, até que um artigo de 1986 da Institutional Investor divulgou o desempenho de dois dígitos do Tiger Fund, de Julian Robertson. Com um fundo de hedge de alto risco mais uma vez chamando a atenção do público com seu desempenho estelar, os investidores correram para uma indústria que agora oferecia milhares de fundos e um conjunto cada vez maior de estratégias exóticas, incluindo operações cambiais e derivativos, como futuros e opções.
Gerentes de alto perfil abandonaram a tradicional indústria de fundos mútuos em massa no início dos anos 90, buscando fama e fortuna como administradores de fundos de hedge. Infelizmente, a história se repetiu no final dos anos 90 e no início dos anos 2000, quando vários fundos hedge de grande visibilidade, incluindo o de Robertson, fracassaram de maneira espetacular. Desde aquela época, a indústria de fundos de hedge cresceu substancialmente. Hoje, a indústria de fundos de hedge é maciça - o total de ativos sob administração do setor é avaliado em mais de US $ 3,2 trilhões, de acordo com o Preqin Global Hedge Fund Report de 2016.
O número de fundos de hedge operacionais também cresceu. Havia cerca de 2.000 fundos de hedge em 2002. Esse número aumentou para mais de 10.000 em 2015. No entanto, em 2016, o número de fundos de hedge está atualmente em declínio novamente, de acordo com dados da Hedge Fund Research. Abaixo está uma descrição das características comuns à maioria dos hedge funds contemporâneos.
Principais Características dos Fundos de Hedge.
1. Eles só estão abertos a investidores "credenciados" ou qualificados: os fundos de hedge só podem receber dinheiro de investidores "qualificados" - pessoas com renda anual superior a US $ 200.000 nos últimos dois anos ou patrimônio líquido superior a US $ 1 milhão. excluindo a residência principal. Como tal, a Securities and Exchange Commission considera os investidores qualificados adequados o suficiente para lidar com os riscos potenciais decorrentes de um mandato de investimento mais amplo.
2. Eles oferecem maior latitude de investimento do que outros fundos: O universo de investimento de um fundo de hedge é limitado apenas pelo seu mandato. Um fundo de hedge pode basicamente investir em qualquer coisa - terrenos, imóveis, ações, derivativos e moedas. Os fundos mútuos, ao contrário, têm basicamente que se ater a ações ou títulos, e geralmente são apenas longos.
3. Eles geralmente empregam alavancagem: os fundos de hedge frequentemente usam dinheiro emprestado para ampliar seus retornos. Como vimos durante a crise financeira de 2008, a alavancagem também pode acabar com os fundos de hedge.
4. Estrutura da taxa: Em vez de cobrar apenas uma taxa de despesas, os fundos de hedge cobram uma taxa de despesas e uma taxa de desempenho. Essa estrutura de taxas é conhecida como "Dois e Vinte" - uma taxa de administração de ativos de 2% e, em seguida, um corte de 20% dos ganhos gerados.
Há características mais específicas que definem um fundo de hedge, mas basicamente, porque são veículos de investimento privado que permitem apenas que indivíduos ricos invistam, os fundos de hedge podem praticamente fazer o que querem, desde que divulguem a estratégia antecipadamente aos investidores. Essa ampla latitude pode parecer muito arriscada e, às vezes, pode ser. Algumas das maiores explosões financeiras envolveram fundos de hedge. Dito isso, essa flexibilidade oferecida aos fundos de hedge fez com que alguns dos gerentes financeiros mais talentosos produzissem retornos surpreendentes a longo prazo.
O primeiro fundo de hedge foi estabelecido no final da década de 1940 como um veículo patrimonial de hedge longo / curto. Mais recentemente, os investidores institucionais - fundos de pensão corporativos e públicos, fundos patrimoniais e fiduciários e departamentos de fideicomissos bancários - incluíram fundos de hedge como um segmento de um portfólio bem diversificado.
É importante notar que "hedge" é, na verdade, a prática de tentar reduzir o risco, mas o objetivo da maioria dos fundos de hedge é maximizar o retorno sobre o investimento. O nome é basicamente histórico, já que os primeiros fundos de hedge tentaram se proteger contra o risco de queda de um mercado de baixa, encurtando o mercado. (Os fundos mútuos geralmente não entram em posições vendidas como um de seus principais objetivos). Hoje em dia, os fundos de hedge usam dezenas de estratégias diferentes, portanto não é correto dizer que os fundos de hedge apenas "cobrem risco". Na verdade, como os administradores de fundos de hedge fazem investimentos especulativos, esses fundos podem ter mais risco do que o mercado geral.
Abaixo estão alguns dos riscos dos fundos de hedge:
1. A estratégia de investimento concentrado expõe os fundos de hedge a perdas potencialmente enormes.
2. Os fundos de hedge normalmente exigem que os investidores prendam dinheiro por um período de anos.
3. O uso de alavancagem, ou dinheiro emprestado, pode transformar o que teria sido uma perda menor em uma perda significativa.
Estratégias de fundos de hedge.
Existem inúmeras estratégias que os gerentes empregam, mas abaixo está uma visão geral das estratégias comuns.
Neutralidade do mercado de ações: Esses fundos tentam identificar títulos patrimoniais supervalorizados e desvalorizados, ao mesmo tempo em que neutralizam a exposição do portfólio ao risco de mercado combinando posições longas e curtas. As carteiras são tipicamente estruturadas para serem neutras em termos de mercado, setor, setor e dólar, com um portfólio beta em torno de zero. Isto é conseguido mantendo-se posições patrimoniais longas e curtas com exposição aproximadamente igual ao mercado relacionado ou a fatores setoriais. Porque este estilo procura um retorno absoluto, o benchmark é tipicamente a taxa livre de risco. Arbitragem conversível: essas estratégias tentam explorar os erros em títulos corporativos conversíveis, como títulos conversíveis, warrants e ações preferenciais conversíveis. Os gerentes dessa categoria compram ou vendem esses títulos e, em seguida, cobrem parte ou todos os riscos associados. O exemplo mais simples é a compra de obrigações convertíveis e a cobertura do componente de capital próprio do risco das obrigações, reduzindo as ações associadas. Além de coletar o cupom sobre o título conversível subjacente, as estratégias de arbitragem conversíveis podem ganhar dinheiro se a volatilidade esperada do ativo subjacente aumentar devido à opção embutida, ou se o preço do ativo subjacente aumentar rapidamente. Dependendo da estratégia de hedge, a estratégia também ganhará dinheiro se a qualidade de crédito do emissor melhorar. Armadura de rendimento fixo: Estes fundos tentam identificar títulos de rendimento fixo sobreavaliados e subvalorizados (obrigações) principalmente com base nas expectativas de alterações na estrutura a termo ou na qualidade de crédito de várias questões relacionadas ou sectores de mercado. As carteiras de renda fixa são geralmente neutralizadas contra movimentos direcionais de mercado, pois as carteiras combinam posições longas e curtas, portanto a duração da carteira é próxima de zero. Títulos afligidos: Os portfólios de títulos em dificuldades são investidos tanto na dívida quanto no patrimônio de empresas que estão em processo de falência ou próximo a ela. A maioria dos investidores não está preparada para as dificuldades legais e negociações com credores e outros requerentes que são comuns com empresas em dificuldades. Os investidores tradicionais preferem transferir esses riscos para outros quando a empresa está em risco de inadimplência. Além disso, muitos investidores são impedidos de deter títulos que estão em default ou em risco de inadimplência. Por causa da relativa falta de liquidez da dívida e do patrimônio em dificuldades, as vendas a descoberto são difíceis, de modo que a maioria dos fundos é longa. Arbitragem de fusões: A arbitragem de fusões, também chamada de “arbitragem de negócios”, busca capturar o preço entre os preços de mercado atuais de títulos corporativos e seu valor após a conclusão bem-sucedida de uma aquisição, fusão, cisão ou transação similar envolvendo mais de uma empresa. . Na arbitragem de fusões, a oportunidade normalmente envolve a compra de ações de uma empresa-alvo após um anúncio de fusão e a redução de uma quantidade apropriada de ações da empresa compradora. Patrimônio protegido: As estratégias de patrimônio protegidas tentam identificar títulos patrimoniais supervalorizados e desvalorizados. Os portfólios normalmente não são estruturados para serem neutros em termos de mercado, indústria, setor e dólar, e podem ser altamente concentrados. Por exemplo, o valor das posições vendidas pode ser apenas uma fração do valor das posições longas e o portfólio pode ter uma exposição líquida longa ao mercado acionário. O patrimônio protegido é a maior das várias estratégias de hedge funds em termos de ativos sob gestão. É também conhecida como estratégia de equidade longa / curta. Macro global: As estratégias globais de macro tentam principalmente tirar proveito de movimentos sistemáticos nos principais mercados financeiros e não financeiros através da negociação de moedas, contratos de futuros e opções, embora eles também possam assumir posições importantes nos mercados tradicionais de ações e títulos. Na maior parte, diferem das estratégias tradicionais dos fundos de hedge, pois se concentram nas principais tendências do mercado e não nas oportunidades de segurança individual. Muitos gerentes globais de macro usam derivativos, como futuros e opções, em suas estratégias. Futuros administrados às vezes são classificados em macro global como resultado. Mercados emergentes: Esses fundos se concentram nos mercados emergentes e menos maduros. Como a venda a descoberto não é permitida na maioria dos mercados emergentes e porque futuros e opções podem não estar disponíveis, esses fundos tendem a ser longos. Fundo de fundos: Um fundo de fundos (FOF) é um fundo que investe em vários fundos de hedge subjacentes. Um FOF típico investe em 10 a 30 fundos de hedge e alguns FOFs são ainda mais diversificados. Embora os investidores do FOF possam obter diversificação entre os gestores e estratégias dos fundos de hedge, eles têm que pagar duas camadas de honorários: uma para o gestor do fundo de hedge e outra para o gerente do FOF. FOF são tipicamente mais acessíveis a investidores individuais e são mais líquidos.
Estrutura de Pagamento do Gestor do Fundo de Hedge.
Os gestores de fundos de hedge são notórios por sua típica estrutura de pagamento de 2 e 20 anos, na qual o gestor do fundo recebe 2% dos ativos e 20% dos lucros a cada ano. São os 2% que recebem as críticas e não é difícil perceber porquê. Mesmo se o gestor do fundo de hedge perder dinheiro, ele ainda recebe 2% dos ativos. Por exemplo, um gerente que supervisiona um fundo de US $ 1 bilhão poderia desembolsar US $ 20 milhões por ano como indenização sem levantar um dedo.
Dito isto, existem mecanismos criados para ajudar a proteger aqueles que investem em fundos de hedge. Muitas vezes, limitações de taxa, tais como marcas de água alta são empregadas para evitar que os gerentes de portfólio sejam pagos nos mesmos retornos duas vezes. Os limites de taxa também podem ser usados para evitar que os gerentes corram riscos excessivos.
Como escolher um fundo de hedge.
Com tantos hedge funds no universo dos investimentos, é importante que os investidores saibam o que estão procurando para agilizar o processo de due diligence e tomar decisões oportunas e apropriadas.
Ao procurar um fundo de hedge de alta qualidade, é importante para um investidor identificar as métricas que são importantes para eles e os resultados necessários para cada um. Essas diretrizes podem se basear em valores absolutos, como retornos superiores a 20% ao ano nos cinco anos anteriores, ou podem ser relativos, como os cinco principais fundos com melhor desempenho em uma categoria específica.
Diretrizes de desempenho absoluto.
A primeira diretriz que um investidor deve definir ao selecionar um fundo é a taxa de retorno anualizada. Digamos que queremos encontrar fundos com um retorno anualizado de cinco anos que exceda em 1% o retorno do Índice de Obrigações Públicas Mundiais (WGBI) do Citigroup. Esse filtro eliminaria todos os fundos com desempenho inferior ao índice em períodos longos e poderia ser ajustado com base no desempenho do índice ao longo do tempo.
Essa diretriz também revelará fundos com retornos esperados muito maiores, como fundos macro globais, fundos de longo / curto prazo tendenciosos e vários outros. Mas se estes não são os tipos de fundos que o investidor está procurando, então eles também devem estabelecer uma diretriz para o desvio padrão. Mais uma vez, usaremos o WGBI para calcular o desvio padrão do índice nos cinco anos anteriores. Vamos supor que adicionamos 1% a esse resultado e estabelecemos esse valor como a diretriz para o desvio padrão. Fundos com um desvio padrão maior do que a diretriz também podem ser eliminados de considerações adicionais.
Infelizmente, altos retornos não necessariamente ajudam a identificar um fundo atraente. Em alguns casos, um fundo de hedge pode ter empregado uma estratégia favorável, o que levou o desempenho a ser mais alto do que o normal para sua categoria. Portanto, uma vez que determinados fundos tenham sido identificados como de alto retorno, é importante identificar a estratégia do fundo e comparar seus retornos com outros fundos da mesma categoria. Para fazer isso, um investidor pode estabelecer diretrizes primeiro gerando uma análise por pares de fundos semelhantes. Por exemplo, pode-se estabelecer o 50º percentil como diretriz para filtrar fundos.
Agora, um investidor tem duas diretrizes que todos os fundos precisam atender para uma análise mais aprofundada. No entanto, a aplicação dessas duas diretrizes ainda deixa muitos fundos para avaliar em um período de tempo razoável. Diretrizes adicionais precisam ser estabelecidas, mas as diretrizes adicionais não se aplicarão necessariamente no universo restante de fundos. Por exemplo, as diretrizes para um fundo de arbitragem de fusões serão diferentes daquelas para um fundo neutro de mercado de curto prazo.
Diretrizes Relativas de Desempenho.
Para facilitar a busca do investidor por fundos de alta qualidade que não apenas atendam às diretrizes iniciais de retorno e risco, mas também atendam a diretrizes específicas da estratégia, o próximo passo é estabelecer um conjunto de diretrizes relativas. Métricas de desempenho relativo devem sempre ser baseadas em categorias ou estratégias específicas. Por exemplo, não seria justo comparar um fundo macro global alavancado com um fundo de ações long / short de mercado neutro.
Para estabelecer diretrizes para uma estratégia específica, um investidor pode usar um pacote de software analítico (como o Morningstar) para identificar primeiro um universo de fundos usando estratégias semelhantes. Então, uma análise de pares revelará muitas estatísticas, divididas em quartis ou decis, para esse universo.
O limite para cada diretriz pode ser o resultado para cada métrica que atenda ou exceda o 50º percentil. Um investidor pode afrouxar as diretrizes usando o 60º percentil ou apertar a orientação usando o 40º percentil. Usar o percentil 50 em todas as métricas geralmente filtra todos, exceto alguns fundos de hedge, para uma consideração adicional. Além disso, o estabelecimento das diretrizes dessa forma permite flexibilidade para ajustar as diretrizes, pois o ambiente econômico pode afetar os retornos absolutos de algumas estratégias.
Esta é uma lista de som das principais métricas para usar nas diretrizes de configuração:
Retornos anualizados de cinco anos Desvio padrão Desvio padrão de rolagem Meses para recuperação / rebaixamento máximo Desvio de descida.
Essas diretrizes ajudarão a eliminar muitos dos fundos do universo e identificarão um número viável de fundos para análise posterior. Um investidor também pode querer considerar outras diretrizes que podem reduzir ainda mais o número de fundos para analisar ou identificar fundos que atendam a critérios adicionais que possam ser relevantes para o investidor. Alguns exemplos de outras diretrizes incluem:
Tamanho do Fundo / Tamanho da Empresa: A diretriz para o tamanho pode ser mínima ou máxima, dependendo da preferência do investidor. Por exemplo, os investidores institucionais geralmente investem quantias tão grandes que um fundo ou empresa deve ter um tamanho mínimo para acomodar um grande investimento. Para outros investidores, um fundo que é muito grande pode enfrentar desafios futuros usando a mesma estratégia para acompanhar os sucessos passados. Esse pode ser o caso dos fundos de hedge que investem no espaço de capital de pequena capitalização. Track Record: Se um investidor quiser que um fundo tenha um histórico mínimo de 24 ou 36 meses, essa diretriz eliminará quaisquer novos fundos. No entanto, às vezes, um administrador de fundos deixará de começar seu próprio fundo e, embora o fundo seja novo, o desempenho do gerente pode ser acompanhado por um período de tempo muito mais longo. Investimento Mínimo: Este critério é muito importante para investidores menores, pois muitos fundos têm mínimos que podem dificultar a diversificação adequada. O investimento mínimo do fundo também pode dar uma indicação dos tipos de investidores no fundo. Os valores mínimos maiores podem indicar uma proporção maior de investidores institucionais, enquanto os mínimos baixos podem indicar um número maior de investidores individuais. Termos de resgate: Esses termos têm implicações para a liquidez e se tornam muito importantes quando um portfólio geral é altamente ilíquido. Períodos de lock-up mais longos são mais difíceis de incorporar em um portfólio, e períodos de resgate superiores a um mês podem apresentar alguns desafios durante o processo de gerenciamento de portfólio. Uma diretriz pode ser implementada para eliminar os fundos que têm bloqueios quando um portfólio já está sem liquidez, enquanto essa diretriz pode ser relaxada quando um portfólio tem liquidez adequada.
Como os lucros do fundo de hedge são taxados?
