investment adviser 6/13/2017 regulation

INVESTMENT ADVISERREGULATION

A Step-by-Step Guide toCompliance and the Law

Third Edition

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PLI’S COMPLETE LIBRARY OF TREATISE TITLES
ART LAWArt Law: The Guide for Collectors, Investors, Dealers & Artists

BANKING & COMMERCIAL LAWAsset-Based Lending: A Practical Guide to Secured FinancingDocumenting Secured Transactions: Effective Drafting and LitigationEquipment Leasing–Leveraged LeasingHillman on Commercial Loan DocumentationMaritime Law Answer Book

BANKRUPTCY LAWBankruptcy DeskbookPersonal Bankruptcy Answer Book

BUSINESS, CORPORATE & SECURITIES LAWAccountants’ LiabilityAnti-Money Laundering: A Practical Guide to Law and ComplianceAntitrust Law Answer BookBroker-Dealer RegulationConducting Due Diligence in a Securities OfferingConsumer Financial Services Answer BookCorporate Compliance Answer BookCorporate Legal Departments: Practicing Law in a CorporationCorporate Political Activities DeskbookCorporate Whistleblowing in the Sarbanes-Oxley/Dodd-Frank EraCovered Bonds HandbookCybersecurity: A Practical Guide to the Law of Cyber RiskDerivatives Deskbook: Close-Out Netting, Risk Mitigation, LitigationDeskbook on Internal Investigations, Corporate Compliance, and White Collar IssuesDirectors’ and Officers’ Liability: Current Law, Recent Developments, Emerging IssuesDoing Business Under the Foreign Corrupt Practices ActEPA Compliance and Enforcement Answer BookExempt and Hybrid Securities OfferingsFashion Law and Business: Brands & RetailersFinancial Institutions Answer Book: Law, Governance, ComplianceFinancial Product Fundamentals: Law, Business, ComplianceFinancial Services Regulation DeskbookFinancially Distressed Companies Answer BookGlobal Business Fraud and the Law: Preventing and Remedying Fraud and CorruptionHedge Fund RegulationInitial Public Offerings: A Practical Guide to Going PublicInsider Trading Law and Compliance Answer BookInsurance and Investment Management M&A DeskbookInternational Corporate Practice: A Practitioner’s Guide to Global SuccessInvestment Adviser Regulation: A Step-by-Step Guide to Compliance and the LawLife at the Center: Reflections on Fifty Years of Securities RegulationMergers, Acquisitions and Tender Offers: Law and StrategiesMutual Funds and Exchange Traded Funds RegulationOutsourcing: A Practical Guide to Law and BusinessPrivacy Law Answer BookPrivate Equity Funds: Formation and OperationProskauer on Privacy: A Guide to Privacy and Data Security Law in the Information AgePublic Company Deskbook: Complying with Federal Governance & Disclosure

RequirementsSEC Compliance and Enforcement Answer BookSecurities Investigations: Internal, Civil and CriminalSecurities Law and Practice Handbook

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The Securities Law of Public FinanceSecurities Litigation: A Practitioner’s GuideSocial Media and the LawSoderquist on Corporate Law and PracticeSovereign Wealth Funds: A Legal, Tax and Economic PerspectiveA Starter Guide to Doing Business in the United StatesTechnology Transactions: A Practical Guide to Drafting and Negotiating Commercial
AgreementsVariable Annuities and Variable Life Insurance Regulation

COMMUNICATIONS LAWAdvertising and Commercial Speech: A First Amendment GuideSack on Defamation: Libel, Slander, and Related ProblemsTelecommunications Law Answer Book

EMPLOYMENT LAWEmployment Law YearbookERISA Benefits Litigation Answer BookLabor Management Law Answer Book

ESTATE PLANNING AND ELDER LAWBlattmachr on Income Taxation of Estates and TrustsEstate Planning & Chapter 14: Understanding the Special Valuation RulesInternational Tax & Estate Planning: A Practical Guide for Multinational InvestorsManning on Estate PlanningNew York Elder LawStocker on Drawing Wills and Trusts

