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    Mar. 14, 2019

A Checklist for Advisers to Prepare Their Traders for SEC Exam Interviews

When examiners from the SEC’s Office of Compliance Inspections and Examinations (OCIE) conduct on-site exams of registered investment advisers, they typically ask to interview various employees. For example, examiners may want to interview traders to better understand how client trades are placed. Thus, it is important that advisers prepare their traders for those interviews. This article discusses why OCIE examiners may want to interview investment advisers’ traders; explains why advisers need to prepare traders to answer examiner questions; and provides a checklist of questions developed by a former SEC examiner for advisers to use to prepare traders for exam interviews, as well as review their overall trade procedures to ensure compliance with SEC rules and their own compliance programs. See our two-part series “HFLR Program Explores Current SEC Examination Practices and Issues”: Part One (Dec. 20, 2018); and Part Two (Jan. 10, 2019).

Practical Guidance for Fund Managers on Filing Their Annual Amendments to Forms ADV

A recent Washington, D.C., Compliance Round Table program addressed some common questions that arise when fund managers are completing their annual amendments to their Forms ADV, including some of the challenges posed by form amendments that took effect on October 1, 2017. The program also discussed a number of statistics on SEC-registered investment advisers. Marina Baranovsky, principal owner of Scitus Consulting LLC, moderated the program, which featured Monique S. Botkin, associate general counsel of the Investment Adviser Association; and Dechert partner Michael L. Sherman and senior associate Christine Ayako Schleppegrell. This article highlights the panelists’ key takeaways for fund managers. See our two-part series “Lessons Learned From How Advisers Dealt With the October 2017 Amendments to Form ADV”: Part One (Feb. 7, 2019); and Part Two (Feb. 14, 2019); as well as “A Roadmap of Potential Landmines for Fund Managers to Avoid When Completing the Revised Form ADV” (May 25, 2017).

Former SEC Senior Counsel Discusses Enforcement Trends and Whistleblowers (Part Two of Two)

After serving as Senior Counsel in the SEC’s Division of Enforcement, investigating and prosecuting complex matters involving violations of the federal securities laws, Philip Moustakis has joined Seward & Kissel as counsel. The Hedge Fund Law Report recently interviewed Moustakis in connection with his move. This second article in our two-part series summarizes his thoughts on enforcement trends in general and in the digital asset space specifically, as well as on whistleblowers. The first article explored Moustakis’ experience in the government, as well as the regulatory approach to digital assets and blockchain. For commentary from other Seward & Kissel attorneys, see our two-part series “The SEC Is Calling”: What CCOs Should Expect During Initial Communications With OCIE Examiners (Sep. 13, 2018); and How CCOs Can Stay Prepared for Initial Communications With OCIE Examiners (Sep. 20, 2018); as well as “HFLR and Seward & Kissel Webinar Explores Common Issues in Negotiating and Monitoring Side Letters” (Nov. 10, 2016).

Taxation of Carried Interests for Senior Level Fund Managers (Part Two of Four)

In a four-part guest series, Arthur H. Kohn, partner at Cleary Gottlieb, along with Andrew L. Oringer and Steven W. Rabitz, partners at Dechert, summarize the principal U.S. federal income tax and related design considerations associated with carried interest arrangements for individuals who are employed by or otherwise provide services to sponsors of private investment funds. This second article discusses practical and design considerations related to profits interests in a tax partnership, including 83(b) elections; fee-waiver provisions; and the tax treatment on the repurchase or disposition of profits interests or the payment in liquidation of profits interests. The first article provided background on carried interest arrangements and examined relevant analytical considerations. The third and fourth articles will explore additional practical and design considerations. For additional insights from Oringer, see our five-part series “Happily Ever After? – Investment Funds That Live With ERISA, For Better and For Worse”: Part One (Sep. 4, 2014); Part Two (Sep. 11, 2014); Part Three (Sep. 18, 2014); Part Four (Sep. 25, 2014); and Part Five (Oct. 2, 2014).

Pay to Play Violations Remain on the SEC’s Radar

Political contributions remain a significant trap for unwary advisers. The SEC has been relentless in its pursuit of firms that violate Rule 206(4)‑5 under the Investment Advisers Act of 1940 – commonly known as the “pay to play rule” (Rule). Under the Rule, it is unlawful for an investment adviser to receive compensation from a government pension fund or other government entity for investment advice for two years after the adviser or certain of its employees make a contribution to an official of the government entity who can influence the entity’s selection of investment advisers. An investment adviser recently ran afoul of the Rule when two of its employees made contributions to certain governmental officials. This article details the relevant provisions of the Rule, the alleged violations and the terms of the SEC settlement order. See “Four Pay to Play Traps for Hedge Fund Managers, and How to Avoid Them” (Feb. 5, 2015); “Five Best Practices for Avoidance of Pay to Play Violations by Hedge Fund Managers or Their Covered Associates” (Dec. 8, 2011); and “How Should Hedge Fund Managers Revise Their Compliance Policies and Procedures and Marketing Practices in Light of the SEC’s New ‘Pay to Play’ Rule?” (Jul. 30, 2010).

Owen Pinkerton Joins Thompson Hine’s Investment Management Practice in D.C.

The newest addition to Thompson Hine’s Washington, D.C., office is Owen Pinkerton, partner in its corporate transactions and securities group and its investment management practice. Early in his career, Pinkerton was an Attorney-Adviser and Senior Counsel in the SEC’s Division of Corporation Finance, where he worked in the Real Estate Investment Trusts Group. For coverage of another recent hire at the firm, see “Thompson Hine Adds Christopher D. Carlson to Investment Management Team” (Jul. 26, 2018).

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