Quando um fundo de hedge doméstico dos EUA devolve lucros a seus investidores, o dinheiro está sujeito ao imposto sobre ganhos de capital. A taxa de ganhos de capital de curto prazo aplica-se a lucros sobre investimentos mantidos por menos de um ano e é igual à alíquota de imposto do investidor sobre a receita ordinária. Para investimentos mantidos por mais de um ano, a alíquota não é superior a 15% para a maioria dos contribuintes, mas pode chegar a 20% em alíquotas altas. Este imposto aplica-se a investidores americanos e estrangeiros.
Um hedge fund offshore é estabelecido fora dos Estados Unidos, geralmente em um país com pouco imposto ou sem impostos. Aceita investimentos de investidores estrangeiros e entidades norte-americanas isentas de impostos. Esses investidores não incorrem em nenhum passivo fiscal nos EUA sobre os lucros distribuídos.
Maneiras de fundos de hedge Evitar o pagamento de impostos.
Muitos fundos de hedge são estruturados para aproveitar os juros acumulados. Sob essa estrutura, um fundo é tratado como uma parceria. Os fundadores e gestores de fundos são os sócios gerais, enquanto os investidores são os sócios limitados. Os fundadores também são donos da empresa de gestão que administra o fundo de hedge. Os gerentes ganham a taxa de desempenho de 20% dos juros transportados como o sócio geral do fundo.
Gestores de fundos de hedge são compensados com esse interesse transportado; sua renda do fundo é tributada como um retorno sobre os investimentos em oposição a um salário ou compensação por serviços prestados. A taxa de incentivo é tributada à taxa de ganhos de capital de longo prazo de 20%, em oposição às alíquotas normais de imposto de renda, em que a alíquota máxima é de 39,6%. Isso representa economia significativa de impostos para gerentes de fundos de hedge.
Este arranjo de negócios tem seus críticos, que dizem que a estrutura é uma lacuna que permite que os fundos de hedge para evitar o pagamento de impostos. A regra de juros transportados ainda não foi anulada apesar de várias tentativas no Congresso. Tornou-se uma questão tópica durante a eleição primária de 2016.
Muitos fundos de hedge proeminentes usam os negócios de resseguro nas Bermudas como outra forma de reduzir seus passivos tributários. As Bermudas não cobram um imposto de renda corporativo, de modo que os fundos de hedge criam suas próprias companhias de resseguros nas Bermudas. Os fundos de hedge, em seguida, enviam dinheiro para as empresas de resseguros nas Bermudas. Essas resseguradoras, por sua vez, investem esses fundos de volta nos fundos de hedge. Quaisquer lucros dos fundos de hedge vão para as resseguradoras nas Bermudas, onde não devem nenhum imposto de renda corporativo. Os lucros dos investimentos em fundos hedge crescem sem qualquer obrigação tributária. Os impostos só são devidos quando os investidores vendem suas participações nas resseguradoras.
O negócio nas Bermudas deve ser um negócio de seguros. Qualquer outro tipo de negócio provavelmente incorreria em penalidades do Serviço de Receita Federal dos EUA (IRS) para empresas de investimento estrangeiro passivo. O IRS define o seguro como um negócio ativo. Para se qualificar como um negócio ativo, a companhia de resseguros não pode ter um pool de capital que seja muito maior do que o necessário para garantir o seguro que vende. Não está claro o que esta norma é, como ainda não foi definido pelo IRS.
Controvérsias do Fundo de Hedge.
Diversos fundos de hedge foram implicados em escândalos de insider trading desde 2008. Os dois casos de operações privilegiadas de alto perfil envolvem o Galleon Group administrado por Raj Rajaratnam e a SAC Capital administrada por Steven Cohen.
O Grupo Galleon administrou mais de US $ 7 bilhões em seu auge antes de ser forçado a fechar em 2009. A empresa foi fundada em 1997 por Raj Rajaratnam. Em 2009, os promotores federais acusaram Rajaratnam de múltiplas fraudes e insider trading. Ele foi condenado em 14 acusações em 2011 e começou a cumprir uma sentença de 11 anos. Muitos funcionários do Grupo Galleon também foram condenados no escândalo.
Rajaratnam foi pego obtendo informações privilegiadas de Rajat Gupta, membro do conselho da Goldman Sachs. Antes de a notícia ser divulgada, Gupta supostamente transmitiu informações de que Warren Buffett estava fazendo um investimento na Goldman Sachs em setembro de 2008, no auge da crise financeira. Rajaratnam foi capaz de comprar quantidades substanciais de ações da Goldman Sachs e fazer um lucro robusto sobre essas ações em um dia.
Rajaratnam também foi condenado por outras acusações de insider trading. Ao longo de seu mandato como gerente de fundos, ele cultivou um grupo de especialistas do setor para obter acesso a informações relevantes.
Steven Cohen e seu fundo de hedge, SAC Capital, também estavam envolvidos em um escandaloso escândalo de negociações internas. A SAC Capital administrou cerca de US $ 50 bilhões em seu pico. A SEC invadiu escritórios de quatro empresas de investimentos administradas por ex-operadores da SAC Capital em 2010. Nos anos seguintes, a SEC apresentou diversas acusações criminais contra ex-operadores da SAC Capital.
Mathew Martoma, ex-gerente de carteira da SAC Capital, foi condenado por acusações de insider trading que supostamente levaram a mais de US $ 276 milhões em lucros para a SAC. Ele obteve informações privilegiadas sobre testes clínicos de drogas da FDA com um medicamento contra o Alzheimer que a SAC Capital então comercializou.
Steven Cohen individualmente nunca enfrentou acusações criminais. Em vez disso, a SEC entrou com uma ação civil contra a SAC Capital por não supervisionar adequadamente seus operadores. O Departamento de Justiça apresentou uma acusação criminal contra o fundo de hedge por fraude de valores mobiliários e fraude eletrônica. A SAC Capital concordou em liquidar todas as ações contra ela, declarando-se culpada e pagando multa de US $ 1,2 bilhão. O fundo de hedge concordou ainda em parar de administrar dinheiro externo. No entanto, um acordo em janeiro de 2016 revogou a proibição vitalícia de Cohen de administrar dinheiro e permitirá que ele administre o dinheiro em dois anos, sujeito a revisão por um consultor independente e por exames da SEC.
Novo Regulamento para Fundos de Hedge.
Os fundos de hedge são tão grandes e poderosos que a SEC está começando a prestar mais atenção, particularmente porque violações, tais como insider trading e fraude, parecem estar ocorrendo com muito mais frequência. No entanto, um ato recente na verdade afrouxou a maneira como os fundos de hedge podem vender seus veículos aos investidores.
Em março de 2012, o Jumpstart Our Business Startups Act (JOBS Act) foi assinado em lei. A premissa básica do JOBS Act era incentivar o financiamento de pequenas empresas nos EUA, facilitando a regulamentação de valores mobiliários. A Lei JOBS também teve um grande impacto sobre os fundos de hedge: em setembro de 2013, a proibição da publicidade de fundos de hedge foi levantada. Em uma votação de 4 a 1, a SEC aprovou uma moção para permitir que fundos hedge e outras empresas que criam ofertas privadas anunciassem para quem quiserem, mas ainda assim só podem aceitar investimentos de investidores credenciados. Os fundos de hedge geralmente são importantes fornecedores de capital para startups e pequenas empresas por causa de sua ampla latitude de investimento. Dar aos fundos hedge a oportunidade de solicitar capital ajudaria, de fato, o crescimento de pequenas empresas, aumentando o capital de investimento disponível.
A publicidade em fundos de hedge envolve a oferta de produtos de investimento do fundo a investidores credenciados ou intermediários financeiros por meio de impressão, televisão e internet. Um fundo de hedge que deseja solicitar (anunciar para) investidores deve preencher um “Formulário D” com a SEC pelo menos 15 dias antes de começar a anunciar. Como a publicidade de fundos de hedge era estritamente proibida antes de suspender essa proibição, a SEC está muito interessada em como a publicidade está sendo usada por emissores privados, por isso fez alterações nos formulários do Formulário D. Os fundos que fizerem solicitações públicas também precisarão apresentar um Formulário D alterado no prazo de 30 dias após o término da oferta. O não cumprimento dessas regras provavelmente resultará na proibição de criar valores mobiliários adicionais por um ano ou mais.

Blog da Lei do Fundo de Hedge.
Leis de fundo de hedge, começando um fundo de hedge, notícias e eventos & # 8230;
Acordo Simples para Tokens Futuros (SAFT)
Fundo SAFT para Fundos de Criptomoeda.
Como discutimos em um post recente, o Relatório da SEC sobre o DAO, publicado em julho deste ano, discutiu como a SEC vê as Ofertas Iniciais de Moedas (OICs). Uma das principais conclusões deste relatório foi que alguns ativos / tokens digitais se enquadram na definição de valores mobiliários, dependendo dos fatos e circunstâncias relacionados à natureza do ativo / token digital específico. Se uma OIC for considerada uma oferta e venda de uma garantia, essa oferta deverá cumprir as leis federais de valores mobiliários. Isso significa que o token deve estar registrado como uma segurança na SEC ou que o token se qualifica para uma isenção dos requisitos de registro.
In an attempt to comply with SEC regulations and account for some of the uncertainties around regulation of these digital assets, some recent ICOs have launched using a Simple Agreement for Future Tokens (SAFT) along with an accompanying offering memorandum. The SAFT, modeled after Y Combinator’s Simple Agreement for Future Equity (SAFE), is an agreement offering future tokens to accredited investors. Instead of offering an immediately available token, these SAFTs offer the right to a token upon a triggering event. SAFTS are intended to be private offerings exempt from registration with the SEC. Notably, Protocol Labs, Inc. offered the right to purchase Filecoin tokens through a SAFT earlier this year. Since then, multiple other ICOs have launched using SAFTS, including Unikrn, StreamCoin Labs, and Kik Interactive.
Overview of SAFT documentation.
As part of some ICO launches, investors are subscribing through a SAFT and accompanying offering memorandum. The SAFT is an agreement signed by both the issuer and the purchaser of the future tokens. The general SAFT template includes various provisions which we outline below.
Country legends – disclaimers directed toward specific countries, including statements on registration and restrictions on transfer of the tokens. Sale information – purchase amount and price, token amounts, and vesting period. Background information – various events including network launch, dissolution events, and termination events are discussed. A network launch will generally trigger an issuance of tokens based on the purchase amount of each investor. Purchaser and Issuer representations – various representations made by both the issuer and purchaser are included. Notably, the purchaser will represent that it has been advised that the SAFT is a security and has not been registered, and cannot be resold without the consent of the issuer. The agreement also includes the procedures for purchase of rights under the SAFT including the form of payment. Miscellaneous/ transfer provisions – various miscellaneous provisions including transfer restrictions and rights under the SAFT.
SAFT Offering Memorandum.
The offering memorandum is similar private placement memorandum (PPM) for a traditional hedge fund and provides the prospective investor with information on the structural and business aspects of the offering. Below is a non-exhaustive list of some of the major sections of the offering memorandum:
Legends and securities laws notices Table of contents Company overview Description of the directors and management Terms of the purchase rights and the SAFTS Risk factors Description of the use of proceeds Description of the plan of distribution.
There are a number of potential issues, including legal and regulatory, that may arise through the use of SAFTS.
Is a SAFT a security?
The SEC has applied the Howey test to digital assets, concluding that a token may be a security based on specific facts and circumstances. To determine whether tokens are securities, the SEC has looked to whether there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.
The drafters of SAFTs have generally taken the position that SAFTs are securities (e. g., investment contracts). The SEC has commented in the past on SAFEs with respect to crowdfunding, mentioning that SAFEs are a type of security, warning investors to be cautious. SAFTs that are limited to accredited investors will likely elicit less concern from the SEC as they are not aimed at retail investors. It remains to be seen, however, whether the SEC will also consider SAFTs securities in a similar context with SAFEs. While any determination on whether the SAFT is a security will likely be based on the specific use of the underlying tokens, it seems likely that many SAFTs would be deemed securities because the purchasers are investing money (or other digital assets) in the rights to the future underlying token with the expectation of profits from the efforts of the issuers of the SAFT.
Restrictions on transfer.
Under a SAFT, there is typically a restriction on the purchaser’s ability to transfer or make use of the tokens until the tokens are vested. Vesting takes place once the network is launched and the tokens are mined. A purchaser generally can, however, transfer its rights in a SAFT to another person or entity with the consent of the company issuing the SAFT. Below is a non-exhaustive list of some of the major provisions that should be in the transfer agreement.
Transfer of the SAFT Consideration Consent of the company that issued the SAFT Transferor representations and warranties that it owns the SAFT and is able to transfer Transferee representations that it will be bound by the terms of the SAFT.
Source of funds.
Many of these SAFTs allow purchasers to use various forms of consideration for these contracts including US dollars, Bitcoin, and other digital assets. This may raise anti-money laundering concerns around the source of the funds used for these purchases.
How do regulators view SAFTs?
US regulators have not provided specific guidance on the use of SAFTS. As discussed previously, the SEC has stated that some tokens are securities. Additionally, earlier this year, the SEC charged a businessman with allegedly running two fraudulent ICOs and appears to be taking an increasing interest in these issues. The SEC has mentioned the crowdfunding regulations in the SEC Report on the DAO, and the SEC seemed to be highlighting an option for certain fund sponsors. Given also that the SEC has commented on SAFEs with respect to venture and crowdfunding, it is possible that regulators will draw certain parallels between SAFEs and SAFTs in its views on these instruments. Unfortunately, until regulators issue additional guidance, it is not yet clear whether the SAFT in some cases will be sufficient to satisfy the SEC or other regulators.
The SAFT represents some investment managers’ response to the concerns of the SEC and may encourage more ICOs to be based in the US. We hope the SEC and other regulators comment on their view of SAFTs, although much of the discussion over whether a SAFT or token is a security will remain a facts and circumstances determination.
For more information on this topics related to the digital asset space, please see our collection of cryptocurrency fund legal and operational posts.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Cole-Frieman & amp; Mallon LLP has been instrumental in structuring the launches of some of the first cryptocurrency focused hedge funds. For more information on this topic, please contact Mr. Mallon directly at 415-868-5345.
Cole Frieman & Mallon 2018 End of Year Update.
Below is our quarterly newsletter. If you would like to be added to our distribution list, please contact us.
15 de dezembro de 2017.
Clients, Friends, Associates:
Holiday celebrations bring welcomed joy and excitement to the busiest time of year for most investment managers. As we prepare for a new year, we also reflect on an eventful 2017 year that included the emergence of a new asset class, a steady upswing in the stock market, and proposed legislation to revise the United States tax code. Regardless of all of the changes to the investment management space, year-end administrative upkeep and 2018 planning are always particularly important, especially for General Counsels, Chief Compliance Oﬃcers (“CCO”), and key operations personnel. As we head into 2018, we have put together this checklist and update to help managers stay on top of the business and regulatory landscape for the coming year.
This update includes the following:
Cryptocurrency Leadership Annual Compliance & Other Items Annual Fund Matters Annual Management Company Matters Regulatory & Other Changes in 2016 Compliance Calendar.
This year digital assets and cryptocurrencies have emerged in force as a separate and distinct asset class. An increased interest in this asset class from fund managers, financial institutions and various government leaders and regulators throughout the world has led to an exponential growth of cryptocurrency investments, the CFTC’s approval of two exchanges to trade Bitcoin futures contracts has increased attention on the asset class.
For SEC registered investment advisers who are adding cryptocurrencies to their fund investment programs and for cryptocurrency focused fund managers who may be relying on SEC exemptions from registration, the need to understand the regulatory implication of certain practices is of utmost importance. Specifically, managers face uncertainty regarding the application of the qualified custodian requirement under Rule 206(4)-2 (“Custody Rule”) under the Investment Advisers Act of 1940, as amended (“Advisers Act”). Under the Custody Rule, if a registered investment adviser has custody of “client funds or securities”, then it must maintain those client assets with a qualified custodian (generally a bank, broker-dealer, FCM or other financial institution), subject to certain exceptions. Currently we know of only one qualified custodian capable of holding certain cryptocurrencies or digital assets. Our firm participated in a meeting with the SEC in November about custody issues for cryptocurrency managers and continues to engage with the SEC on this issue as well as work with the SEC and other service providers in this space to help lead the way to comply with SEC rules and regulations.
Annual Privacy Policy Notice. On an annual basis, registered investment advisers (“RIAs”) are required to provide natural person clients with a copy of the ﬁrm’s privacy policy if (i) the RIA has disclosed nonpublic personal information other than in the connection with servicing consumer accounts or administering financial products; or (ii) the firm’s privacy policy has changed.
Annual Compliance Review. On an annual basis, the CCO of an RIA must conduct a review of the adviser’s compliance policies and procedures. This annual compliance review should be in writing and presented to senior management. We recommend that ﬁrms discuss the annual review with their outside counsel or compliance ﬁrm, who can provide guidance about the review process as well as a template for the assessment and documentation. Advisers should be careful that sensitive conversations regarding the annual review are protected by attorney-client privilege. CCOs may also want to consider additions to the compliance program. Advisers that are not registered may still wish to review their procedures and/or implement a compliance program as a best practice.
Form ADV Annual Amendment. RIAs or managers ﬁling as exempt reporting advisers (“ERAs”) with the SEC or a state securities authority, must ﬁle an annual amendment to Form ADV within 90 days of the end of their ﬁscal year. For most managers, the Form ADV amendment would be due on March 31, 2018. This year, because March 31st is a Saturday and March 30th is a market holiday, annual amendments to the Form ADV shall be filed no later than the business day following the 90-day deadline (April 2, 2018). RIAs must provide a copy of the updated Form ADV Part 2A brochure and Part 2B brochure supplement (or a summary of changes with an oﬀer to provide the complete brochure) to each “client”. Note that for SEC-registered advisers to private investment vehicles, a “client” for purposes of this rule includes the vehicle(s) managed by the adviser, and not the underlying investors. State-registered advisers need to examine their state’s rules to determine who constitutes a “client”.