HEALTH LAWFDA Deskbook: A Compliance and Enforcement GuideHealth Care Litigation and Risk Management Answer BookHealth Care Mergers and Acquisitions Answer BookMedical Devices Law and Regulation Answer BookPharmaceutical Compliance and Enforcement Answer Book

IMMIGRATION LAWFragomen on Immigration Fundamentals: A Guide to Law and Practice

INSURANCE LAWBusiness Liability Insurance Answer BookInsurance Regulation Answer BookReinsurance Law

INTELLECTUAL PROPERTY LAWCopyright Law: A Practitioner’s GuideFaber on Mechanics of Patent Claim DraftingFederal Circuit Yearbook: Patent Law Developments in the Federal CircuitHow to Write a Patent ApplicationIntellectual Property Law Answer BookKane on Trademark Law: A Practitioner’s GuideLikelihood of Confusion in Trademark LawPatent Claim Construction and Markman HearingsPatent Law: A Practitioner’s GuidePatent Licensing and Selling: Strategy, Negotiation, FormsPatent LitigationPharmaceutical and Biotech Patent LawPost-Grant Proceedings Before the Patent Trial and Appeal BoardSubstantial Similarity in Copyright LawTrade Secrets: A Practitioner’s Guide

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LITIGATION
American Arbitration: Principles and PracticeClass Actions and Mass Torts Answer BookElectronic Discovery DeskbookEssential Trial Evidence: Brought to Life by Famous Trials, Films, and FictionExpert Witness Answer BookEvidence in Negligence CasesFederal Bail and Detention HandbookHow to Handle an AppealMedical Malpractice: Discovery and TrialProduct Liability Litigation: Current Law, Strategies and Best PracticesSinclair on Federal Civil PracticeTrial Handbook

REAL ESTATE LAWCommercial Ground LeasesFriedman on Contracts and Conveyances of Real PropertyFriedman on LeasesHoltzschue on Real Estate Contracts and Closings: A Step-by-Step Guide to Buying and

Selling Real EstateNet Leases and Sale-Leasebacks

TAX LAWThe Circular 230 Deskbook: Related Penalties, Reportable Transactions, Working FormsThe Corporate Tax Practice Series: Strategies for Acquisitions, Dispositions, Spin-Offs, Joint

Ventures, Financings, Reorganizations & RestructuringsForeign Account Tax Compliance Act Answer BookInternal Revenue Service Practice and Procedure DeskbookInternational Tax & Estate Planning: A Practical Guide for Multinational InvestorsInternational Tax Controversies: A Practical GuideInternational Trade Law Answer Book: U.S. Customs Laws and RegulationsLanger on Practical International Tax PlanningThe Partnership Tax Practice Series: Planning for Domestic and Foreign Partnerships, LLCs,

Joint Ventures & Other Strategic Alliances Private Clients Legal & Tax Planning Answer BookTransfer Pricing Answer Book

GENERAL PRACTICE PAPERBACKSAnatomy of a Mediation: A Dealmaker’s Distinctive Approach to Resolving Dollar Disputes

and Other Commercial ConflictsAttorney-Client Privilege Answer BookDrafting for Corporate Finance: Concepts, Deals, and DocumentsPro Bono Service by In-House Counsel: Strategies and PerspectivesSmart Negotiating: How to Make Good Deals in the Real WorldThinking Like a Writer: A Lawyer’s Guide to Effective Writing & EditingWorking with Contracts: What Law School Doesn’t Teach You

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INVESTMENT ADVISERREGULATION

A Step-by-Step Guide toCompliance and the Law

Third Edition

VOLUME 1

Edited byClifford E. Kirsch

Incorporating Release #11June 2017#205882

Practising Law InstituteNew York City

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This work is designed to provide practical and usefulinformation on the subject matter covered. However, it issold with the understanding that neither the publisher northe author is engaged in rendering legal, accounting,or other professional services. If legal advice or otherexpert assistance is required, the services of a competentprofessional should be sought.

