Sadis & Goldberg Blog

On October 31, 2011, the Securities and Exchange Commission ("SEC") adopted new rules under the Commodity Exchange Act and the Investment Advisers Act of 1940 to implement provisions of Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new rules requires investment advisers that advise one or more private funds and have at least $150 million in regulatory assets under management ("RAUM")[1] attributable to private funds at the end of its most recent fiscal year to file Form PF periodically with the SEC.

The following are the new requirements for filing frequency and first filing deadlines for advisers: 

For advisers with RAUM that is attributable to private equity funds, liquidity funds and registered money market funds, the threshold RAUM varies. Additionally, the specific sections of the Form PF that an adviser must complete depend on the amount of RAUM. Please contact us for additional information on the specific sections that must be completed. The Form PF is legally complex, time-consuming and requires voluminous data collection and preparation. As such, we recommend that those advisers who are required to file Form PF plan ahead and begin to develop an internal process for obtaining the required information. If you would like to view the Adopting Release, please visit: http://www.sec.gov/rules/final/2011/ia-3308.pdf. If you would like to view a copy of the Form PF, please visit: http://www.sec.gov/rules/final/2011/ia-3308-formpf.pdf.

Should you have any questions regarding this Alert, please contact Daniel Viola at 212-573-8038 or dviola@sglawyers.com, Lance Friedler at 212-573-8030 or lfriedler@sglawyers.com or Ron Geffner at 212-573-6660 or rgeffner@sglawyers.com.

[1] Form PF instructs advisers to calculate RAUM in accordance with Part 1A, Instruction 5.b of Form ADV. Advisers are not permitted to subtract any outstanding indebtedness or other accrued fees or expenses that remain in the account. Moreover, all of the assets of a private fund should be treated as a "securities portfolio" regardless of the nature of such assets.

On July 26, 2011, the Securities and Exchange Commission (the "SEC") adopted Rule 13h-1 (the "Rule") which requires "large traders" to provide the SEC with detailed trading information by filing Form 13H by December 1, 2011.

The Rule defines a "large trader" as any person that directly or indirectly, including through other persons controlled by such person, exercises investment discretion over one or more accounts and effects transactions for the purchase or sale of any NMS security[1] for or on behalf of such accounts, by or through one or more registered broker-dealers, in an aggregate amount equal to or greater than either:

• two million shares or shares with a fair market value of $20 million during a calendar day; or
• twenty million shares or shares with a fair market value of $200 million during a calendar month.  

After filing an initial Form 13H, large traders will be given a large trader identification number (LTID) to provide to registered broker-dealers who effect transactions on their behalf. Subsequent to the initial filing, large traders will have to file various periodic updates to Form 13H with the SEC.

Registered broker-dealers will be required to keep records and report large trader transaction information to the SEC upon request. For those account holders who have not identified themselves as large traders, but that the broker-dealer knows or has reason to know are large traders, the broker-dealers must monitor their securities transactions and notify them of the requirement to register with the SEC. Registered broker-dealers will be required to comply with the recordkeeping, reporting and monitoring requirements starting on April 30, 2012.

The compliance date to file an initial Form 13H is December 1, 2011. We recommend that you review your current transactions in listed equity securities or exchange-traded options in light of these new requirements and contact us to discuss Form 13H filings.

If you have any questions regarding this Alert, please contact Daniel G. Viola at 212.573.8038 or dviola@sglawyers.com or  Lance Friedler at 212.573.8030 or lfriedler @sglawyers.com. 

[1] An "NMS security" is "any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options." 17 CFR 242.600(b)(46).  

If you are a registered investment adviser, today is the last day to remit payment to your investment adviser's IARD renewal account.  All monies must be delivered to FINRA by December 13, 2010 to meet FINRA's deadline.  If you have not done so already, please follow the instructions below and submit your fees to avoid termination:

The U.S. Securities and Exchange Commission, and each state's securities division, require all registered investment advisers to annually renew their registration.  Please review your Renewal Statement to determine what fees need to be paid in connection with your renewal. The fee is paid directly to IARD.

Payment must be received by December 13, 2010.  Failure to remit payment of the Renewal Statement by December 13, 2010 may result in your inability to conduct business in jurisdictions where you are registered as of January 1, 2011. Additionally, failure to remit payment may result in the termination of your investment adviser representative registrations, effective December 31, 2010.

The following are the available payment options:
1. Electronic payment via Web CRD/IARD E-Pay.  This option allows you to authorize electronic payment directly from your designated bank account to your renewal account. Please go to for further details.

            *Web E-Pay Update: If you have not used Web E-Pay since August 20, 2006, the first time you log onto Web E-Pay you will be required to enter your current user ID and a new password. The new password is your user ID + your firm's CRD number (all as one string, no spaces). You will be required to change your password after this initial logon in order to submit an electronic payment.