Switching to/from SEC Regulation.
SEC Registration. Managers who no longer qualify for SEC registration as of the time of ﬁling the annual Form ADV amendment must withdraw from SEC registration within 180 days after the end of their ﬁscal year by ﬁling Form ADV-W. Such managers should consult with their state securities authorities to determine whether they are required to register in the states in which they conduct business. Managers who are required to register with the SEC as of the date of their annual amendment must register with the SEC within 90 days of ﬁling the annual amendment.
Exempt Reporting Advisers. Managers who no longer meet the deﬁnition of an ERA will need to submit a ﬁnal report as an ERA and apply for registration with the SEC or the relevant state securities authority, if necessary, generally within 90 days after the ﬁling of the annual amendment.
Custody Rule Annual Audit.
SEC Registered IA. SEC registered investment advisers (“SEC RIAs”) must comply with certain custody procedures, including (i) maintaining client funds and securities with a qualiﬁed custodian; (ii) having a reasonable basis to believe that the qualiﬁed custodian sends an account statement to each advisory client at least quarterly; and (iii) undergoing an annual surprise examination conducted by an independent public accountant.
SEC RIAs to pooled investment vehicles may avoid both the quarterly statement and surprise examination requirements by having audited ﬁnancial statements prepared for each pooled investment vehicle in accordance with generally accepted accounting principles by an independent public accountant registered with the Public Company Accounting Oversight Board (“PCAOB”). Statements must be sent to the fund or, in certain cases, investors in the fund, within 120 days after the fund’s ﬁscal year-end. Managers should review their custody procedures to ensure compliance with the rules.
California Registered IA. California registered investment advisers (“CA RIAs”) that manage pooled investment vehicles and are deemed to have custody of client assets must, among other things, (i) provide notice of such custody on the Form ADV; (ii) maintain client assets with a qualiﬁed custodian; (iii) engage an independent party to act in the best interest of investors to review fees, expenses, and withdrawals; and (iv) retain an independent certiﬁed public accountant to conduct surprise examinations of assets. CA RIAs to pooled investment vehicles may avoid the independent party and surprise examinations requirements by having audited ﬁnancial statements prepared by an independent public accountant registered with the PCAOB and distributing such audited ﬁnancial statements to all limited partners (or members or other beneficial owners) of the pooled investment vehicle, and to the Commissioner of the California Department of Business Oversight (“DBO”).
Other State Registered IA. Advisers registered in other states should consult with legal counsel about those states’ custody requirements.
California Minimum Net Worth Requirement and Financial Reports.
RIAs with Custody. Every CA RIA that has custody of client funds or securities must maintain at all times a minimum net worth of $35,000. Notwithstanding the foregoing, the minimum net worth is $10,000 for a CA RIA (i) deemed to have custody solely because it acts as general partner of a limited partnership, or a comparable position for another type of pooled investment vehicle; and (ii) that otherwise complies with the California custody rule described above (such advisers, the “GP RIAs”).
RIAs with Discretion. Every CA RIA that has discretionary authority over client funds or securities, whether or not they have custody, must maintain at all times a minimum net worth of $10,000.
Financial Reports. Every CA RIA that either has custody of, or discretionary authority over, client funds or securities must ﬁle an annual ﬁnancial report with the DBO within 90 days after the adviser’s ﬁscal year end. The annual ﬁnancial report must contain a balance sheet, income statement, supporting schedule, and a verification form. These ﬁnancial statements must be audited by an independent certiﬁed public accountant or independent public accountant if the adviser has custody and is not a GP RIA.
Annual Re-Certiﬁcation of CFTC Exemptions. Commodity pool operators (“CPOs”) and commodity trading advisers (“CTAs”) currently relying on certain exemptions from registration with the CFTC are required to re-certify their eligibility within 60 days of the calendar year-end. CPOs and CTAs currently relying on relevant exemptions will need to evaluate whether they remain eligible to rely on such exemptions.
CPO and CTA Annual Updates. Registered CPOs and CTAs must prepare and ﬁle Annual Questionnaires and Annual Registration Updates with the NFA, as well as submit payment for annual maintenance fees and NFA membership dues. Registered CPOs must also prepare and ﬁle their fourth quarter report for each commodity pool on Form CPO-PQR, while CTAs must ﬁle their fourth quarter report on Form CTA-PR. Unless eligible to claim relief under Regulation 4.7, registered CPOs and CTAs must update their disclosure documents periodically, as they may not use any document dated more than 12 months prior to the date of its intended use. Disclosure documents that are materially inaccurate or incomplete must be corrected promptly, and the corrected version must be distributed promptly to pool participants.
Trade Errors. Managers should make sure that all trade errors are properly addressed pursuant to the manager’s trade errors policies by the end of the year. Documentation of trade errors should be ﬁnalized, and if the manager is required to reimburse any of its funds or other clients, it should do so by year-end.
Soft Dollars. Managers that participate in soft dollar programs should make sure that they have addressed any commission balances from the previous year.
Schedule 13G/D and Section 16 Filings. Managers who exercise investment discretion over accounts (including funds and separately managed accounts (“SMAs”)) that are beneﬁcial owners of 5% or more of a registered voting equity security must report these positions on Schedule 13D or 13G. Passive investors are generally eligible to ﬁle the short form Schedule 13G, which is updated annually within 45 days of the end of the year. Schedule 13D is required when a manager is ineligible to ﬁle Schedule 13G and is due 10 days after acquisition of more than 5% beneﬁcial ownership of a registered voting equity security. For managers who are also making Section 16 ﬁlings, this is an opportune time to review your ﬁlings to conﬁrm compliance and anticipate needs for the ﬁrst quarter.
Section 16 ﬁlings are required for “corporate insiders” (including beneﬁcial owners of 10% or more of a registered voting equity security). An initial Form 3 is due within 10 days after becoming an “insider”; Form 4 reports ownership changes and is due by the end of the second business day after an ownership change; and Form 5 reports any transactions that should have been reported earlier on a Form 4 or were eligible for deferred reporting and is due within 45 days after the end of each fiscal year.
Form 13F. A manager must ﬁle a Form 13F if it exercises investment discretion with respect to $100 million or more in certain “Section 13F securities” within 45 days after the end of the year in which the manager reaches the $100 million ﬁling threshold. The SEC lists the securities subject to 13F reporting on its website.
Form 13H. Managers who meet the SEC’s large trader thresholds (in general, managers 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) are required to ﬁle an initial Form 13H with the SEC within 10 days of crossing the threshold. Large traders also need to amend Form 13H annually within 45 days of the end of the year. In addition, changes to the information on Form 13H will require interim amendments following the calendar quarter in which the change occurred.
Form PF. Managers to private funds that are either registered with the SEC or required to be registered with the SEC and who have at least $150 million in regulatory assets under management (“RAUM”) must ﬁle Form PF. Smaller private advisers (fund managers with less than $1.5 billion in RAUM) must ﬁle Form PF annually within 120 days of their ﬁscal year-end. Larger private advisers (fund managers with $1.5 billion or more in RAUM) must ﬁle Form PF within 60 days of the end of each fiscal quarter.
SEC Form D. Form D ﬁlings for most funds need to be amended on an annual basis, on or before the anniversary of the most recently ﬁled Form D. Copies of Form D is publicly available on the SEC’s EDGAR website.
Blue Sky Filings. On an annual basis, a manager should review its blue sky ﬁlings for each state to make sure it has met any renewal requirements. Several states impose late fees or reject late ﬁlings altogether. Accordingly, it is critical to stay on top of ﬁling deadlines for both new investors and renewals. We also recommend that managers review blue sky ﬁling submission requirements. Many states now permit blue sky ﬁlings to be ﬁled electronically through the Electronic Filing Depository (“EFD”) system, and certain states will now only accept ﬁlings through EFD.
IARD Annual Fees. Preliminary annual renewal fees for state-registered and SEC-registered investment advisers are due on December 18, 2017. If you have not already done so, you should submit full payment into your Renewal Account by E-Bill, check or wire now.
Pay-to-Play and Lobbyist Rules. SEC rules disqualify investment advisers, their key personnel and placement agents acting on their behalf, from seeking to be engaged by a governmental client if they have made political contributions. State and local governments have similar rules, including California, which requires internal sales professionals who meet the deﬁnition of “placement agents” (people who act for compensation as ﬁnders, solicitors, marketers, consultants, brokers, or other intermediaries in connection with oﬀering or selling investment advisory services to a state public retirement system in California) to register with the state as lobbyists and comply with California lobbyist reporting and regulatory requirements. Note that managers oﬀering or selling investment advisory services to local government entities must register as lobbyists in the applicable cities and counties.
State laws on lobbyist registration diﬀer widely, so we recommend reviewing your reporting requirements in the states in which you operate to make sure you are in compliance with the rules.
New Issue Status. On an annual basis, managers need to conﬁrm or reconﬁrm the eligibility of investors that participate in initial public oﬀerings or new issues, pursuant to both FINRA Rules 5130 and 5131. Most managers reconﬁrm investor eligibility via negative consent (i. e. investors are informed of their status on ﬁle with the manager and are asked to inform the manager of any changes). A failure to respond by any investor operates as consent to the current status.
ERISA Status. Given the signiﬁcant problems that can occur from not properly tracking ERISA investors in private funds, we recommend that managers conﬁrm or reconﬁrm on an annual basis the ERISA status of their investors. This is particularly important for managers who may be deemed a fiduciary under the Department of Labor’s (“DOL”) Fiduciary Rule (as further discussed below).
Wash Sales. Managers should carefully manage wash sales for year-end. Failure to do so could result in embarrassing book/tax differences for investors. Certain dealers can provide managers with swap strategies to manage wash sales, including Basket Total Return Swaps and Split Strike Forward Conversion. These strategies should be considered carefully to make sure they are consistent with the investment objectives of the fund.
Redemption Management. Managers with signiﬁcant redemptions at the end of the year should carefully manage unwinding positions so as to minimize transaction costs in the current year (that could impact performance) and prevent transaction costs from impacting remaining investors in the next year. When closing funds or managed accounts, managers should pay careful attention to the liquidation procedures in the fund constituent documents and the managed account agreement.
NAV Triggers and Waivers. Managers should promptly seek waivers of any applicable termination events set forth in a fund’s ISDA or other counterparty agreement that may be triggered by redemptions, performance, or a combination of both at the end of the year (NAV declines are common counterparty agreement termination events).
Fund Expenses. Managers should wrap up all fund expenses for 2017 if they have not already done so. In particular, managers should contact their outside legal counsel to obtain accurate and up to date information about legal expenses for inclusion in the NAV for year-end performance.
Electronic Schedule K-1s. The IRS authorizes partnerships and limited liability companies taxed as partnerships to issue Schedule K-1s to investors solely by electronic means, provided the partnership has received the investor’s aﬃrmative consent. States may have diﬀerent rules regarding electronic K-1s and partnerships should check with their counsel whether they may still be required to send state K-1s on paper. Partnerships must also provide each investor with speciﬁc disclosures that include a description of the hardware and software necessary to access the electronic K-1s, how long the consent is eﬀective and the procedures for withdrawing the consent. If you would like to send K-1s to your investors electronically, you should discuss your options with your service providers.
“Bad Actor” Recertiﬁcation Requirement. A security oﬀering cannot rely on the Rule 506 safe harbor from SEC registration if the issuer or its “covered persons” are “bad actors”. Fund managers must determine whether they are subject to the bad actor disqualiﬁcation any time they are oﬀering or selling securities in reliance on Rule 506. The SEC has advised that an issuer may reasonably rely on a covered person’s agreement to provide notice of a potential or actual bad actor triggering event pursuant to contractual covenants, bylaw requirements or undertakings in a questionnaire or certiﬁcation. If an oﬀering is continuous, delayed or long-lived, however, issuers must update their factual inquiry periodically through bring-down of representations, questionnaires, and certiﬁcations, negative consent letters, periodic re-checking of public databases and other steps, depending on the circumstances. Fund managers should consult with counsel to determine how frequently such an update is required. As a matter of practice, most fund managers should perform such an update at least annually.
U. S. FATCA. Funds should monitor their compliance with U. S. Foreign Account Tax Compliance Act (“FATCA”) U. S. FATCA reports are due to the IRS on March 31, 2018 or September 30, 2018, depending on where the fund is domiciled. Reports may be required by an earlier date for jurisdictions that are parties to intergovernmental agreements (“IGAs”) with the U. S. Additionally, the U. S. may require that reports be submitted through the appropriate local tax authority in the applicable IGA jurisdiction, rather than the IRS. Given the varying U. S. FATCA requirements applicable to diﬀerent jurisdictions, managers should review and conﬁrm the speciﬁc U. S. FATCA reporting requirements that may apply. As a reminder for this year, we strongly encourage managers to ﬁle the required reports and notiﬁcations, even if they already missed previous deadlines. Applicable jurisdictions may be increasing enforcement and monitoring of FATCA reporting and imposing penalties for each day late.
CRS. Funds should also monitor their compliance with the Organisation for Economic Cooperation and Development’s Common Reporting Standard (“CRS”). All “Financial Institutions” in the Cayman Islands and British Virgin Islands are required to register with the respective jurisdiction’s Tax Information Authority and submit returns to the applicable CRS reporting system by May 31, 2018. Managers to funds domiciled in other jurisdictions should also confirm whether any CRS reporting will be required in such jurisdictions. CRS reporting must be completed with the CRS XML v1.0 or a manual entry form on the Automatic Exchange of Information portal. We recommend managers contact their tax advisors to stay on top of the U. S. FATCA and CRS requirements and avoid potential penalties.
Annual Management Company Matters:
Management Company Expenses. Managers who distribute proﬁts on an annual basis should attempt to address management company expenses in the year they are incurred. If ownership or proﬁt percentages are adjusted at the end of the year, a failure to manage expenses could significantly impact the economics of the partnership or the management company.
Avaliações de funcionários. An eﬀective annual review process is important to reduce the risk of employment-related litigation and protect the management company in the event of such litigation. Moreover, it is an opportunity to provide context for bonuses, compensation adjustments, employee goals and other employee-facing matters at the ﬁrm. It is not too late to put an annual review process in place.
Compensation Planning. In the fund industry, and the ﬁnancial services industry in general, the end of the year is the appropriate time to make adjustments to compensation programs. Since much of a manager’s revenue is tied to annual income from incentive fees, any changes to the management company structure, affiliated partnerships, or any shadow equity programs should be eﬀective on the ﬁrst of the year. Make sure that partnership agreements and operating agreements are appropriately updated to reflect such changes.
Seguro. If a manager carries D&O insurance or other liability insurance, the policy should be reviewed on an annual basis to ensure that the manager has provided notice to the carrier of all claims and all potential claims. Newly launched funds should also be added to the policy as appropriate.
Other Tax Considerations. Fund managers should assess their overall tax position and consider several steps to optimize tax liability. Managers should also be aware of self-employment taxes, which can be minimized by structuring the investment manager as a limited partnership. Managers can take several steps to optimize their tax liability, including: (i) changing the incentive fee to an incentive allocation; (ii) use of stock-settled stock appreciation rights; (iii) if appropriate, terminating swaps and realizing net losses; (iv) making a Section 481(a) election under the Internal Revenue Code of 1986, as amended (the “Code”); (v) making a Section 475 election under the Code; and (vi) making charitable contributions. Managers should consult legal and tax professionals to evaluate these options.
SEC Adopts Form ADV Amendments. On July 1, 2017, a technical amendment to Form ADV and ADV-W was implemented to reﬂect a new Wyoming Law that now requires investment advisers with $25 million to $100 million in RAUM and a principal place of business in Wyoming to register with the state as an investment adviser instead of the SEC.
On October 1, 2017, additional SEC amendments to Form ADV went into eﬀect, which will apply to both RIAs and ERAs. Among other technical amendments, the new Form ADV requires investment advisers to provide detailed information with regard to their separately managed accounts SMAs, including aggregate level reporting of asset types across an adviser’s SMAs and reporting of custodian information under certain circumstances. Investment advisers that utilize borrowing or derivatives on behalf of SMAs will also need to report the RAUM attributable to various levels of gross notional exposure and corresponding borrowings and derivatives exposure. The SEC noted that advisers may not need to report this SMA information until its annual amendment. The SEC concurrently adopted an amendment to the books and records rule (Rule 204-2 under the Advisers Act), requiring RIAs to keep records of documentation necessary to demonstrate the performance or rate of return calculation distributed to any person as well as all written performance-related communications received or sent by the RIA. Advisers who have questions on any changes to the new Form ADV should contact their compliance groups.
SEC Action Against Outsourced CCO. On August 15, 2017, the SEC reached a settlement with an outsourced CCO and his consulting ﬁrm, which oﬀered compliance consulting and outsourced CCO services to investment advisory ﬁrms. The outsourced CCO served as CCO for two registered investment advisers (collectively, “Registrants”). The SEC found the Registrants either ﬁled their Form ADV annual amendments late or not at all, and the outsourced CCO relied on and did not confirm estimates provided by the Registrants’ CIO. It was established that the RAUM and number of advisory accounts reported on the Form ADV was greatly overstated. The SEC held that the outsourced CCO violated the Advisers Act by failing to amend the Form ADV annually and willfully submitting a false statement. The SEC suspended the outsourced CCO from association or affiliation with any investment advisers for one year and ordered him to pay a $30,000 civil penalty. Outsourced compliance persons solely relying on internal estimates of RAUM and number of advisory contracts, without further confirmation, should be aware of the risk of filing false reports and potential SEC enforcement actions.