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Copyright © 1996, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006,2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 byPractising Law Institute.

All rights reserved. First edition 1996.Second edition 2006.Third edition 2011.

Printed in the United States of America. No part of this publication may bereproduced, stored in a retrieval system, or transmitted in any form by anymeans, electronic, mechanical, photocopying, recording, or otherwise,without the prior written consent of Practising Law Institute.

ISBN: 978-1-4024-1690-3

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To Emma—

Thanks for completing our family with your beauty, joy,

and happiness. We love you so much.

Love,

Daddy, Mommy, Julia, and Abby

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About the Editor

CLIFFORD E. KIRSCH is a partner at Eversheds Sutherland in New YorkCity. Previously, he was Vice President and Senior Corporate Counselat The Prudential Insurance Company of America. Prior to that he wasfirst Vice President and Associate General Counsel at Paine Webber ’sasset management subsidiary. From 1985 to 1994, he was on thestaff of the U.S. Securities and Exchange Commission, Division ofInvestment Management, in Washington, D.C. At the SEC he heldseveral positions, including Assistant Director, and was a recipient ofthe Manuel F. Cohen Younger Lawyer Award.

Mr. Kirsch has written on various topics relating to advisers,mutual funds, and the securities activities of insurance companiesand banks. He teaches at the University of Pennsylvania Law Schooland he previously taught at Georgetown University Law Center.

Mr. Kirsch serves as chair for two annual American Law Institute/American Bar Association Course Offerings—“Investment Manage-ment Regulation” and “Investment Adviser Regulation.” His otherpublications include The Financial Services Revolution: Understand-ing the Changing Roles of Banks, Mutual Funds and InsuranceCompanies (Irwin 1996), Regulation and Distribution of VariableInsurance Products (Aspen 1999), Broker-Dealer Regulation (PLI2004), Financial Product Fundamentals (PLI 1999), Mutual Fundsand Exchange Traded Funds Regulation (PLI 2002), and VariableAnnuities and Variable Life Insurance Regulation (PLI 2005). He isalso coauthor of Investment Management Regulation (CarolinaAcademic Press), a law school casebook that was published in 1998.

Mr. Kirsch authored chapters 1, 4, 5, 6, 8A–14, 16, 18, 19, 22, 25,27, 32–34, 43, and 49B, and coauthored chapters 2, 2A, 3, 36, 41, 42,44, and 52.

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About the Contributors

Matthew J. Alexander (Chapter 31A) is a senior associate in MayerBrown LLP ’s Washington, D.C. office. He focuses his practice on thecounseling and defense of corporations and individuals in a varietyof enforcement matters, including the Foreign Corrupt Practices Act,federal securities and anti-money laundering laws and regulations, theFalse Claims Act, insider trading laws, as well as advising clientswith respect to embargoes administered by the U.S. Department ofTreasury, Office of Foreign Assets Control. Matt has extensive expe-rience in designing, managing, executing, and presenting global investi-gations before numerous enforcement authorities, including the DOJ,SEC, and the World Bank’s Integrity Vice Presidency. He received hisJ.D. in 2009 from the Georgetown University Law Center.

Laura E. Amory (Chapter 21) is senior principal consultant at ACACompliance Group, which provides expert compliance consulting andGIPS® verification services to investment advisers, private funds,investment companies, and broker-dealers. Ms. Amory received herB.S. from Penn State University and her Accounting degree from theUniversity of Virginia.

Adrienne Atkinson (Chapter 47) is a partner in the Asset Manage-ment Group of Willkie Farr & Gallagher LLP, focusing on privatefunds. She received her B.A., with highest honors, from OberlinCollege, her M.A. from Yale University, and her J.D., magna cumlaude, from the New York University School of Law.

