Articles Tagged with Exemption

The Securities and Exchange Commission (“SEC”) recently announced a proposal to amend Rules 203(l)-1 and 203(m)-1 of the Investment Advisers Act of 1940 (“Advisers Act”). The purpose of these proposed amendments is to “reflect changes made by… the Fixing America’s Surface Transportation Act of 2015 (the “FAST Act”).” The FAST Act amended sections 203(l) and 203(m) of the Advisers Act to provide advisers to small business investment companies (“SBICs”), venture capital funds, and certain private funds with additional avenues to registration exemption.

SBICs are commonly defined as privately-owned investment companies that are licensed and regulated by the Small Business Administration (“SBA”). They typically provide a vehicle for funding small businesses through both equity and debt. Section 203(b)(7) of the Advisers Act provides that investment advisers who only advise SBICs are exempt from registration. Moreover, investment advisers who use the SBIC exemption are not obligated to comply with the Advisers Act’s reporting and recordkeeping provisions, and they are not subject to SEC examination. Continue reading

In February 2017, the Financial Industry Regulatory Authority Inc. (“FINRA”) published a Regulatory Notice asking for comment on proposed changes to FINRA Rule 2210, which governs communications with the public.  Under current Rule 2210, broker-dealers are not allowed to make communications that “predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast.”  According to FINRA, the purpose of this rule is to prevent retail investors from relying on performance projections relating to individual investments, which tend to be deceptive.

However, FINRA has acknowledged that performance projections that are not based on how well an individual investment performed can be helpful to investors who are contemplating an investment strategy.  Furthermore, investment advisers are permitted to use performance projections in choosing an investment strategy for their clients, provided that the projections do not violate the Investment Advisers Act of 1940’s antifraud rules.  Therefore, FINRA proposed the amendments to Rule 2210 in order to allow broker-dealers to use projections in a way that benefits clients and to make the rules governing performance projections by broker-dealers and investment advisers more uniform. Continue reading

On June 19, 2015, new amendments to Regulation A took effect which should increase capital raising options of some smaller businesses. Formerly, the Regulation A exemption was limited to $5 million. The new amendments provide an avenue for businesses to raise up to $50 million of capital. As a result of the new amendments, Regulation A is now divided into two tiers, “Tier 1” and “Tier 2.”

In Tier 1 offerings, companies can raise up to $20 million over a one year period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer. Under Tier 1, the offering must pass state securities regulation in any state where investors are located.

In Tier 2 offerings, companies can raise up to $50 million over a one year period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer. A Tier 2 offering has the significant advantage of being exempt from many state registration requirements.
Continue reading

Tennessee’s new “Invest Tennessee Exemption” to the state’s securities registration requirements went into effect on January 1, 2015. Like other securities exemption laws recently adopted by other states, Tennessee’s exemption allows for the intrastate offerings of certain securities that do not exceed $1 million. The law sets out the rules for issuers to use this exemption as an alternate way to raise capital.

Under the Invest Tennessee Exemption, securities offerings meeting the following requirements will be exempt from state registration:

Continue reading

The Alabama Legislature passed a crowdfunding exemption bill this April, but the bill is still awaiting the Governor’s signature to become effective. Alabama is the eleventh state to enact legislation or develop regulations on this topic. Other states that have adopted crowdfunding exemption bills include, Washington, Idaho, Wisconsin, Michigan, Kansas, Georgia, Tennessee, Indiana, Maryland, and Maine.

Similar to the approach taken by other states, Alabama’s new legislation is intended to unlock capital and increase access to it for local small businesses and entrepreneurs. While it is still uncertain how successful state measures such as these will be in achieving the goal of increased capital access, the ability of small business owners to raise capital should be enhanced through the relaxation of some of the previous constraints. It is important to note, however, that regulatory agencies will require strict adherence to the new standards in return for less-regulated access to capital. Businesses using the Alabama crowdfunding exemption, and other, similar state exemptions, bear the burden of ensuring its sale of unregistered securities does not run afoul of restrictions governing them.
Continue reading

Now that the effective date of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) has arrived and the SEC has adopted rules implementing changes to the investment adviser registration regime, the landscape can be relatively confusing. For investment advisers currently registered either with the state in which it maintains its principal office or with the SEC, the new rules are fairly easy to apply, particularly in light of the transition rules adopted on June 22, 2011 by the SEC as explained in Parker MacIntyre’s previous post. For others, however, the application of the new rules will prove more complicated, particularly for those advisers whose principal office and place of business are in states that have unusual registration or regulatory provisions.

Take, for example, Wyoming. Since that state does not provide for investment adviser registration, it has always been somewhat of an anomaly, even before Dodd-Frank. Section 203A(a)(1) of the Investment Advisers Act only prohibits registration with the SEC of investment advisers who have assets under management of less than $25 million and are “regulated or required to be regulated as an investment adviser in the State in which it maintains its principal office and place of business.” Wyoming-based advisers must therefore register with the SEC regardless of their assets under management, unless otherwise exempt from registration under the Investment Advisers Act or a private adviser able to rely upon the transition rule provided in 203-1(e).
Continue reading

In a rule adopted yesterday, the Securities and Exchange Commission (SEC) adopted a rule defining “family offices.” “Family offices” are entities established by wealthy families to manage their wealth and provide other services to family members, such as tax and estate planning services. Family offices were exempt from registration as investment advisers with “fewer than fifteen clients” prior to passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, but when that act goes into effect on July 21, 2011, they will no longer be able to claim that broad exemption because it will be repealed.

In its place, as authorized by Congress, the SEC has exempted a new category of advisers that constitute “family offices.” A family office (1) provides investment advice only to “family clients,” as defined by the rule; (2) Is wholly owned by family clients and is exclusively controlled by family members and/or family entities, as defined by the rule; and (3) Does not hold itself out to the public as an investment adviser.
Continue reading

Registered Investment Advisers in Georgia can take advantage of a “de minimis” registration exemption, according to a new Implementation Order dated December 31, 2010. In that Order, the Georgia Securities Commissioner has exempted from registration any adviser with fewer than six clients within the preceding twelve months. Although the Georgia Securities Act of 1973 contained such an exemption, the more recently enacted Georgia Uniform Securities Act of 2008 did not, providing only an exemption to advisers that have no office in Georgia.

Under the National Securities Markets Improvements Act (NSMIA), Congress precluded states from requiring registration for investment advisers that have no place of business in that state and direct business communications to not more than five non-institutional clients in any single year. But the Georgia exemption goes further, exempting advisers that do have a place of business in the state so long as they have five or fewer clients of any type.

One of the main consequences of the exemption is that it exempts hedge fund advisers that only advise the fund. This result occurs because of a separate rule defining such a fund as as single “client.”