CFTC Amendments to Recordkeeping Requirements. On August 28, 2017, amendments to Regulation 1.31 allow the manner and form of recordkeeping to be technology-neutral (i. e. not requiring or endorsing any speciﬁc record retention system or technology, and not limiting retention to any format).
CFTC Grants Permission for Bitcoin Futures Trading. On December 1, 2017, the CFTC issued a statement granting permission to the Chicago Mercantile Exchange Inc. (“CME”) and the Chicago Board Options Exchange Inc. (“CBOE”) to list Bitcoin futures contracts on the respective exchanges. Less than two weeks after the release of CFTC’s statement, Bitcoin futures contracts trading began on the CBOE futures exchange on December 10, 2017. Early reports suggest a strong interest in Bitcoin futures contracts set to expire in early 2018. CME is set to begin Bitcoin futures contracts trading next week.
CFTC Grants SEF and DCO Registration to LedgerX. The CFTC granted LedgerX registration status as both a swap execution facility (“SEF”) and a derivative clearing organization. Now that the exchange is live, LedgerX is the ﬁrst CFTC-approved exchange to facilitate and clear options on digital assets. Previously, the CFTC granted SEF registration to TeraExchange, which oﬀers forwards and swaps on Bitcoin. LedgerX oﬀers physically-settled and day-ahead swaps on Bitcoin to U. S.-based eligible contract participants and has a fully-collateralized clearing model where customers must post collateral to cover maximum potential losses prior to trading.
DOL Implements Fiduciary Rule. On June 9, 2017, the DOL partially implemented its amended fiduciary rule (the “Fiduciary Rule”), which expands the definition of a “ﬁduciary” to apply to anyone that makes a “recommendation” as to the value, disposition or management of securities or other investment property for a fee or other compensation, to an employee beneﬁt plan or a tax-favored retirement savings account such as an individual retirement account (“IRA”) (collectively “covered account”) will be deemed to be providing investment advice and, thus, a “ﬁduciary”, unless an exception applies. Fund managers with investments from covered accounts or that wish to accept contributions from covered accounts will need to consider whether their current business activities and communications with investors could constitute a recommendation, including a suggestion that such investors invest in the fund. The Fiduciary Rule provides an exception for activity that would otherwise violate prohibited transaction rules, which is applicable to investments made by plan investors who are represented by a qualiﬁed independent ﬁduciary acting on the investor’s behalf in an arms’ length transaction (typically for larger plans). The Fiduciary Rule also contemplates a Best Interest Contract (“BIC”) Exemption, which permits investment advisers to retail retirement investors to continue their current fee practices, including receiving variable compensation, without violating prohibited transactions rules, subject to certain safeguards. Managers with questions regarding the applicability of these exemptions should discuss with counsel.
Two New California Employment Laws Limit Inquiries into Certain Information During the Hiring Process. In October, California Governor Jerry Brown approved Assembly Bill No. 168 and Assembly Bill No. 1008, restricting certain information a California employer may inquire about and consider during its hiring process. Assembly Bill No. 168 restricts employers from requiring prospective employees to disclose salary history. An employer may not inquire or rely on such information when deciding whether to extend an offer to a job applicant or deciding an amount to offer to a job applicant. Assembly Bill No. 1008 restricts California employers with five or more employees from including, inquiring and considering information about an employee applicant’s criminal history until a conditional offer has been extended to a job applicant. Assembly Bill No. 1008 further provides certain requirements an employer must comply with after such information has been legally acquired and is taken into consideration when deciding whether to hire a job applicant, as well as certain procedures to comply with when deciding a job applicant is not suitable for the position. Both laws become effective January 1, 2018. With respect to California employees, you should review before year end, your job application, offer letter template, and compliance manual if they contain questions regarding salary or criminal history.
MSRB Establishes Continuing Education Requirements for Municipal Advisors. Beginning January 1, 2018, the Municipal Securities Rulemaking Board (“MSRB”) will implement amendments requiring municipal advisors to maintain a continuing education program in place for “covered persons”. The amendment will require an annual analysis to evaluate training needs, develop a written training plan, and implement training in response to the needs evaluated. The amendments promote compliance with the firms record-keeping policies regarding the continuing education program. Municipal advisors will have until December 31, 2018 to comply with the new requirements.
SIPC and FINRA Adopt Streamlined Reporting Process. As of September 1, 2017, investment advisory ﬁrms who are members of both the Securities Investor Protection Corporation (“SIPC”) and the Financial Industry Regulatory Authority (“FINRA”) now only need to file one annual report to both agencies through FINRA’s reporting portal. This will ease the reporting burden as well as cut down on compliance costs, for firms.
SEC Provides Guidance to Address MiFID II. On October 26, 2017, the SEC issued three no-action relief letters to provide guidance on the Markets in Financial Instruments Directive II (“MiFID II”). Effective January 3, 2018, MiFID II most notably introduces the requirement for UK broker-dealers to “unbundle” investment research from trading commissions, requiring distinct pricing for each of the services rendered. The first no-action letter provides that for the first 30 months from when MiFID II becomes effective, U. S. broker-dealers will not be considered an investment adviser upon accepting payments from an investment manager. The second no-action letter states that broker-dealers may continue to rely on the safe harbor under Section 28(e) of the Securities and Exchange Act of 1934, as amended, for payments made from client assets made alongside payments for execution to an executing broker-dealer. The final no-action letter addresses MiFID II’s various payment arrangements surrounding research activities and provides that an investment adviser may aggregate client orders, although research payments may differ for each client.
Tax Cuts and Jobs Act Impact on Hedge Funds. In late 2017, the House Ways and Means Committee and the Senate Finance Committee passed companion legislation in an attempt to reform the US tax system. One of the proposed revisions included in H. R. 1 or the Tax Cut and Jobs Act (“Tax Act”) is a reduction in the tax rate for a pass-through entity’s “capital percentage” business income. The applicable tax rate would be 25%, with the non-professional services entity’s “capital percentage” business income capped at 30%, and the remaining amount of income characterized as “labor”.
Cayman and BVI Update Beneficial Ownership Regimes. Amendments to the Cayman Islands beneﬁcial ownership laws went into eﬀect on July 1, 2017, which require certain entities, including exempted funds, to take reasonable steps to identify their beneﬁcial owners (generally persons holding more than 25% interests in such an entity). Of interest to fund managers, the following types of funds are exempted from the scope of these amendments: funds that are regulated by the Cayman Islands Monetary Authority, that employ a Cayman regulated administrator, or funds that are managed by an adviser regulated in an approved jurisdiction, such as a state or SEC RIA. The British Virgin Islands (the “BVI”) also implemented amendments to its beneﬁcial ownership regime eﬀective July 1, 2017, which requires registered agents of non-exempt BVI companies, such as unregulated private funds, to input beneﬁcial ownership information into a platform called the BOSS (Beneﬁcial Ownership Secure Search) System. The BOSS System is accessible only to select regulators and fulfills BVI commitments to the United Kingdom under the UK Exchange of Notes Agreement.
U. K. Transitions from U. K. FATCA to CRS. The U. K. transitioned from U. K. FATCA to CRS on July 1, 2017, and now joins more than 85 countries, including the Cayman Islands and the BVI, in the automatic exchange of information between participating countries. The full list of signatory countries is available here. Similar to U. S. FATCA, CRS sets forth a standard by which signatory countries can more easily and automatically exchange certain reportable tax information. We recommend that managers consult their tax advisors to determine whether they are subject to any CRS reporting requirements.
Cayman Islands Introduces New AML Regulations. New Cayman Islands AML regulations came into eﬀect on October 2, 2017. The new regulations expand AML/CFT (anti-money laundering/ countering the ﬁnancing of terrorism) obligations to unregulated investment entities and additional ﬁnancial vehicles, which are seen to align more closely with the Financial Action Task Force (FATF) recommendations and global practice. In a shift to a risk - based approach to AML regulations, there will be two separate due diligence procedures depending on the risk assessment of investors. Certain investors that are deemed to be high-risk, such as politically exposed persons, will be required to go through a more extensive veriﬁcation process, while low-risk investors will be able to submit to a simpliﬁed due diligence process. If you have any questions, we recommend that you reach out to your administrator or oﬀshore counsel.
New PRIIPs Disclosure Requirements for EEA Retail Investors. Regulation (EU) No 1286/2014 (“Regulation”), effective January 1, 2018, requires manufacturers of Packaged Retail and Insurance-based Investment Products (“PRIIPs”) to make available Key Information Documents (“KIDs”) to “retail investors” (generally any investor that does not meet the “professional client” status) in member states of the European Union and the Economic European Area (collectively, “EEA”). If a PRIIP manufacturer, such as a fund manager, accepts additional investments or a new investment from an EEA retail investor on or after January 1, 2018, it must comply with the Regulation’s technical requirements pertaining to KIDs. “Retail investors” under the Regulation can include investors such as high net worth individuals, who are not traditionally considered retail investors. Fund managers should consider the applicability of the Regulation given the types of EEA investors they may be marketing to, and managers who wish to forego complying with the Regulation should not accept investments from EEA retail investors and implement additional procedures to ensure such investors are not marketed to or admitted in the fund. Fund managers with questions regarding the Regulation should discuss with counsel.
Compliance Calendar. As you plan your regulatory compliance timeline for the coming months, please keep the following dates in mind:
December 18, 2017 – IARD Preliminary Renewal Statement payments due (submit early to ensure processing by deadline) December 26, 2017 – Last day to submit form filings via IARD prior to year-end December 31, 2017 – Review RAUM to determine 2018 Form PF filing requirement January 15, 2018 – Quarterly Form PF due for large liquidity fund advisers (if applicable) January 31, 2018 – “Annex IV” AIFMD filing February 15, 2018– Form 13F due February 15, 2018 – Annual Schedule 13G updates due February 15, 2018 – Annual Form 13H updates due February 28, 2018 – Deadline for re-certification of CFTC exemptions March 1, 2018 – Quarterly Form PF due for larger hedge fund advisers (if applicable) April 2, 2018 – Annual ADV amendments due (for December 31st fiscal year end) April 2, 2018 – Annual Financial Reports due for CA RIAs (if applicable) April 18, 2018 – FBAR deadline for certain individuals with signature authority over, but no financial interest in, one or more foreign financial accounts April 29, 2018 – Annual Form PF due for all other advisers (other than large liquidity fund advisers and large hedge fund advisers) Periodic – Form D and blue sky filings should be current Periodic – Fund managers should perform “Bad Actor” certifications annually.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Mr. Mallon can be reached directly at 415-868-5345.
Cole-Frieman & Mallon 2017 Third Quarter Update.
Below is our quarterly newsletter. If you would like to be added to our distribution list, please contact us.
October 26, 2017.
Clients, Friends, Associates:
This summer saw many exciting developments in the digital assets space as well as case law evolution that may expand the liability of fund managers. We would like to provide you with a brief overview of those topics and a few noteworthy items as we move into the fourth quarter of 2017.
SEC Adopts Amendments to Form ADV and the Books and Records Rule. SEC amendments to Form ADV went into effect on October 1, 2017, which will apply to both registered investment advisers (“RIAs”) and exempt reporting advisers. Among other technical amendments, the new Form ADV requires investment advisers to provide detailed information with regard to their separately managed accounts (“SMAs”), including aggregate level reporting of asset types across an adviser’s SMAs and reporting of custodian information under certain circumstances. Investment advisers that utilize borrowing or derivatives on behalf of SMAs will also need to report the regulatory assets under management (“RAUM”) attributable to various levels of gross notional exposure and corresponding borrowings and derivatives exposure. The SEC noted that advisers may not need to report this SMA information until its annual amendment.
The SEC concurrently adopted an amendment to the books and records rule (Rule 204-2 under the Investment Advisers Act of 1940, as amended (“Advisers Act”)), requiring RIAs to keep records of documentation necessary to demonstrate the performance or rate of return calculation distributed to any person as well as all written performance-related communications received or sent by the RIA. Advisers who have questions on any changes to the new Form ADV should contact their compliance groups.
SEC Provides Observations from Cybersecurity Examinations. On August 7, 2017, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) published observations from its “Cybersecurity 2 Initiative” where 75 SEC registered broker-dealers (“BDs”), RIAs and investment funds were examined to assess cybersecurity preparedness. OCIE observed that all BDs and funds, and nearly all RIAs, maintained cybersecurity-related policies and procedures addressing protection of client information. OCIE also noted an increase in cybersecurity preparedness since the “Cybersecurity 1 Initiative” conducted in 2014.
However, key findings from the examinations include:
policies and procedures were inadequate and lacking specificity in employee guidance; failure by financial firms to adhere to or enforce their policies and procedures; and Regulation S-P-related issues, including failure to address security vulnerabilities or install other operational safeguards to protect client nonpublic personal information.
OCIE will continue its examination of financial firms’ cybersecurity compliance systems and we will be on the lookout for further guidance in this growing area of concern.
SEC Risk Alert Discusses Most Frequent Advertising Rule Compliance Issues. On September 14, 2017, OCIE published a risk alert based on its recent examination of 70 RIAs related to Rule 206(4)-1 under the Advisers Act (the “Advertising Rule”). The Advertising Rule generally prohibits RIAs from distributing advertisements or other communications that contain untrue, false or misleading statements. The most common Advertising Rule deficiencies observed include: (i) misleading performance results, caused by lack of sufficient disclosures, (ii) misleading one-on-one presentations, (iii) misleading claims of compliance with voluntary performance standards, (iv) cherry-picked profitable stock selections, (v) misleading selection of recommendations, and (vi) failure to implement compliance policies and procedures designed to prevent non-compliant advertising practices. OCIE encourages RIAs to consider their advertising activities within the purview of the Advertising Rule and its prohibitions.
SEC Action Against Hedge Fund Adviser. On August 21, 2017, the SEC reached a settlement with a hedge fund adviser for failing to establish, maintain, and enforce a compliance system to prevent the misuse of material, nonpublic information (“MNPI”). The settlement comes after the adviser’s analysts were charged with insider trading of MNPI relating to government plans to cut Medicare reimbursement rates. The SEC alleged that analysts received tips from a third-party political intelligence analyst who had a source within the Centers for Medicare and Medicaid Services, and that the adviser then used those tips to generate trading profits. The $4.6 million settlement included a penalty of $3.9 million and a disgorgement of compensation.
CFTC Grants SEF and DCO Registration to LedgerX . The CFTC granted LedgerX registration status as both a swap execution facility (“SEF”) and a derivative clearing organization (“DCO”). Now that the exchange is live, LedgerX is the first CFTC-approved exchange to facilitate and clear options on digital assets. Previously, the CFTC granted SEF registration to TeraExchange, which offers forwards and swaps on Bitcoin. LedgerX plans to initially offer physically-settled and day-ahead swaps on Bitcoin to U. S.-based eligible contract participants (“ECPs”) and has a fully-collateralized clearing model where customers must post collateral to cover maximum potential losses prior to trading.
CBOE Partners with Gemini to Launch Bitcoin Futures Exchange. On the heels of the CFTC’s LedgerX announcement, the Chicago Board Options Exchange (“CBOE”) announced that it has partnered with Gemini, a digital assets exchange and custodian, to launch the first U. S.-regulated Bitcoin futures exchange. Gemini was founded by the Winklevoss twins, whose proposed “Winklevoss Bitcoin Trust” ETF was rejected by the SEC this past spring. Gemini granted to CBOE an exclusive license to use Gemini’s Bitcoin market data that will allow CBOE to create derivative products, including indices, to trade on a CBOE-created exchange. Although CBOE has not requested approval from the CFTC to form such an exchange, it plans to offer Bitcoin futures by the end of 2017 or early 2018. We will keep managers apprised of ongoing developments.
House Introduces Virtual Currency Tax Act. In September, The Cryptocurrency Tax Fairness Act of 2017 was introduced in the House of Representatives. The bill was introduced by co-chairs of the Congressional Blockchain Caucus, Jared Polis (D-Co) and David Schweikert (R-Az), and calls for a de minimis exception from gross income for gains related to virtual currency transactions under $600. Such an exception could serve to incentivize small, day-to-day transactions. The bill also calls upon the Treasury Department to issue guidance on whether a gain or loss should be recognized in virtual currency transactions. If approved, the bill will apply to virtual currency transactions beginning January 1, 2018.
SEC Implicates Two ICOs in Alleged Fraud. On September 29, 2017, the SEC charged a businessman who was allegedly running two fraudulent initial coin offering (“ICO”) schemes by selling unregistered securities in the form of digital tokens that did not exist. The REcoin ICO was marketed as the first token backed by real estate investments and allegedly misrepresented to investors the company’s expertise and the amount of capital raised. The second ICO was marketed similarly but with respect to the diamond industry. In July, the SEC issued an investor alert warning about the risk of ICOs. The SEC is seeking to bar the businessman from participating in any offering of digital securities in the future.
ICOs Banned in China and South Korea. The People’s Bank of China (“PBoC”), China’s central bank and financial regulator, announced an immediate ban of ICOs within China. The announcement sent shockwaves throughout the cryptocurrency industry, highlighted by declines across various token prices. Many see this ban as a temporary stop-gap measure to give PBoC time to develop industry oversight. South Korea’s Financial Services Commission made a similar announcement a few weeks later, stating that all ICO fundraising would be banned and that it would establish tighter anti-money laundering prevention policies for virtual currencies.