2. Payment by wire transfer.  You may wire funds into your renewal account.  Wire transfer deposits received before 2 p.m., EST, should be posted in your daily account the next business day. Wire transfer deposits received after 2 p.m., EST, should be posted in your daily account within two business days. You may wire funds into your financial account as follows: 

-        Instruct your bank to contact: "Mellon Financial, Philadelphia, PA.".

-        Provide your bank with the following information to initiate a wire transfer:

•  ABA Number: 031 000 037
•  Beneficiary: FINRA
•  FINRA Account Number: 8-234-353
•  Reference Number: Your Firm's CRD Number

3. Payment by check.  While FINRA makes every attempt to process checks within one business day, processing may take up to two business days or more (after receipt) during the renewal season.  Please remember to write your firm's CRD number and the word "Renewal" on the face of the check.  Additionally, print the first page of the Renewal Statement and send it with your check. 

4. Payment by transfer of funds from your firm's daily account to your firm's renewal account.  In an effort to assist you with your renewal payment, if your firm currently has enough funds in its daily account to cover the cost requirements for the renewal statements, on December 13, 2010, FINRA will automatically transfer the funds into your firm's renewal account. 
 
Once the Renewal Statement has been filed and the payment is made,  you can continue with the renewal process, which includes revisions to the Form ADV to reflect current and accurate information, including relevant changes to your firm's business. The annual amendment to the firm's Form ADV will be due, at the latest, 90 days after year-end. If the payment is not made by December 13, 2010, you will not be able to continue with the renewal process, which may result in your inability to conduct business in jurisdictions where you are currently registered or termination of your investment adviser representative registrations, effective December 31, 2010.

If you have any questions regarding the renewal process or payment, please feel free to contact Daniel G. Viola at 212-573-8038, Rachel Greer at 212-573-8168 or Denys Dlaboha at 212-573-8428.

The Securities and Exchange Commission ("SEC") has made significant changes to the Form ADV and CCOs of SEC registered investment advisers must review their current disclosure items in light of these changes.  On July 21, 2010, the SEC approved changes to the check-the-box format of the Form ADV Part 2 ("ADV Part 2").  On July 28, 2010, the SEC published details regarding the amendments to ADV Part 2, and related rules under the Investment Advisers Act ("Act"), which now requires SEC registered investment advisers to provide new and prospective clients with a brochure and brochure supplements written in plain English.1  "These changes are designed to provide clients with greater information about the individuals who will provide them with investment advice," said SEC Chairman Mary L. Schapiro. "These amendments will help transform the brochure into a plain English narrative that is well-suited to serve investors' needs and describes the adviser's conflicts, compensation, business activities, and disciplinary history."2  In addition to the existing disclosure requirements, the new ADV Part 2 must now:
1.Indicate whether advisers hold themselves out as specializing in any   particular type of advisory service.
2.Disclose the total assets under management.
3.Describe how advisers are compensated for advisory services, provide a fee schedule, and disclose whether fees are negotiable.  Adviser must also describe the types of other fees or expenses, such as brokerage fees, custody fees, and fund expenses that clients may pay in connection with the services provide.
4.Disclose conflicts of interest that arise from accepting performance based fees, including conflicts of interests related to charging some, but not all, accounts a performance fee.
5.Explain that investing in securities involves risk of loss that a client should be prepared to bear.
6.Describe any material risks that are specific to a particular strategy.
7.Disclose material facts about any legal or disciplinary event that is material to a client's evaluation of the advisory business or the integrity of management personnel.3

Furthermore, advisers must provide expanded responses to certain existing disclosure items, including: (1) brokerage practices; (2) whether they participate in or have an interest in client transactions; and/or (3) whether they invest in the same securities as they recommend for clients.  Any related conflicts of interest must be described fully.
 
To assist clients in evaluating the qualification of the individuals who will be servicing their accounts, supplements to the ADV Part 2 that provide résumé-like information about such individuals, including disciplinary history, now must be delivered to new and prospective clients, in accordance with Rule 204-3 under the Act.
 
Finally, advisers must electronically file the new ADV Part 2, which will be publicly available to potential clients on the SEC's IARD website.  Most advisers will begin distributing and electronically filing the new ADV Part 2 in the first quarter of 2011 as part of their annual renewal filings, unless an event that constitutes a material change requires an updated filing before that time. 

We recommend that you review your current disclosures and conflicts of interest in light of these new requirements and contact us to discuss required amendments for your next filings. If you have any questions regarding this Alert, please contact Dan Viola at 212.573.8038 or dviola@sglawyers.com.
 
1 See, SEC Release No. IA-3060
2 See, SEC Release 2010-127 (To access SEC Chairman Mary Schapiro's Opening Statement at the SEC 
   Open Meeting regarding Form ADV Amendments, go to:
   www.sec.gov/news/speech/2010/spch07211mls-adv.htm).
3 Id. ("Investment advisers must update their clients promptly of new disciplinary events or material
   changes to an existing event.")