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The Code of Ethics Rule
February 07, 2012
Under Rule 204A-1 (“Code of Ethics Rule”) of the Investment Advisers Act of 1940 (“Investment Advisers Act”), each investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) is required to adopt and implement a code of ethics that sets forth required standards of conduct for all supervised persons of the registered investment adviser and addresses conflicts that arise from personal trading by advisory personnel. Most state securities regulators have similar requirements.
SEC’s New Performance Fee Rule Effective Sept. 19, 2011
September 18, 2011
As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the U.S. Securities and Exchange Commission (“SEC”) recently amended Rule 205-3 of the Investment Advisers Act of 1940, which exempts a “qualified client” from the general prohibition against an investment advisor charging a fee based upon the share of capital gains or capital appreciation (also known as a “performance fee”).
State registered investment advisors in the Commonwealth of Virginia have been instructed by the Virginia Division of Securities to continue to use the old Form ADV Part II and Schedule F until the Virginia Division of Securities has approved an investment advisor’s new Form ADV Part 2. The Virginia Division of Securities has indicated that it is encountering delays in Form ADV amendment reviews which may last up to six months. According to the Virginia Division of Securities, a state registered investment advisor in the Commonwealth of Virginia should continue to use the last accepted Form ADV, unless material changes have occurred. If there have been material changes, the state registered investment advisor is asked to notify the Virginia Division of Securities, which will advise the state registered investment advisor when the 2010 Form ADV annual updating amendment has been accepted. To access the website of the Virginia Division of Securities, please click here.
On Wednesday, June 22, 2011, the U.S. Securities and Exchange Commission (“SEC”) adopted new rules regarding regulatory jurisdiction for mid-sized investment advisers. Under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a registered investment adviser with between $25 and $100 million of assets under management will be required to “switch” from SEC to state registration with one or more state securities regulators (assuming it is relying upon the AUM as the basis for SEC registration). According to a press release regarding today’s meeting, during the first quarter of 2012, SEC registered investment advisers will be required to declare that they are eligible to remain registered with the SEC. Investment advisers who will no longer remain eligible for SEC registration will have until June 28, 2012 to complete the switch to state registration. The SEC staff estimated 3,200 investment advisers are anticipated to be required to “switch” to from SEC to state regulation.
New SEC Pay-to-Play Rules Require Certain Solicitors to Register as Investment Advisers
June 15, 2011
As a reminder, Rule 206(4)-5 under the Investment Advisers Act of 1940 requires a solicitor to register as an investment adviser with the U.S. Securities and Exchange Commission (“SEC”) if it solicits government business for an investment adviser.
On June 6, 2011, the U.S. Securities and Exchange Commission (“SEC”) charged a long time employee at Bernard L. Madoff Investment Securities LLC (“BMIS”) with “aiding and abetting violations of Section 204 and Rule 204-2 of the [Investment] Advisers Act [of 1940] (Adviser Books and Records Violations).” The SEC’s complaint alleges that BMIS, “failed to make, maintain on its premises, or keep accurate, certain books and records required by law.” The SEC cites several examples where the firm failed to maintain accurate cash receipts, disbursement records, accurate ledgers, and failed to keep true and accurate bank statements, cancelled checks and cash reconciliations. The allegations against the former employee of BMIS contend that the employee aided and abetted violations of Sections 204, 206(1) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2 thereunder. The SEC contends that as an employee in the investment advisory operations, the former BMIS employee assisted in falsifying documents, making repeated material misrepresentations, and generated fictitious account statements; thus, violating the Investment Advisers Act of 1940, Rule 204-2 and thereunder and perpetuating the firm’s violations.
SEC Finalizes Whistleblower Rules
June 02, 2011
The United States Securities and Exchange Commission (“SEC”) has finalized the whistleblower rules that were required by Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Conducting an Annual Compliance Review
May 20, 2011
It is essential for all investment advisors registered or required to be registered with the U.S. Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940 (“Advisers Act”) to understand that it shall be unlawful under Rule 206(4)-7 of the Advisers Act to provide investment advice unless the investment advisor has adopted and implemented written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder. Rule 206(4)-7 also requires SEC registered investment advisors to review their policies and procedures no less than annually to ensure adequacy and effectiveness of the implementation of the written policies and procedures. It is important to note that while Rule 206(4)-7 does not apply to most investment advisors that are registered with state securities authorities, many states have adopted similar requirements regarding written policies and procedures; it is essential for all investment advisors to be aware of the compliance requirements of its state in order to prevent regulatory violations.
The United States Securities and Exchange Commission (“SEC”) recently proposed a rule that would increase the dollar requirements that must be met before an investment adviser can charge performance based fees.