Department of Labor (“DOL”) Proposes Amendments to Fiduciary Rule Exemptions. The DOL Fiduciary Rule, discussed in our previous quarterly update, may face further delays before full implementation. Citing a concern that affected parties may incur undue expense in complying with a rule that may be further revised or repealed, the DOL submitted a proposal to the Office of Management and Budget (“OMB”) to extend the transition period from January 1, 2018 to July 1, 2019. The proposal included amendments to a few of the Fiduciary Rule exemptions, including the best interest contract exemption, which permits investment advisers to retail retirement clients to continue their current fee practices. The OMB approved the proposal and the DOL published its proposal on August 31, 2017. Proponents for the amendments point to the SEC’s commitment to work with the DOL to harmonize the Fiduciary Rule with SEC regulations, and that the delay will give the agencies time to develop clear regulations together. Critics claim that the delay will cause more uncertainty in the market during the extended transition period, and that the delay is the first step in an attempt by opponents of the rule to eliminate it completely.
The Cayman Islands Introduce New AML Regulations. New Cayman Islands AML regulations came into effect on October 2, 2017. The new regulations expand AML/CFT (anti-money laundering/countering the financing of terrorism) obligations to unregulated investment entities and additional financial vehicles, which are seen to align more closely with the Financial Action Task Force (FATF) recommendations and global practice. In a shift to a risk-based approach to AML regulations, there will be two separate due diligence procedures depending on the risk assessment of investors. Certain investors that are deemed to be high-risk, such as politically exposed persons, will have to go through a more extensive verification process, while low-risk investors will be able to submit to a simplified due diligence process. If you have any questions, we recommend that you reach out to your administrator or offshore counsel.
U. S. Court of Appeals for the Second Circuit Clarifies Insider Trading Case. In August 2017, in a long-awaited opinion, the Second Circuit upheld a former portfolio manager’s 2014 conviction for insider trading in U. S. v. Martoma , in reaction to the US Supreme Court’s intervening ruling in Salman v. United States , which we discussed in a previous update. The Martoma Court rejected much of its earlier decision in U. S v. Newman by holding its previous requirement that there be a “meaningfully close personal relationship” between tipper and tippee was “no longer good law”. Instead, the Martoma Court created a new standard requiring the government to prove that the tipper expected the tippee to trade on the information and the tip “resembled trading by the insider followed by a gift of the profits”. By eliminating Newman’s “close personal relationship” requirement, the Martoma ruling has made it easier for the government to prosecute and win insider trading cases, however, it’s likely this area of law will continue to evolve.
“Group” Theory of Liability Expanded by U. S. District Court. Continuing a trend of expanding the “group” theory of liability, the Northern District of California’s recent ruling in Sand v. Biotechnology Value Fund, L. P. may have far-reaching ramifications for managers of multiple funds. The defendants in the ongoing Sand case include a general partner and its two hedge funds (the “group funds”). The Court held that the group funds’ aggregate collective ownership of the subject security was directly relevant to the issue of beneficial ownership because the group funds shared the same general partner. Section 16 of the Securities and Exchange Act of 1934, as amended, requires corporate insiders and beneficial owners of 10% or more of a registered security to file statements with the SEC disclosing their ownership interest. Under the Sand Court’s theory of group liability, each of the group funds would be subject to the Section 16 reporting requirements if the group collectively owned 10% or more of the security, even if an individual group fund owned less than 10%, and each group fund could also be directly liable for any Section 16 violations. Given this evolution of Section 16 liability, managers of multiple funds that hold positions in the same security should carefully monitor beneficial ownership and evaluate whether a reporting obligation may exist for their funds.
SIPC and FINRA Adopt Streamlined Reporting Process. Effective September 1, 2017, investment advisory firms who are members of both the Securities Investor Protection Corporation (“SIPC”) and the Financial Industry Regulatory Authority (“FINRA”) only need to file one annual report to both agencies through FINRA’s reporting portal. This will ease the reporting burden, as well as cut down on compliance costs for firms.
FCA Makes Final Policy Statement on MiFID II. The Financial Conduct Authority (“FCA”), which regulates the financial services industry in the UK, has published its final policy statement regarding the Markets in Financial Instruments Directive II (“MiFID II”). Effective January 1, 2018, MiFID II most notably introduces the requirement for UK BDs to “unbundle” investment research from trading commissions, requiring discrete pricing for each of the services rendered. This requirement is in contrast to the “soft dollar” safe harbor currently available in the U. S. and may have implications for U. S.-based investment advisers who engage UK BDs, as the new requirement could affect pricing of services.
Cayman and BVI Update Beneficial Ownership Regimes. Amendments to the Cayman Islands beneficial ownership laws went into effect on July 1, 2017, which require certain entities, including exempted funds, to take reasonable steps to identify their beneficial owners (generally persons holding more than 25% interests in an entity). Of interest to fund managers, the amendments exempt from its scope: funds that are regulated by Cayman Islands Monetary Authority (“CIMA”), that employ a Cayman regulated administrator, or funds that are managed by an adviser regulated in an approved jurisdiction, such as a state or SEC RIA. The British Virgin Islands (the “BVI”) also implemented amendments to its beneficial ownership regime effective July 1, 2017, which now requires registered agents of non-exempt BVI companies, such as unregulated private funds, to input beneficial ownership information into a platform called the BOSS (Beneficial Ownership Secure Search) System. The BOSS System is accessible only to select regulators and fulfills BVI commitments to the United Kingdom under the UK Exchange of Notes agreement.
MSRB to Hold Compliance Outreach Program. In a cross-agency announcement, the SEC is partnering with the Municipal Securities Rulemaking Board (“MSRB”) and FINRA to sponsor the 2017 Compliance Outreach Program for Municipal Advisors, a day-long compliance forum to allow industry professionals to discuss compliance practices with regulators and to promote a more effective compliance structure for municipal advisors. The program will be held on November 8, 2017, from 9am to 4pm ET, in the SEC’s Atlanta Regional Office and will be streamed live on the SEC website. The agenda for this event can be located here, and any advisors who are interested in attending can register here.
Compliance Calendar. As you plan your regulatory compliance timeline for the coming months, please keep the following dates in mind:
October 1, 2017 – Revised Form ADV 1A goes into effect for all advisers October 16, 2017 – Quarterly Form PF due for large liquidity fund advisers (if applicable). November 14, 2017 – Form PR filings for registered Commodity Trading Advisors (“CTAs”) that must file for Q3 within 45 days of the end of Q3 2017. November 29, 2017 – Form PF filings for Large Hedge Fund Advisers with December 31 fiscal year-ends filing for Q3 2017. November 29, 2017 – Registered Commodity Pool Operators (“CPOs”) must submit a pool quarterly report (“PQR”). December 31, 2017 – Cayman funds regulated by CIMA that intend to de-register (i. e. wind down or continue as an exempted fund) should do so before this date in order to avoid 2018 CIMA fees. Periodic – Fund managers should perform “Bad Actor” certifications annually. Periodic – Amendment due on or before anniversary date of prior Form D filing(s), or for material changes. Periodic – CPO/CTA Annual Questionnaires must be submitted annually, and promptly upon material information changes.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Mr. Mallon can be reached directly at 415-868-5345.
Cole-Frieman & amp; Mallon 2017 Second Quarter Update.
Below is our quarterly newsletter. If you would like to be added to our distribution list, please contact us.
Clients, Friends, Associates:
We hope you are enjoying the summer. Although the second quarter is typically not as busy as the first quarter from a regulatory/compliance standpoint, we saw many regulatory developments this quarter, as well as a surge in digital asset investment activity. Below is an overview of noteworthy items, as well as what to expect as we move into the third quarter.
Proposed SEC Amendment to Advisers Act for VC and Private Fund Advisors. On May 3, 2017, the SEC proposed a rule to amend the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), that would amend the definition of a “venture capital fund” and the definition of “assets under management” with respect to the private fund adviser exemption. For purposes of the exemption for advisers to venture capital funds, small business investment companies (“SBIC”) would be included in the definition of a venture capital fund. This would expand exemption coverage for advisers solely relying on the SBIC adviser’s exemption. Eligible advisers would file as an “exempt reporting adviser,” reducing the extra costs and burdens of recordkeeping required of registered investment advisers. Additionally, with respect to the private fund adviser exemption, currently firms that advise solely private funds and that have less than $150 million of regulatory assets under management are exempt from registration with the SEC. The proposed rule would exclude SBIC assets from the calculation of private fund assets used to determine if the $150 million threshold has been crossed. The SEC closed requests for comment on the proposal on June 8, 2017.
SEC Seeks Input Regarding Department of Labor (“DOL”) Fiduciary Rule. SEC Chairman Jay Clayton issued a statement on June 1, 2017 welcoming public input to help the SEC formulate its assessment of the impact the DOL’s Fiduciary Rule (as discussed further below) may have on investors and entities regulated by the SEC. The statement was released in anticipation of a DOL request for information from the SEC to promote consistency and clarity with respect to implementation of the rule between the two agencies. Interested individuals can respond to SEC questions about the rule’s impact on investment advisers and broker-dealers via email or an online webform. Public submissions remain open and are currently available for review.
SEC Action Against Outsourced CCO. On August 15, 2017, the SEC reached a settlement with an outsourced CCO and his consulting firm, which offered compliance consulting and outsourced CCO services to investment advisory firms. The outsourced CCO served as CCO for two registered investment advisers (collectively, “Registrants”). The SEC found the Registrants either filed their Form ADV annual amendments late or not at all, and the outsourced CCO relied on estimates provided by the Registrants’ CIO. It was established the AUM and number of advisory accounts reported on the Form ADV were greatly overstated, and the outsourced COO did not confirm the accuracy of the information. The SEC held the outsourced CCO violated the Investment Advisers Act by failing to amend the Form ADV annually and willfully submitting a false statement. The SEC suspended the outsourced CCO from association or affiliation with any investment advisers for one year and ordered him to pay a $30,000 civil penalty. The action indicates that outsourced compliance persons solely relying on internal estimates of AUM and number of advisory contracts, without further confirmation, are at risk of filing false reports and subject to enforcement with the SEC.
CFTC Requests Input to Simplify and Modernize Commission Rules. In response to President Trump’s executive order to reform regulations to stimulate economic growth, the CFTC is requesting public input in an effort to simplify and modernize CFTC rules and make complex CFTC regulations more understandable for the public. Rather than rewrite or repeal existing rules, a primary goal of Project Keep it Simple Stupid (“Project KISS“) is to find simpler means of implementing existing rules. The CFTC will review rules with an ultimate goal of reducing regulatory burdens and costs for industry participants. The solicitation period for comments began on May 3, 2017 and will close on September 30, 2017. Comments can be submitted via the Project KISS portal on the CFTC’s website.
CFTC Approves Amendments to Strengthen Anti-Retaliation Whistleblower Protections. The CFTC unanimously approved new amendments to the “Whistleblower Incentives and Protection” section of the Commodity Exchange Act of 1936, as amended (the “CEA”) on May 22, 2017. The amendments provide for greater anti-retaliation measures against employers who attempt to retaliate against employees that report employer CEA violations. Further, the amendments help clarify the process of determining whistleblower awards. The amendments will become effective July 31, 2017.
CFTC Unanimously Approves Recordkeeping Amendment Requirements. On May 23, 2017, the CFTC unanimously approved amendments to Regulation 1.31 to clarify the rule and modernize the manner and form required for recordkeeping. Specifically, the amendment will allow the manner and form of recordkeeping to be technology-neutral (i. e. not requiring or endorsing any specific record retention system or technology, and not limiting retention to any format). The amendments do not expand or decrease any existing requirements pertaining to regulatory records covered by other CFTC regulations.
CoinAlts Fund Symposium. Cole-Frieman & amp; Mallon LLP is pleased to announce that it is hosting, along with fellow symposium sponsors Arthur Bell CPAs, MG Stover & Co., and Harneys Westwood & Riegels, the CoinAlts Fund Symposium on Thursday, September 14, 2017, in San Francisco. This one-day symposium is for managers, investors and service providers in the cryptocurrency space and discussion points will include cryptocurrency investment, as well as legal and operational issues pertaining to this new asset class. The key-note speaker will be Olaf Carlson-Wee, Founder and CEO of Polychain Capital, and the symposium will include a number of other speakers representing the perspectives of investment management, fund administration, audit and tax, custody of funds, offshore fund formation and compliance. Early bird registration for investors, manager and students ends August 31st.
California Proposes a BitLicense via the Virtual Currency Act. Following in New York’s footsteps with its implementation of a BitLicense to regulate virtual currency activity in New York, California has proposed A. B. 1123 (or the “Virtual Currency Act”), its own version of a BitLicense. If passed, any persons involved in a “virtual currency business” must register with the California Commissioner of Business Oversight (the “Commissioner”). Under the Virtual Currency Act, a “virtual currency business” is defined as maintaining full custody or control of virtual currency in California on behalf of others. The application and registration process includes an extensive review of the business by the Commissioner, maintenance of a minimum capital amount, annual auditing, and an application fee of $5,000 with a $2,500 renewal. Currently aimed at those offering exchanges or wallet services we do not believe digital asset fund managers will need to obtain this licence. More information can be found here.
SEC Grants Review of Initial Rejection of Winklevoss Bitcoin Exchange-Traded Fund. In March, the SEC rejected a proposed rule change to list and trade shares of the Winklevoss Bitcoin Trust as commodity-based trust shares on the Bats BZX Exchange. In the disapproval order, the SEC claimed that the bitcoin market was too unregulated at the time, and the BZX Exchange would therefore lack the capability of entering into necessary surveillance-sharing agreements that are required of current commodity-trust exchange traded products. Bats BZX Exchange filed a petition for review of the disapproval order. The SEC granted the petition in April and has yet to release any further comments. As digital asset trading has increased over the past few months, many are looking at the review of the petition as a potential indicator of future cryptocurrency regulation to come.
SEC Petitioned for Proposed Rules and Regulation of Digital Assets and Blockchain Technology. A broker-dealer operating an alternative trading system (“ATS”) for unregistered securities, petitioned the SEC for rulemaking regarding guidance on digital assets. The Petitioner argued that some digital assets should be considered securities, and that current regimes in the United Kingdom and Singapore can be modeled domestically to successfully facilitate the issuance and trading of digital assets. The model currently used by those countries is known as a “regulatory sandbox,” in which companies are allowed to operate without significant regulatory interference, so long as they do so within a set of established rules. As of today, the SEC has not responded to the petition, but we expect the frequency of petitions and requests for no-action letters to increase as this space continues to grow.
Department of Labor (“DOL”) ‘Implements’ Fiduciary Rule. On June 9, 2017, the DOL partially implemented its amended fiduciary rule (the “Fiduciary Rule”), which expands the definition of a “fiduciary” subject to important exemptions. On August 9, 2017 the DOL submitted proposed amendments to these exemptions thereby delaying enforcement; and extending the transition period and uncertainty over the ultimate fate of the fiduciary rule by another eighteen months to July 1, 2019. Managers with questions regarding the applicability of these exemptions should discuss with counsel.
Generally, anyone that makes a “recommendation” as to the value, disposition or management of securities or other investment property for a fee or other compensation, to an employee benefit plan or a tax-favored retirement savings account such as an individual retirement account (“IRA”) (collectively “covered account”) will be deemed to be providing investment advice and, thus, a “fiduciary,” unless an exception applies. Many fund managers and other investment advisers may unintentionally be deemed to be fiduciaries to their retirement investors under the amended rule. Fund managers with investments from covered accounts or that wish to accept contributions from covered accounts will need to consider whether their current business activities and communications with investors could constitute a recommendation, including a suggestion that such investors invest in the fund. Under certain circumstances, fund managers may be deemed fiduciaries. Notably, the Fiduciary Rule provides an exception for activity that would otherwise violate prohibited transaction rules which is applicable to investments made by plan investors who are represented by a qualified independent fiduciary acting on the investor’s behalf in an arms’ length transaction (typically for larger plans). For clients or investors that do not have an independent fiduciary, managers must evaluate whether they are fiduciaries and what actions must be taken to comply with ERISA’s fiduciary standards or the prohibited transaction rules. The Fiduciary Rule also contemplates a Best Interest Contract (“BIC”) Exemption, which permits investment advisers to retail retirement investors to continue their current fee practices, including receiving variable compensation, without violating prohibited transactions rules, subject to certain safeguards.
We recommend that investment advisers contact their counsel regarding making any necessary updates to the applicable documents.
MSRB Establishes Continuing Education Requirements for Municipal Advisors. Beginning January 1, 2018, the Municipal Securities Rulemaking Board (“MSRB”) will implement amendments requiring municipal advisors to have a continuing education program in place for “covered persons” and require such persons to participate in continuing education training. The amendment will require an annual analysis to evaluate training needs, develop a written training plan, and implement training in response to the needs evaluated. The amendments also provide for record-keeping of the plans and analysis to promote compliance. Municipal advisors will have until December 31, 2018 to comply with the new requirements. To further clarify the requirements, the MSRB will be hosting an education webinar for municipal advisors on Thursday October 12, 2017, from 3:00 p. m. às 16:00 EDT.
Full Implementation of MSRB Series 50 Examination. The grace period for municipal advisor representatives and municipal advisor principals that have not passed the Series 50 examination to qualify as a municipal advisor representative or principal will be ending on September 12, 2017. Thereafter, all municipal advisor professionals who either engage in municipal advisory activities or engage in the management or supervision of municipal advisory activities will be required to pass the Series 50. The MSRB has a content outline which specifies eligibility, the structure of the exam, and the regulations to be tested.
