Aug. 7, 2014
Aug. 7, 2014
“Best Ideas” Conference Presentations: Challenges Faced by Hedge Fund Managers Under Federal Securities Law (Part One of Two)
“Best ideas” conferences are events at which investment experts – often including hedge fund managers – make individual presentations or participate in panel discussions during which they share investment ideas, analysis and recommendations with fellow contributors and attendees. Frequently, these conferences are organized for both educational and charitable purposes, and the net proceeds are donated to one or more non-profit organizations. Managers who participate in these events likely do so for a variety of reasons: benefitting a particular charity, raising awareness of the attributes or shortcomings of a particular investment, sharing in the opportunity to participate in an exchange of insights with other leading professionals and demonstrating their research and/or analytical skills. Naturally, information shared at a “best ideas” conference is available to anyone who attends. Tickets are usually offered for sale on an unrestricted basis to the general investing public via an organizer’s website. Accordingly, there are generally no controls over who will and will not be in attendance when information is presented. Additionally, comments and statements made by presenters and panel members are often live-tweeted during the presentation or summarized by bloggers shortly after the presentation is concluded. Finally, many organizers publish materials used by presenters – such as PowerPoint slides and graphs – to their websites during or soon after a conference has ended. As a result, the information and materials that a manager prepares for the conference audience generally finds its way to a much broader, and potentially less sophisticated, consumer market. The porous nature of this process raises a range of issues of concern for a hedge fund manager, from potential violations of general solicitation restrictions under Regulation D of the Securities Act of 1933, as amended, to compliance with antifraud and fiduciary duties under the Investment Advisers Act of 1940, as amended. In a two-part guest article series, S. Brian Farmer, Co-Managing Partner of the Investment Management & Private Funds Practice Group at Hirschler Fleischer, and co-author John C. C. Byrne, II, identify the primary legal concerns raised by presentations at best ideas conferences and discuss how to address those concerns. This article is the first in the series.
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SEC and SIFMA Offer Additional Guidance on Rule 506(c) Accredited Investor Status
Hedge fund managers and other issuers who wish to offer securities in reliance on the exemption from registration set forth in Rule 506(c) of Regulation D under the Securities Act of 1933 (Securities Act), must take “reasonable steps” to verify that each of the investors is an “accredited investor.” The main attraction of a Rule 506(c) offering is that it is not subject to the traditional ban on general solicitation and advertising in private offerings. Rule 506(c) contains a number of safe harbors covering verification of accredited investor status. In that regard, the SEC recently amended its Securities Act Rules Compliance and Disclosure Interpretations to clarify the calculation of income and net worth in determining accredited investor status and the applicability of the safe harbors relating to income and net worth. In addition, the Securities Industry and Financial Markets Association recently offered guidance to registered broker-dealers and investment advisers on the determination of accredited investor status. See also “SEC Provides Guidance on When the Bad Actor Rule Disqualifies Hedge Fund Managers from Generally Soliciting or Advertising,” Hedge Fund Law Report, Vol. 7, No. 9 (Mar. 7, 2014).
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Alternative Investment General Counsel Summit Covers Dual Registration, Valuation, Compensation Structures, the AIFMD, Presence Exams and Risk Alerts (Part One of Two)
ALM’s Corporate Counsel recently hosted its inaugural Alternative Investment General Counsel Summit in New York. Speakers at the event, including law firm partners, in-house counsel and regulators, addressed conflicts of interest raised by dual registration and valuation; the constituent elements of a culture of compliance; the interaction between compensation structures and regulatory developments; AIFMD compliance and timing; presence exam survival strategies; the role of risk alerts in refining a compliance program; effective responses to regulatory audits and examinations; insider trading; political intelligence; and expert networks. This is the first article in a two-part series summarizing the points made at the Summit that can impact the design or implementation of hedge fund manager compliance programs. See also “ALM’s 7th Annual Hedge Fund General Counsel Summit Addresses Distressed Debt Investing (Part Two of Three),” Hedge Fund Law Report, Vol. 6, No. 46 (Dec. 5, 2013).
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D.C. Circuit Confirms Applicability of Attorney-Client Privilege to Internal Investigations
A March 2014 decision by the U.S. District Court for the District of Columbia sent shock waves through the ranks of corporate counsel: The District Court ruled that an internal investigation was not privileged because it would have been conducted regardless of whether the company was also seeking legal advice. See “When Are Reports of Internal Investigations Protected by Attorney-Client Privilege?,” The FCPA Report, Vol. 3, No. 9 (Apr. 30, 2014). In an important reaffirmation of the strength and breadth of the attorney-client privilege, the U.S. Court of Appeals for the D.C. Circuit recently vacated the District Court’s decision, ruling that the privilege was available so long as seeking legal advice was a “significant” purpose – even if not the sole purpose – of the internal investigation. See also “Federal Court Decision Narrows the Scope of Attorney-Client Privilege Available to Hedge Fund Managers in Internal Investigations,” Hedge Fund Law Report, Vol. 7, No. 3 (Jan. 23, 2014).
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Can Private Fund Marketing Be Automated?
The Hedge Fund Law Report recently interviewed Alon Goren, CEO of INVST, an online platform for connecting private funds and investors. The intent of the interview was to determine whether private fund marketing, or parts of it, can be automated, or at least facilitated, by technology. In pursuit of an answer to this question, we discussed the following topics with Goren: what INVST does and its revenue model; how INVST confirms the accredited and qualified status of investors on the platform; compliance with the Lamp Technologies no-action letter and the JOBS Act; segments of the investor market on the platform; size and other characteristics of funds and managers on the platform; INVST’s interaction with third-party marketers and its place in the hedge fund marketing ecosystem; and whether INVST handles secondary market transactions in private fund interests.
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Kleinberg Kaplan Welcomes Joseph Iskowitz to Hedge Fund Practice
Joseph Iskowitz recently joined Kleinberg, Kaplan, Wolff & Cohen. P.C. as a partner in the hedge fund practice. For insight from Kleinberg Kaplan, see “The Impact of Revenue Ruling 2014-18 on Compensation of Hedge Fund Managers and Employees,” Hedge Fund Law Report, Vol. 7, No. 24 (Jun. 19, 2014); “A Checklist for Updating Hedge Fund and Service Provider Documents for FATCA Compliance,” Hedge Fund Law Report, Vol. 7, No. 7 (Feb. 21, 2014); and “Insurance Dedicated Funds Offer Hedge Fund Exposure Plus Tax, Underwriting and Asset Protection Advantages for Investors,” Hedge Fund Law Report, Vol. 6, No. 28 (Jul. 18, 2013).
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Jeffrey Blumberg Joins Ulmer & Berne in Chicago
On August 4, 2014, Ulmer & Berne LLP announced that financial services partner Jeffrey Blumberg and associate Stephen Gardner have joined its Chicago office.
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The Hedge Fund Law Report Will Not Publish an Issue Next Week and Will Resume Its Regular Publication Schedule the Following Week
Please note that the Hedge Fund Law Report will not publish an issue during the week starting Monday, August 11, 2014, and will resume its regular publication schedule the following week, the week starting Monday, August 18, 2014.
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