Form ADV Technical Amendment Including Wyoming for Mid-Size Advisers. On July 1, 2017, a technical amendment to Form ADV was implemented to reflect a new Wyoming law that now requires investment advisers with $25 million to $100 million in AUM and a principal place of business in Wyoming to register with the state as an investment adviser instead of the SEC. The technical amendment will also appear on Form ADV-W.
Further Updated CRS Guidance Notes. The Cayman Islands Department for International Tax Cooperation (“DITC”) and the Cayman Islands Tax Information Authority (“TIA”) issued further guidance notes on April 13, 2017 for compliance with Automatic Exchange of Information (“AEOI”) obligations. Among some of the more important notes are the following:
US FATCA notification and reporting deadlines will now parallel the Common Reporting Standard (“CRS”) deadlines. The notification deadline was June 30, 2017, and the reporting deadline will be July 31, 2017. The deadline for correcting any FATCA report errors for 2014 and for 2015 will be July 31, 2017. CRS reporting must be completed with the CRS XML v1.0 or a manual entry form on the AEOI portal.
We recommend contacting your tax advisors to discuss any potential issues regarding the above updates and deadlines.
Compliance Calendar. As you plan your regulatory compliance timeline for the coming months, please keep the following dates in mind:
July 15, 2017 – Quarterly Form PF due for large liquidity fund advisers (if applicable). July 30, 2017 – Collect quarterly reports from access persons for their personal securities transactions. August 14, 2017 – Form 13F filing (advisers managing $100 million in 13F Securities). August 29, 2017 – Quarterly Form PF due for large hedge fund advisers (if applicable). September 30, 2017 – Review transactions and assess whether Form 13H needs to be amended. October 2017 – Revised Form ADV 1A goes into effect for advisers filing an initial ADV or an annual updating amendment. October 16, 2017 – Quarterly Form PF due for large liquidity fund advisers (if applicable). November 14, 2017 – Form 13F filing (advisers managing $100 million in 13F Securities). November 29, 2017 – Quarterly Form PF due for large hedge fund advisers (if applicable). Ongoing – Amendment due on or before anniversary date of prior Form D filing(s), or for material changes. Ongoing – Due on or before anniversary date, and promptly when material information changes.
Please contact us with any questions or for assistance with any compliance, registration or planning issues on any of the above topics.
Karl Cole-Frieman, Bart Mallon & Lilly Palmer.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Mr. Mallon can be reached directly at 415-868-5345.
SEC Issues Cryptocurrency/Digital Asset/ICO Report.
By: Bart Mallon (Co-Managing Partner of Cole-Frieman & Mallon LLP)
Certain Digital Assets are Securities Based on “Facts and Circumstances”
As has been widely anticipated by the cryptocurrency community, the SEC has finally made an initial declaration of the agency’s view that certain digital assets are securities subject to jurisdiction and regulation by the SEC. In a series of four items (press release, investigative report, statement and investor bulletin), the SEC comes out with a strong warning to sponsors of Initial Coin Offerings (ICOs) to be careful of the U. S. securities laws. While many will undoubtedly think the SEC missed a great opportunity to provide robust guidance (and leniency) to the industry, most market participants recognize that this series of discussions was the most likely outcome for many of these instruments (i. e. it is clear that they are securities). Although it is not perhaps what the industry wanted, we at least have *something* to now go by and the industry can begin to figure out how it will structure itself from here.
Below we provide an overview of the various parts of the release as well as some of our observations.
The SEC released the following four items today which we describe in greater depth below:
Press Release – the release discusses the investigative report it published on The DAO and discusses the investor bulletin created regarding ICOs. The SEC cautions market participants to make sure they examine their activity with respect to ICOs and other structures built on blockchain and distributed ledger technology. Most importantly the release states:
In light of the facts and circumstances, the agency has decided not to bring charges in this instance, or make findings of violations in the Report, but rather to caution the industry and market participants: the federal securities laws apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U. S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.
SEC Report on the DAO – the report describes the rise and fall of The DAO, discusses how the related facts would be analyzed under the existing securities laws (Howey test), determines that DAO Tokens are securities, and makes the determination that certain “Platforms” are securities exchanges that should be (and should have been) registered with the SEC as securities exchanges. The report ends by listing a number of SEC enforcement actions involving virtual currencies. The SEC also provides the following warning to the industry:
Whether or not a particular transaction involves the offer and sale of a security—regardless of the terminology used—will depend on the facts and circumstances, including the economic realities of the transaction. Those who offer and sell securities in the United States must comply with the federal securities laws, including the requirement to register with the Commission or to qualify for an exemption from the registration requirements of the federal securities laws…These requirements apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U. S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology. In addition, any entity or person engaging in the activities of an exchange, such as bringing together the orders for securities of multiple buyers and sellers using established nondiscretionary methods under which such orders interact with each other and buyers and sellers entering such orders agree upon the terms of the trade, must register as a national securities exchange or operate pursuant to an exemption from such registration.
CorpFin/Enforcement Statement – the statement basically provides an overview of the U. S. securities regulatory framework and describes how the framework of laws and regulations are designed to protect investors. It discusses the importance of “facts and circumstances” analysis, states that DAO Tokens are securities based on “facts and circumstances” and implores cryptocurrency market participants to seek counsel from private attorneys or the SEC. The statement also warns of bad actors and red flags.
Investor Bulletin – provides background on ICOs, discussed various concepts applicable to the digital asset industry (blockchain, virtual currency, virtual currency exchanges, smart contracts), and discusses the crowdfunding regulations. The bulletin also alerts investors to the issues with getting money back in the event of a scam (tracing issues, international scope of digital assets, the fact there is no central regulator and there is no ability for the SEC to freeze digital assets) and describes the normal things to be careful of that are common in many scams.
The following are some quotes from the various items produced by the SEC which we found interesting, and our thoughts on those quotes.
“Those participating in unregistered offerings also may be liable for violations of the securities laws.”
HFLB: we note that the SEC is intentionally being vague when it references “those participating” & # 8211; this indicates they will be looking at all parties related to a particular transaction, from sponsors to exchanges to other persons within the ICO distribution chain.
“Additionally, securities exchanges providing for trading in these securities must register unless they are exempt.”
HFLB: here they are basically saying any exchange that DAO Tokens were available on were acting as securities exchanges and needed to be appropriately registered as such.
“The DAO has been described as a “crowdfunding contract” but it would not have met the requirements of the Regulation Crowdfunding exemption because, among other things, it was not a broker-dealer or a funding portal registered with the SEC and the Financial Industry Regulatory Authority.”
HFLB: we find it interesting that the SEC is specifically talking about the crowdfunding regulations. We think that many ICOs / token sales would be good candidates for these platforms (and some tokens have started in that way) and the SEC seems to be highlighting an option for certain fund sponsors. Crowdfunding platforms are regulated by the SEC and FINRA (and do not have as onerous requirements as normal securities registration statements) so they may become an acceptable compromise distribution platform for both ICO sponsors and the SEC.
“The United States Securities and Exchange Commission’s (“Commission”) Division of Enforcement (“Division”) has investigated whether The DAO, an unincorporated organization; Slock. it UG (“Slock. it”), a German corporation; Slock. it’s co-founders; and intermediaries may have violated the federal securities laws.”
HFLB: the “sponsors” of The DAO were investigated, which is to be expected. We find it interesting they used the word “intermediaries” which is probably intentionally vague.
“The automation of certain functions through this technology, “smart contracts,” or computer code, does not remove conduct from the purview of the U. S. federal securities laws. This Report also serves to stress the obligation to comply with the registration provisions of the federal securities laws with respect to products and platforms involving emerging technologies and new investor interfaces.” (citations omitted)
HFLB: pretty much what securities lawyers have been saying all along.
“From April 30, 2016 through May 28, 2016, The DAO offered and sold approximately 1.15 billion DAO Tokens in exchange for a total of approximately 12 million Ether (“ETH”), a virtual currency used on the Ethereum Blockchain.” (citations omitted)
HFLB: we believe that the SEC is saying here that Ether is not a security, but is instead a virtual currency. This is important because it shows that some ICOs or digital assets (like ETH) can be instruments other than securities.
“The Commission is aware that virtual organizations and associated individuals and entities increasingly are using distributed ledger technology to offer and sell instruments such as DAO Tokens to raise capital. These offers and sales have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” Accordingly, the Commission deems it appropriate and in the public interest to issue this Report in order to stress that the U. S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale.”
HFLB: unfortunately looking to the “facts and circumstances” is all we have here – the SEC is not going to come out with a list of tokens they think our securities so we have to use the “sniff test” to determine whether any particular token is a security. The best advice we have here is to look at the Coinbase Securities Law Framework to come up a best guess.
“The Platforms that traded DAO Tokens appear to have satisfied the criteria of Rule 3b-16(a) and do not appear to have been excluded from Rule 3b-16(b). As described above, the Platforms provided users with an electronic system that matched orders from multiple parties to buy and sell DAO Tokens for execution based on non-discretionary methods.”
HFLB: the SEC is putting those website where DAO Tokens were bought/sold on notice that they were operating as a securities exchange. This will likely give unregistered crypto exchanges pause with respect to many digital asset instruments.
“Market participants in this area must also consider other aspects of the securities laws, such as whether a platform facilitating transactions in its securities is operating as an exchange, whether the entity offering and selling the security could be an investment company, and whether anyone providing advice about an investment in the security could be an investment adviser.”
HFLB: the SEC makes reference to the mutual fund regulations (also applicable to private funds via 3(c)(1) and 3(c)(7) exemptions) as well as the investment advisor regulations, which are applicable to cryptocurrency fund managers.
“Although some of the detailed aspects of the federal securities laws and regulations embody more traditional forms of offerings or corporate organizations, these laws have a principles-based framework that can readily adapt to new types of technologies for creating and distributing securities.”
HFLB: this is exactly why we were surprised that the SEC has not previously issued guidance when it was clear there were other groups who have conducted ICO sales that clearly were securities offerings. The SEC has had the opportunity (and, really, the obligation) to be enforcing the current securities laws in this space and the SEC has specifically chosen not to.
“Finally, we recognize that new technologies also present new opportunities for bad actors to engage in fraudulent schemes, including old schemes under new names and using new terminology. We urge the investing public to be mindful of traditional “red flags” when making any investment decision, including: deals that sound too good to be true; promises of high returns with little or no risk; high-pressure sales tactics; and working with unregistered or unlicensed sellers.”
HFLB: we agree. We fully expect to a number of frauds and other enforcement actions taken with respect to ICOs in the future.
“Although ICOs are sometimes described as crowdfunding contracts, it is possible that they are not being offered and sold in compliance with the requirements of Regulation Crowdfunding or with the federal securities laws generally.”
HFLB: we believe that these various releases will ultimately push more ICOs to look toward crowdfunding platforms for their initial offerings. We also believe that there is the possibility in the future for some sort of digital asset specific crowdfunding platform or a digital asset broker-dealer.
“Ask what your money will be used for and what rights the virtual coin or token provides to you. The promoter should have a clear business plan that you can read and that you understand. The rights the token or coin entitles you to should be clearly laid out, often in a white paper or development roadmap. You should specifically ask about how and when you can get your money back in the event you wish to do so. For example, do you have a right to give the token or coin back to the company or to receive a refund? Or can you resell the coin or token? Are there any limitations on your ability to resell the coin or token?”
HFLB: we believe this guidance is not really helpful for many ICO structures.
“Fraudsters often use innovations and new technologies to perpetrate fraudulent investment schemes. Fraudsters may entice investors by touting an ICO investment “opportunity” as a way to get into this cutting-edge space, promising or guaranteeing high investment returns. Investors should always be suspicious of jargon-laden pitches, hard sells, and promises of outsized returns. Also, it is relatively easy for anyone to use blockchain technology to create an ICO that looks impressive, even though it might actually be a scam.”
HFLB: we agree. We believe it is highly likely there will be a number of scams that will be perpetuated through ICOs.
This is a first step of sorts toward more robust regulation of the digital assets. Although we get some insight from the SEC, we don’t really see anything new and we don’t see how the SEC is going to protect the digital asset markets in the U. S. Instead, this probably plays into fears that the U. S. is not a hospitable jurisdiction to novel ideas and structures and will ultimately push ICOs that would be based in the U. S. to offshore jurisdictions. We hope the SEC uses these statements as a springboard to a dialogue with the industry to keep (and attract) innovators to the U. S. More obviously forthcoming…
For more information on this topic, please see our collection of cryptocurrency fund legal and operational posts.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Cole-Frieman & amp; Mallon has been instrumental in structuring the launches of some of the first cryptocurrency focused hedge funds. For more information on this topic, please contact Mr. Mallon directly at 415-868-5345.
Cryptocurrency Fund Legal & Operational Posts.
The goal of the posts on this page are to address the legal and operational issues applicable to fund managers who invest in the cryptocurrency space. We believe the emergence of this new asset class gives rise to a need for open discussion of the protocols, operations, industry norms, and best practices (now and in the future) related to investments in this space. Our goal is to help with that process and we look forward to hearing your feedback on these posts.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Cole-Frieman & amp; Mallon has been instrumental in structuring the launches of some of the first cryptocurrency focused hedge funds. For more information on this topic, please contact Mr. Mallon directly at 415-868-5345.
Hedge Fund Bits and Pieces for June 16, 2017.
We are a day late but hope you had a happy Friday. As has been the trend, we are seeing a large focus on cryptocurrency assets and this update reflects that focus.
Speaking on Cryptocurrency Hedge Funds – I will be in New York next week to speak Thursday at the Blockchain, Accounting, Audit & Tax Conference. The conference will have panels speaking throughout the day on various blockchain related issues. I will be part of a panel entitled “Digital Asset Management and New Financial Products” where we will discuss current and future investment vehicles as well as how investors are (and should be) viewing these products. More information on the event can be found here.
California BitLicense – continuing the trend toward increased regulation of digital assets, California has proposed (for a second time) a regulatory regime for certain exchanges dealing with bitcoin and other “virtual currency”. This legislation comes on the heels of New York’s BitLicense requirement, along with other regulators beginning to look at blockchain based digital assets. As described below, we believe the SEC will be addressing the industry soon with questions and comments regarding certain aspects of the FinTech industry. For more on the California BitLicense requirement, please see here.
Industry asks SEC to Publish Concept Release on Regulation of Digital Assets – a FINRA registered broker-dealer recently petitioned the SEC to provide guidance with respect to the regulation of digital assets (to be called Regulation DA). The broker-dealer asked that the SEC also consider adopting a regulatory sandbox for certain FinTech companies, similar to what is being employed in the UK and Singapore (the latter of which has seen a large influx of oversight/regulation of ICOs). The broker-dealer also mentioned that the regulation of digital assets should be consistent with crowdfunding regulations given that digital assets (ICOs specifically) share many characteristics in common with the crowdfunding industry. You can access the full petition here.
Financial CHOICE Act of 2017 – on June 8, the House of Representatives passed the Financial CHOICE Act which is aimed at rolling back many of the changes implemented by the Dodd-Frank Act. There are a number of interesting things that this bill introduces, including: structural changes to the SEC, repeal of the Department of Labor’s (DOL’s) fiduciary rule, restructure the CFPB, and repeal the Volker Rule. All of the above would affect the investment management industry in profound ways but it is unlikely we will see any movement on this bill in the Senate any time soon. When and if we do, we will provide more analysis on the content of any legislation that is likely to pass and be implemented. An executive summary of the bill can be found here. The full text can be found here.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP and focuses his legal practice on the investment management industry. Ele pode ser alcançado diretamente no número 415-868-5345.
California BitLicense.
Overview of the Cryptocurrency Licensing Regime in California.
As we discussed in a recent post, New York has already implemented a statute that requires those engaged in certain virtual currency business activities to obtain a license from the state. In a similar fashion, California has proposed A. B. 1123 (the “Bill” or “Virtual Currency Act”) that would allow the state to begin regulating the industry. This post focuses on California’s proposed version of a “BitLicense”, which like New York, would prohibit a person from engaging in a virtual currency business activity unless they receive a license from California’s Commissioner of Business Oversight (“Commissioner”).
California Virtual Currency Act – A. B. 1123.
Pursuant to the Virtual Currency Act, any persons involved in a “virtual currency business” in California must register with the Commissioner. The Act defines a “virtual currency business” as “maintaining full custody or control of virtual currency in this state on behalf of others.” The definition of “virtual currency” is very broad (“any type of digital unit that is used as a medium of exchange or a form of digitally stored value”) although there are some carveouts for gaming platforms and for consumer reward programs.
The above definition seems to capture those groups who are offering exchange and wallet services for persons who are buying, selling and holding bitcoin and other digital currencies. Right now we don’t believe that a cryptocurrency hedge fund entity or its manager/general partner would need to obtain the license – a fund would simply be holding virtual currency on behalf of itself and therefore the general partner entity would not need to be registered.
California Application Process.
In the event an entity needs to register, there is an application process where the Commissioner will engage in an extensive review of the applicant’s background and services offered. California would also require an initial $5,000 application fee, a renewal fee of $2,500, and the maintenance of a minimum amount of capital as determined by the Commissioner. The licensee would be required to have an annual audit and would need to provide balance sheets, income statements, and other financial verification forms on a periodic basis. A provisional license may be granted for a $500 fee to those engaged in a virtual currency business with less than $1,000,000 in outstanding obligations, and if the business model represents a low or no risk to consumers (as determined by the Commissioner). The provisional licensee may also be required to register as a money services business.
As the definition of a virtual currency business is very broad, this Bill (like a predecessor bill which was abandoned) is heavily opposed by digital non-profit organizations, as well as many others in the space. It is yet to be seen whether this Bill will be passed or amended once again. However, the Bill’s reintroduction does demonstrate that lawmakers are still eager to regulate the industry. If passed, the Virtual Currency Act would become effective July 1, 2018. We will continue to follow the developments surrounding California’s Virtual Currency Act, and any potential impact this may have on investment managers in the state.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Cole-Frieman & amp; Mallon has been instrumental in structuring the launches of some of the first digital currency-focused hedge funds. For more information on this topic, please contact Mr. Mallon directly at 415-868-5345.
Hedge Fund Bits and Pieces for May 26, 2017.
Feliz sexta-feira. Best wishes for a happy and safe Memorial Day weekend!
Initial Coin Offerings – Bitcoin and other cryptocurrencies took center stage this weeks as new high prices were reached in volatile trading and euphoria around the Consensus Conference earlier this week. Initial coin offerings (or ICOs) were a major topic discussed and should be a major topic going forward.
Artificial Intelligence Hedge Funds – perhaps lost over the last couple of weeks in the discussion of cryptocurrencies has been the general movement in finance toward utilizing artificial intelligence in the investment process. We recently wrote about artificial intelligence hedge fund strategies and detailed the issues that managers should consider when launching a fund in this space.
DOL Rule Effective June 9 – the delay of the DOL rule was short lived. The DOL recently published a news release announcing that initial implementation of the rule would begin on June 9 (as opposed to April 10, the originally scheduled implementation date) and that “advisers to retirement investors will be treated as fiduciaries and have an obligation to give advice that adheres to “impartial conduct standards” … [t]hese fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services and refrain from making misleading statements.”
For hedge fund managers, life does not change to a large extent (managers will likely need to update their subscription documents and may need to obtain additional representations from IRA and ERISA investors for any new investment made after June 9, 2017). SMA managers will need to be careful and should review their relationship with retirement investors. More information on this will be forthcoming on this blog and in our client updates.
CFTC Focus on FinTech – the CFTC launched a LabCFTC Initiative which “aimed at promoting responsible FinTech innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees.” The overall goal of the program is to promote innovation for new FinTech products while providing the sponsors of such products more insight into the potential regulatory oversight of those products. Central to that goal will be GuidePoint which will act as “dedicated point of contact for FinTech innovators to engage with the CFTC, learn about the CFTC’s regulatory framework, and obtain feedback and information on the implementation of innovative technology ideas for the market.” This sort of proactive approach to innovation by regulators should be a welcome sight to new product sponsors.
Cooperman Insider Trading Settlement – Leon Cooperman settled his insider trading case with the SEC, which released an interesting statement on the settlement. While the settlement allows Cooperman’s fund, Omega, to continue operating, Cooperman and Omega were subject to a $1.7M fine for insider trading. More importantly, the firm must retain an onsite independent consultant for the next 5 years to guard against insider trading. There were a couple of additional requirements of the settlement which, with the various fines and independent consultant requirement, have to make the SEC feel like they got a big win here. It will be interesting to see how or if this settlement is used as precedent in future cases.
SEC Issues Cybersecurity Alert – on the heels of the WannaCry ransomeware attack, the SEC issued a Cybersecurity Alert. The alert is geared more towards smaller broker-dealers and investment advisory firms and provides background and links to other SEC resources on this issue.
New York Employers Cannot Ask About Salary History – on May 4, New York Mayor de Blasio signed a bill making it illegal (and subject to fines) for an employer to ask questions about a candidate’s prior compensation. Hedge fund managers located in New York will want to discuss this issue with their internal HR persons, as well as their outside counsel. The bill is called “Intro. 1253” and goes into effect 180 days after the signing. A cached version of the de Blasio press release can be found here.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP and focuses his legal practice on the investment management industry. Ele pode ser alcançado diretamente no número 415-868-5345.
Initial Coin Offerings (ICOs)
ICO Overview and Securities Law Analysis.
After a number of recent, high-profile and wildly successful Initial Coin Offerings or “ICOs”, the blockchain-based asset industry has been abuzz about new ICOs as well as the regulatory issues that surround the space. This post provides a quick overview of the big securities laws issues surrounding these assets and discusses the regulatory structure currently applicable to the space.
An initial coin offering is the first distribution of a digital currency or digital token, normally offered exclusively through an online offering. These coins or tokens, like many existing cryptocurrencies such as Bitcoin or Ether, may represent some sort of fractional ownership in something (working similar to a security) or may represent a form of payment (like a currency). These tokens may be pre-launch (to raise money to develop the use case, similar to crowd-funding) or post-launch (use case already exists).
The first and biggest question related to ICOs is whether they are securities offerings (essentially digitized IPOs). For any inquiry into whether something is a security or not, the starting point is the Howey Test. Howey is a basic four-part test that is used to determine whether a contract, a transaction, or a series of actions constitutes a security under the Securities Act of 1933. The very broad overview of the Howey prongs are:
It is an investment of money There is an expectation of profits from the investment The investment of money is in a common enterprise Any profit comes from the efforts of a promoter or third party.
For many ICOs the answers to all of the above are usually “yes”. We do, however, believe that some ICOs are not securities under the test and, although we start with Howey, that is not where the analysis stops. As mentioned before in our post dealing with Bitcoin Hedge Funds, we believe that Debevoise’s Securities Law Framework provides a thoughtful approach to think about and analyze this question. We also believe that the SEC will clarify its position regarding ICOs in the next several months.
Use Case – Blockchain Capital.
One of the more interesting ICOs recently has been the ICO for the Blockchain Capital Token (BCAP Token, on TokenHub), which was placed by Argon Group, a blockchain asset investment bank. Here the value of the BCAP Token is linked to the value of a newly created venture capital fund (which initial assets were received through the BCAP Token ICO process). The subscription process of the ICO was conducted through a Regulation D 506(a) offering (see Blockchain Capital Token Form D), so there are a number of regulations that the group has already gone through, although none specifically dealing with the ICO itself. What is particularly amazing is that the offering of $10M was oversubscribed and closed in only 6 hours. The power of the ICO is apparent – what investment fund manager would not want to raise money in a very quick and efficient manner?
Blockchain Capital paved the way for ICOs linked to private investment funds – we would expect to see tokens linked to hedge funds and private equity funds in the near future. While the Blockchain Capital offering was limited to accredited investors, the offering still presents questions about regulations, including the potential for fraud. We liken the ICO process to something akin to the crowdfunding process and believe there are similar risks, in addition to the normal risks associated with the linked asset (in this case, a VC fund).
There is no doubt that the regulators will begin to figure out a regulatory regime for ICOs and cryptocurrencies, and this is likely to happen before any sort of Congressional action to change the laws of any of the securities or commodities acts. The CFTC has already been active in the space (see our previous notes in our Client Update here) and it is very likely that the SEC will be starting the process to issue regulations as well (see here where a group has petitioned the SEC to begin that process). We believe that during that comment and rulemaking process, the regulators will need to address a number of items, including the process with respect to ICOs. The SEC needs to move with a deft hand, however, because any onerous regulations will just push business offshore – there are already exchanges who discriminate against potential market participants based on domicile (either with respect to U. S. domicile, or in some cases, New York domicile for fear of issues around the New York BitLicense regulations).
The crowdfunding space became regulated fairly quickly and there are now specific crowdfunding broker-dealers and I believe the same will be the case with the ICO regime. We believe that any cryptocurrency regulatory regime will include requirements with respect to ICOs and ICO investment banks.
The ICO market is white hot and getting hotter. It will undoubtedly create both winners and losers (and the winners are likely to be massive winners) and in some cases will usher in new ideas and technologies that will help define the landscape of Web 3.0. The most important thing for regulators (and lawmakers) is to make sure all investors in these offerings are protected and provided with all necessary information and opportunities as provided through the current securities and commodities laws. We believe that such regulation will come sooner rather than later.
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Cole-Frieman & amp; Mallon has been instrumental in structuring the launches of some of the first digital currency-focused hedge funds. For more information on this topic, please contact Mr. Mallon directly at 415-868-5345.
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Cole-Frieman & amp; A Mallon LLP fornece serviços jurídicos abrangentes para fundos de hedge novos e existentes, bem como para outras empresas de gestão de investimentos.
Se você está pensando em começar um fundo de hedge ou um fundo de incubadora, ligue para Bart Mallon da Cole-Frieman & amp; Mallon LLP hoje em.

Review: ‘Black Edge,’ an Account of a Hedge Fund Magnate and Insider Trading.
Two men pass out in Sheelah Kolhatkar’s book about Wall Street skulduggery. I must confess that I was not expecting this. Hedge funders are supposed to be yodeling Tarzans, not fragile consumptives in a Verdi opera.
One fellow faints in his driveway in Boca Raton, Fla., as a pair of F. B.I. agents ask him about insider trading. The other, a defendant in a courtroom, is sitting at a table when the jury walks in with its guilty verdict. He loses consciousness before it is read aloud.
Only one of those men goes to jail, which is hardly surprising if you have even a passing familiarity with the story of the company they worked for, SAC Capital Advisors, and its founder, Steven A. Cohen. Kolhatkar’s “Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street” tells it depressingly well. Justice is not served. The little guy does not triumph. In the words of Lemony Snicket: “If you are interested in stories with happy endings, you would be better off reading some other book.”
If “Black Edge” weren’t about real life, it would be an uncomplicated pleasure to read. The book is many things: a Wall Street primer; a procedural drama; a modern version of “Moby-Dick,” with wiretaps rather than harpoons. Kolhatkar, a staff writer for The New Yorker and a former hedge fund analyst, expertly synthesizes an enormous amount of material, including court documents and hundreds of her own interviews.
Cohen was not among them, alas. He seems to have given only three for-the-record interviews, ever, to reporters. But his silence may also have been liberating to Kolhatkar, who was not psychologically constrained by gratitude to her subject for letting her in. She does not spare us her judgments of Cohen or of SAC Capital or of the hedge fund industry. They are not favorable.
For those who do not remember: SAC Capital was once one of the most powerful hedge funds on Wall Street. Cohen, its fabled steward, was different from the other colossi of the industry (George Soros, Paul Tudor Jones) in that he never seemed to have a grand unified field theory of investing. Rather, he had a talent for reading the market’s movements and a freakishly high threshold for tolerating risk.
And, miraculously, he was on the right side of almost every transaction — “something that seemed, at least on the surface, to be impossible,” Kolhatkar writes. This improbable winning streak eventually got the F. B.I.’s attention, when it was investigating insider trading at a different hedge fund, the Galleon Group, and managed to lock up its chief.
But Cohen never faced a criminal charge. The most the government could do was order SAC Capital to shut down in 2013 and fine it $1.8 billion — a figure that sounds like an awful lot until you learn that Cohen had almost $10 billion of his own money left over, which he could still trade and invest as a private family office.
Kolhatkar never reduces anyone in “Black Edge” to a stone-gargoyle grotesque. But Cohen certainly goes across the street and around the corner to reify certain stereotypes about hedge fund managers. Monster estate in Greenwich, Conn.? Verifica. (The backyard has a 6,000-square-foot ice-skating rink, plus a shed for the Zamboni.) Priceless art collection? That, too. (It includes Damien Hirst’s shark suspended in formaldehyde, a metaphor so literal you don’t know whether to laugh or cry.) Nasty divorce? Oh, yes. (You know things are ugly when your ex files a Freedom of Information Act request to get the goods on you.)
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Even more striking to a civilian, though, is the other-planetary toxicity of SAC Capital’s culture. The competition was ruthless. Everyone was expendable, including partners and mentors. Cohen couldn’t tolerate anyone’s making money before he did — he’d fly into a rage if he heard that a portfolio manager had done a trade without giving him first dibs. “Employees often felt like they were part of an experiment looking at the effects of prolonged stress and uncertainty,” Kolhatkar writes.
But my hunch is that readers will most remember “Black Edge” for showing them just how alarmingly pervasive insider trading was in the years surrounding the 2008 collapse. It became commonplace, domesticated — dare I say it? — normalized . Big banks, Kolhatkar writes, often shared what they knew about the status of a stock with SAC Capital first, because they did so much business with it. Whole research firms existed for the sole purpose of connecting shops like SAC Capital to “expert networks,” or to individuals who worked in publicly traded companies, with the expectation that these people would share valuable insights to help those on Wall Street make better trades.
The industry called it “earnings intelligence.” But the line between earnings intelligence and inside information could be very hard to discern.
Kolhatkar makes a convincing case that Cohen leaned very hard on his employees to get vital information — to find an edge. Hence the book’s title: A “black edge” is early, private, proprietary information about a company. Cohen was too smart to declare explicitly that he wanted it. Instead, he’d ask his employees to give their assessments a “conviction rating,” from one to 10. And why would someone rate a conviction as nine without a black edge?
Perhaps the most despicable episode in Kolhatkar’s book involves Mathew Martoma, a portfolio manager for SAC. He struck up a mercenary friendship with an older, lonely neurologist, hoping to wrangle information from him about the status of an experimental drug to treat Alzheimer’s disease. The way Martoma went about seducing him is both sickening and extremely impressive.
Funcionou. Martoma contacted Cohen, who then arranged to unload millions of shares in two companies that were testing the drug. He shorted some of their stock for good measure.
Yet, when later pressed for specifics about it by the government, Cohen, “the greatest trader of his generation, who could track the price movements of 80 different securities at a time, claimed not to remember,” Kolhatkar writes. “He said ‘I don’t recall’ 65 times.” It worked. Martoma, as many people know, had a different fate.
So how do you end a book like this? In James B. Stewart’s “Den of Thieves,” it was easy: Michael Milken was sent to jail. Here, Kolhatkar doesn’t have so gratifying an option, but her ending is no less chilling for it. She notes that in 2014, Cohen made $2.5 billion by trading his personal fortune alone. “He is making plans to reopen his hedge fund,” she writes, “as soon as possible.”
Follow Jennifer Senior on Twitter: @jenseniorny.
Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street.
By Sheelah Kolhatkar.
344 pages. Random House. $28.
A version of this review appears in print on February 2, 2017, on Page C4 of the New York edition with the headline: Ruthless, Superrich and Scot-Free. Artigo de hoje | Se inscrever.
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Vanguard tornou-se um titã da indústria de fundos usando uma estratégia bem simples - focar.
3 Peças Imperdíveis para Gerenciamento de Prática: Edição de 20 de fevereiro.
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By submitting suggestions, ideas, recommendations and/or proposals (collectively “User Suggestions”) to ETFdb through email, forums, web pages or web forms, you acknowledge and agree that: (a) your User Suggestions do not contain confidential or proprietary information; (b) ETFdb is not under any obligation of confidentiality, express or implied, with respect to User Suggestions; & # 169; ETFdb shall be entitled to use or disclose (or choose not to use or disclose) such User Suggestions for any purpose, in any way, in any media worldwide; (d) ETFdb may have something similar to the User Suggestions already under consideration or in development; (e) your User Suggestions automatically become the property of ETFdb without any obligation of ETFdb to you; and (f) you are not entitled to any compensation or reimbursement of any kind from ETFdb under any circumstances for any User Suggestions.
You agree to defend, indemnify and hold harmless ETFdb, its affiliates, officers, directors, employees and agents, from and against any and all claims, damages, obligations, losses, liabilities, costs or debt, and expenses (including but not limited to attorney’s fees) arising from: (a) your use of and access to the Services; (b) your violation of any of these TOS ; & # 169; your violation of any third party right, including without limitation any copyright, property, or privacy right; or (d) any claim that any Content uploaded, posted, transmitted or otherwise made available by you via the Services caused damage to a third party. This defense and indemnification obligation will survive these TOS and your use of the Services.
ETFdb reserves the right to terminate your access to and/or use of the Services and remove and discard any Content at any time for any reason, including without limitation any failure to comply with any part of these TOS . ETFdb also reserves the right to discontinue providing all or part of the Services. You agree that any termination of your access to or use of the Service and any discontinuation by ETFdb in providing the Services may be effected without notice to you and that ETFdb shall be under no obligation to retain any Content, provide any further access to any Content or return any Content to you. You agree that ETFdb shall not be liable to you or any third-party for any such termination or for any interruption or discontinuation of the Services.
17. DISCLAIMER OF WARRANTIES.
YOU EXPRESSLY UNDERSTAND AND AGREE THAT : (a) YOUR USE OF THE SERVICES IS AT YOUR SOLE RISK . THE SERVICES ARE PROVIDED ON AN “AS IS” AND “AS AVAILABLE” BASIS . ETFdb EXPRESSLY DISCLAIMS ALL WARRANTIES , REPRESENTATIONS AND GUARANTEES OF ANY KIND , WHETHER EXPRESS OR IMPLIED , STATUTORY OR OTHERWISE , INCLUDING , BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY , FITNESS FOR A PARTICULAR PURPOSE AND NON - INFRINGEMENT , TO THE FULL EXTENT PERMISSIBLE UNDER THE LAW ; (b) ETFdb WILL MAKE REASONABLE EFFORTS TO MAINTAIN THE SERVICES , HOWEVER , ETFdb IS NOT RESPONSIBLE FOR ANY DAMAGE , LOSS OF DATA , CONTENT OR INFORMATION , REVENUE , OR OTHER HARM ARISING OUT OF DELAYS , MISDELIVERY OR NONDELIVERY OF INFORMATION , RESTRICTION OR LOSS OF ACCESS , BUGS , VIRUSES OR OTHER ERRORS , UNAUTHORIZED USE , OR OTHER INTERACTION WITH THE SERVICES . YOU ARE RESPONSIBLE FOR MAINTAINING AND BACKING - UP YOUR DATA AND INFORMATION THAT MAY RESIDE ON THE SERVICES . ETFdb DOES NOT WARRANT THAT (i) THE SERVICES WILL MEET YOUR SPECIFIC REQUIREMENTS , (ii) THE SERVICES WILL BE UNINTERRUPTED , TIMELY , SECURE , OR ERROR - FREE , (iii) THE RESULTS THAT MAY BE OBTAINED FROM THE USE OF THE SERVICES WILL BE ACCURATE OR RELIABLE , (iv) THE QUALITY OF ANY PRODUCTS , SERVICES , INFORMATION , OR OTHER MATERIAL PURCHASED OR OBTAINED BY YOU THROUGH THE SITE AND SERVICES WILL MEET YOUR EXPECTATIONS , AND ANY ERRORS IN ANY SOFTWARE USED IN CONNECTION WITH THE SERVICES WILL BE CORRECTED ; & # 169; ANY MATERIAL DOWNLOADED OR OTHERWISE OBTAINED THROUGH THE USE OF THE SERVICES IS DONE SOLELY AT YOUR OWN DISCRETION AND RISK AND THAT YOU WILL BE SOLELY RESPONSIBLE FOR ANY DAMAGE TO YOUR COMPUTER SYSTEM OR LOSS OF DATA OR CONTENT THAT RESULTS FROM THE DOWNLOAD OF ANY SUCH MATERIAL ; AND (d) NO ADVICE OR INFORMATION , WHETHER ORAL OR WRITTEN , OBTAINED THROUGH OR FROM THE SERVICES SHALL CREATE ANY WARRANTY NOT EXPRESSLY STATED IN THESE TERMS .
18. LIMITATION OF LIABILITY.
YOU EXPRESSLY UNDERSTAND AND AGREE THAT ETFdb SHALL NOT BE LIABLE FOR ANY DIRECT , INDIRECT , INCIDENTAL , SPECIAL , CONSEQUENTIAL OR EXEMPLARY DAMAGES , INCLUDING BUT NOT LIMITED TO, DAMAGES FOR LOSS OF PROFITS , DAMAGE TO PROPERTY , PERSONAL INJURY , GOODWILL , USE , LOSS OF REPORTED EARNINGS , DATA OR OTHER INTANGIBLE LOSSES ( EVEN IF ETFdb HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES ), HOWEVER AND WHENEVER ARISING , AND REGARDLESS OF THE THEORY OF LIABILITY , INCLUDING WITHOUT LIMITATION ANY SUCH DAMAGES RELATING TO (i) THE USE OR THE INABILITY TO USE THE SERVICES ; (ii) THE COST OF PROCUREMENT OF SUBSTITUTE GOODS AND SERVICES RESULTING FROM ANY GOODS , DATA , INFORMATION OR SERVICES PURCHASED OR OBTAINED OR MESSAGES RECEIVED OR TRANSACTIONS ENTERED INTO THROUGH OR FROM THE SERVICE ; (iii) UNAUTHORIZED ACCESS TO OR ALTERATION OF YOUR TRANSMISSIONS OR DATA ; (iv) STATEMENTS OR CONDUCT OF ANY THIRD PARTY ON THE SERVICES ; OR (v) ANY OTHER MATTER RELATING TO THE SERVICES .
Certain jurisdictions do not allow the exclusion of certain warranties or the limitation or exclusion of liability for certain types of damages. Accordingly, some of the above disclaimers and limitations may not apply to you.
ETFdb may provide you with notices, including those regarding changes to this TOS by email, postal mail or postings on the Service. For the avoidance of doubt, the TOS may be updated from time to time without notice to you.
20. INTELLECTUAL PROPERTY & TRADEMARKS.
You hereby acknowledge that except for Content submitted by users of the Site and Services and other third parties, ETFdb is the sole owner of all text, messages, information, software, scripts, images, graphics, audio, video, interactive features, and the like contained on the Site (“ETFdb Content”). ETFdb owns all proprietary rights, including but not limited to trademarks and copyrights in the ETFdb Content and its selection, organization, and arrangement. ETFdb Content is provided to you AS IS for your information and personal use only and may not be used, copied, reproduced, distributed, transmitted, broadcast, displayed, sold, licensed or otherwise exploited. If you download or print any ETFdb Content for personal use, you shall retain all copyright and other proprietary notices contained therein.
The ETFdb logos, trademarks and service marks and other ETFdb logos, product names and service names (“ETFdb Marks”) are trademarks of Mitre Media Corp. You agree that you will not display or use the ETFdb Marks in any manner whatsoever without our prior consent.
21. PROCEDURES FOR MAKING A CLAIM OF COPYRIGHT OR INTELLECTUAL PROPERTY INFRINGEMENT.
ETFdb takes protecting copyright seriously. If you believe that Site Content is being displayed in violation of your copyrights, please immediately notify ETFdb by sending an email to webmaster@ETFdb.
22. PROCEDURES REGARDING UNAUTHORIZED USE OF PHOTOGRAPHS OF LIVING PEOPLE POSTED ON THE SITE.
If a photograph, video or other representation of your likeness (or someone to whom you are a parent or legal guardian) is posted on the Site without your permission, please immediately notify ETFdb by sending an email to webmaster@ETFdb to report the unauthorized use of your image with the URL where the photo can be found.
23. VIOLATIONS OF TERMS OF SERVICE.
Please report violations of this TOS by contacting us. Where a Service provides you with the ability to flag Content as inappropriate, you may notify us of violations of these TOS by utilizing such functionality.
If you have a dispute with one or more users of the Site and Services, you hereby release ETFdb from any and all claims, demands and damages (actual and consequential) of every kind and nature, known and unknown, arising out of or in any way connected with such disputes. If you are a California resident, you waive California Civil Code 1542, which says: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”
Force Majeure – ETFdb shall not be liable for delay, termination or diminution in the Site or Service if the same is caused by conditions beyond a ETFdb reasonable control, including but not limited to, governmental action, terrorist act, riot, insurrection, fire, flood, accident, earthquake, electrical outage, telecommunications line failure, Internet outages, computer viruses, denial-of-service attacks, network failure, explosion, embargo, strike, labor or material shortage, transportation interruption, work slowdown or an act of God.
Entire Agreement / Amendments – This Agreement constitutes the entire understanding between the parties with respect to the subject of the Agreement. Notwithstanding the foregoing, these TOS may be modified from time to time by ETFdb without notice to you. You can review the most up-to-date version of the Site’s TOS by visiting this page.
Waiver and Severability – The failure of ETFdb to exercise or enforce any right or provision of the TOS shall not constitute a waiver of such right or provision. If any provision of the TOS is found by a court of competent jurisdiction to be invalid, the parties nevertheless agree that the court should endeavor to give effect to the parties’ intentions as reflected in the provision, and the other provisions of the TOS remain in full force and effect.
Statute of Limitations – You agree that regardless of any statute or law to the contrary, any claim or cause of action arising out of or related to use of the Site, Service or the TOS must be filed within one (1) year after such claim or cause of action arose or be forever barred.
Governing Law – This Agreement shall be construed and interpreted under the substantive laws of Barbados, without regard to the choice of law provisions of any jurisdiction. This Agreement shall be enforced in the courts of Delaware.
Entire Agreement – This document contains the entire understanding and agreement between you and ETFdb with regard to your use of the Services. Notwithstanding the foregoing, you acknowledge that you may be subject to additional terms and conditions that may apply when you use or purchase other services from ETFdb and/or third parties.
The Site is directed solely to individuals residing in jurisdictions in which provision of the Site’s content is legal. We make no representation that materials provided on the Site are appropriate or available for use in other locations. Those who choose to access the Site from other locations do so on their own initiative and at their own risk, and are responsible for compliance with local laws, if and to the extent applicable. We reserve the right to limit the availability of the Site to any person, geographic area, or jurisdiction we so desire, at any time and in our sole discretion, and to limit the quantities of any such service or product that we provide.
ETFdb. COM IS COMMITTED TO YOUR PRIVACY . TO LEARN MORE ABOUT THE INFORMATION WE COLLECT AND USE , THE SECURITY OF YOUR INFORMATION AND HOW AND WHEN WE SHARE IT, PLEASE READ THE PRIVACY POLICY BELOW . PLEASE READ THIS DOCUMENT CAREFULLY , AS IT GOVERNS YOUR USE OF THE SITE AND ALL SERVICES OFFERED THROUGH THE SITE .
This policy covers how ETFdb treats personal information that we collect and receive, including information related to your past use of our products and services. Personal information is information about you that is personally identifiable such as your name, address, email address, or phone number, and that is not otherwise publicly available.
Information Collection and Use.
ETFdb collects personal information when you register with ETFdb, when you use the site and services offered on the site, when you visit pages on the site or the pages of certain partners, and when you enter promotions or sweepstakes. ETFdb may also combine information about you that we have with information we obtain from business partners or other companies.
ETFdb uses such information for the following general purposes: to customize the advertising and content you see, fulfill your requests for products and services, improve our services, contact you, conduct research, and provide anonymous reporting for internal and external clients. When you register we may ask for information such as your name, email address, birth date, gender, postal code and company demographics of the company you work for. When you register with ETFdb and sign in to our services, you are not anonymous to us.
ETFdb collects information about your transactions with us and with some of our business partners, including information about your use of the products and services that we offer. ETFdb automatically receives and records information on our server logs from your browser, including your IP address, ETFdb cookie information, and the pages you request.
Information Sharing & Divulgação.
ETFdb does not rent, sell, or share personal information about you with other people or nonaffiliated companies except to provide products or services you request, when we have your permission, or under the following circumstances:
We provide the information to trusted partners who work on behalf of ETFdb under confidentiality agreements to provide services in support of the site. These companies may use your personal information to help ETFdb communicate with you about offers from ETFdb. However, these companies do not have any independent right to use or share this information. We may sometimes share aggregate non-personal information with third parties about how our users utilize the site and services. This aggregate information is typically in the form of statistics, such as numbers of ETFdb users who live in a particular locale or fall within a particular age group. Such aggregate information is gathered from individual ETFdb users’ information but is not traceable to any specific identifiable ETFdb user. ETFdb may share personal information with third parties to the extent required to respond to subpoenas, court orders, or legal process, or to establish or exercise our legal rights or defend against legal claims. ETFdb may also share personal information in order to investigate, prevent, or take action regarding illegal activities, suspected fraud, situations involving potential threats to the physical safety of any person, violations of the ETFdb Terms of Service, or as otherwise required or permitted by law.
If ETFdb is acquired by or merged with or into another company, personal information may be transferred and become subject to a different privacy policy.
You will be notified when your personal information is collected by any third party that is not our agent/service provider, so you can make an informed choice as to whether or not to share your information with that party.
Use of Personal Information with Marketing Partners and Co-Registration.
In instances where ETFdb and a marketing partner are offering a special value (i. e., a free offering) to our users, we may share your personal information with such partners. By signing up to receive items through these promotions, you are expressly consenting to ETFdb sharing your personal information (“co-registration”) with such partners and you will become subject to their privacy policies, which may vary from those of ETFdb. In the event that you would like to opt-out of receiving offers from these partners, you must do so directly with them. If you have any problems contacting one of our partners, contact us via email at contact@etfdb or phone at 1-855-383-3686 and we will help you resolve the situation.
In addition, you are expressly consenting to ETFdb that the use of certain personally identifiable User data may be processed and shared between applicable third party social network and/or identity providers. User accounts with such third party Providers shall be subject to such third party Providers’ then-current terms of use and privacy policies (“Third Party Policies”) and ETFdb shall not be responsible for any violation of their Policies. You are allowing ETFdb to user and store certain of this user data for its own business purposes.
ETFdb may from time to time send emails from selected partners to email addresses collected on this site. By providing your email address to sign up for a newsletter or other service offered on our site, you consent to allow ETFdb to send you emails on behalf of third parties who compensate us to do so. Emails sent to you by ETFdb will include an option to unsubscribe from future emails. If you do not wish to receive emails from ETFdb, including emails sent to you on behalf of our partners, you may opt out by clicking the “Unsubscribe” link in an email or by emailing us at contact@etfdb.
Personal information collected on ETFdb may be used for marketing or business purposes. Users agree to grant ETFdb the right to retain personal information indefinitely, and the right to sell or otherwise transmit that information to other entities.
If you need assistance opting out of any of any newsletters, please contact us at contact@etfdb.
If you wish to subscribe to our newsletter(s) and/or alert system, we will use your name and email address to send the newsletter or alert to you. Out of respect for your privacy, we provide you a way to unsubscribe. If you no longer wish to receive our newsletter, alerts and promotional communications, you may opt-out of receiving them by following the instructions included in each communication or by contacting us at contact@etfdb.
Use of Personal Information Posted on Forums and Comments.
If you use a forum or post a comment on this Web site, you should be aware that any personally identifiable information you submit there can be read, collected, or used by other users of these forums, and could be used to send you unsolicited messages. We are not responsible for the personally identifiable information you choose to submit in these forums.
ETFdb, like many websites, uses cookies. A cookie is a file containing a string of code text that we transfer to your computer’s hard drive, to be kept there for later use. With cookies in place, whenever you use your Web browser to connect to ETFdb, our systems are able to recognize you. This enables ETFdb to present you with custom web pages and options. You can set up your browser to reject cookies or tell you when a cookie has been sent.
In addition to our cookies, ETFdb may allow third parties that show advertisements on our site or participate in co-registration to set and access their own cookies on your computer. The cookies inserted by those third parties are not covered by ETFdb Privacy Policy, but rather by the policies of those third parties. However, these third parties do not have access to ETFdb cookies.
ETFdb also uses Web beacons (also known as action tags or single pixel gifs) to allow us to count how many people have visited a certain page. This enables us to assess the popularity and effectiveness of the material posted on the ETFdb website. Additionally, we sometimes use Web beacons to access Techopedia cookies inside and outside our Web pages and in connection with ETFdb products and services. A Web beacon is a transparent image placed on a Web page that sends a signal when a person visits that page. This enables us to assess the popularity and effectiveness of the material posted on the ETFdb web site. We may also use Web beacons in connection with emails sent to ETFdb users to let us know whether and when the email was opened.
We do link the information we store in cookies to any personally identifiable information you submit while on our site.
We send to your Web browser many of the advertisements you see when you use our network of websites. However, we also allow other companies, called third-party ad servers or ad networks, to serve advertisements within our Web pages. Because your Web browser must request these advertising banners from the ad network Web site, these companies can send their own cookies to your cookie file, just as if you had requested a Web page from the site. Please note that if an advertiser asks us to show an advertisement to a certain audience or audience segment and you respond to that ad, the advertiser or ad-server may conclude that you fit the description of the audience it is trying to reach. As always remember, we only authorize our third-party ad servers to employ anonymous cookies for ad delivery and anonymous targeting. Our third-party ad servers do not collect, nor do we give them access, to any personally identifying information about you.
We also use third-party ad servers to serve ads on our behalf across the Internet. They may collect anonymous information about your visits to ETFdb, and your interaction with our products and services. They may also use information about your visits to this and other Web sites to target advertisements for goods and services. This anonymous information is collected through the use of a Web beacon or pixel tag, which is industry standard technology, used by most major websites.
Opting Out of Third-Party Ad Servers.
If you want to prevent a third-party ad server from sending and reading cookies on your computer, you must visit each ad network’s website individually and opt out.
Editing and/or Deleting Account Information and Preferences.
You can edit the information contained in your account at any time. You can delete your ETFdb account by contacting us at contact@etfdb. Although your account will be deactivated immediately, information provided to us while you were a registered user may remain in back-up storage on our servers indefinitely. Nevertheless, once you delete your account, this information will be inaccessible to the public.
Confidencialidade e Segurança.
ETFdb limits access to personal information about you to employees who we believe reasonably needs such information to provide products or services to you or in order to do their jobs. In addition, ETFdb maintains physical, electronic, and procedural safeguards that comply with federal regulations to protect personal information about you.
Although ETFdb takes your privacy seriously and will take reasonable and customary measures to protect it, we cannot guarantee that there will be no unauthorized use of your personal information.
If you register for the site and services and create a User Account, you will be provided a username and password for such User Account. You acknowledge that you are responsible for maintaining the confidentiality of the password as well as any and all activity that occur under your User Account and password. You agree that at the end of each session using the Site and Services, you will exit your User Account. In the event of any unauthorized use of your password and/or User Account, you agree that you will immediately notify ETFdb by sending an email to webmaster@ETFdb. ETFdb cannot and will not be liable for any and all losses or damages arising from your failure to comply with this Section.
From time to time, ETFdb may make available to you certain services offered by third parties or may include links to sites operated and controlled by third parties. Those third-party services and sites are not governed by this Privacy Policy. Users who choose to visit those third-party sites are advised to review their privacy policies.
Access to Personal Information.
If at any time you would like to review the personal information we collect about you, just ask. You should send an email to webmaster@ETFdb from the email account you used to create your account and we will provide you with a summary, as well as an opportunity to correct and update this information.
Changes to This Privacy Policy.
This Privacy Policy may be changed from time to time. We will notify you about significant changes by sending a notice to the primary email address specified in your ETFdb account or by placing a prominent notice on our site.
If we decide to change our privacy policy, we will post those changes to this privacy statement, the homepage, and other places we deem appropriate so that you are aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. We reserve the right to modify this privacy statement at any time, so please review it frequently.

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Wednesday 11 April 2018

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