Andrew D. Beresin (Chapter 56A) is a partner at Murphy & McGoniglePC. Mr. Beresin’s practice focuses on client counseling with respect totrading practices and fund management. In addition, Mr. Beresinfocuses on providing legal representation to broker-dealers, invest-ment advisers and security industry professionals in regulatory in-quiries. His extensive trading and legal experience includes twelveyears as an equity trader and trading desk analyst as well as nearlya decade as a litigator representing prominent Wall Street entitiesand their senior executives in high-stakes enforcement matters.

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Mr. Beresin’s unique perspective as a former buy-side market profes-sional provides him with an enhanced understanding of client needsand priorities regarding complex, often time-sensitive trading andinvestment-related issues. Mr. Beresin earned his B.S., summa cumlaude, from the Wharton School of the University of Pennsylvaniaand his J.D., cum laude, from Harvard Law School.

Kenneth J. Berman (Chapter 62) is a partner in Debevoise & PlimptonLLP and a member of the firm’s Investment Management Group.Mr. Berman focuses his practice on providing regulatory and compli-ance advice to financial services firms, particularly investment advi-sers and sponsors of mutual funds, private equity funds and otherpooled investment vehicles. Mr. Berman also counsels mutual fundindependent directors and advises operating companies concerningstatus issues they may face under the Investment Company Actof 1940. He is recognized as a leading lawyer by Chambers USA(2009–2015). Mr. Berman is also recommended by The Legal 500 US(2012–2015). Prior to joining Debevoise, Mr. Berman was AssociateDirector of the Securities and Exchange Commission’s Division ofInvestment Management, where he oversaw the division officesresponsible for processing applications for exemptive relief under theInvestment Company Act, and administering the Public Utility Hold-ing Company Act of 1935. He joined the SEC staff in 1988 afterseveral years of private practice. Before becoming Associate Director in1997, Mr. Berman was Assistant Director of the Division’s Office ofRegulatory Policy.

Mr. Berman is a frequent speaker at conferences relating to invest-ment company and investment adviser issues. He is a member of theCommittee on Investment Management Regulation of the Associa-tion of the Bar of the City of New York and served as Chair of thatCommittee from 2009 to 2012. Mr. Berman is also a member of theAmerican Bar Association (Subcommittee on Investment Companiesand Investment Advisers, Subcommittee on Private Investment Enti-ties) and the District of Columbia Bar. Mr. Berman is also an adjunctprofessor of law in Georgetown University ’s LL.M. program.Mr. Berman received his J.D. from the University of Chicago LawSchool, where he was a member of the Law Review, and his B.A. fromDickinson College, where he was elected to Phi Beta Kappa.

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Sofia E. Biller (Chapter 48A) is an associate in Ulmer & Berne LLP ’sBusiness Litigation Practice Group. Ms. Biller has experience insecurities, capital markets, shareholder derivative, complex commer-cial, trade secret misappropriation, and class action litigation.Ms. Biller represented the Examiner in the Lehman Brothers Bank-ruptcy, the largest in history, where she investigated Lehman’s use ofso-called “Repo 105” transactions, as well as other off-balance sheetstructures. Ms. Biller also has worked on a variety of investigations andwhite collar criminal matters in the U.S., Latin America, Asia, and theMiddle East focusing on Sarbanes-Oxley and securities law and regula-tions, the Foreign Corrupt Practices Act, the Bank Secrecy Act andmoney laundering laws, and Office of Foreign Asset Control sanctionsregulations and other export/import controls.

Ms. Biller earned her J.D. from the University of Iowa Collegeof Law. She has an M.A. from Indiana University Bloomington and aB.A., magna cum laude, from Brown University.

Thomas E. Bisset (Chapter 17) is a partner with Eversheds Sutherland,and is a member of the Financial Services Practice Group. He con-centrates his practice in investment management focusing on invest-ment company, investment adviser, and variable insurance productregulatory matters. Before joining the firm, Mr. Bisset was a SeniorCounsel in the Office of Insurance Products in the U.S. Securities andExchange Commission’s (SEC) Division of Investment Management,which is responsible for reviewing all applications for exemption fromthe Investment Company Act, requests for no-action assurance andregistration statements that pertain to variable insurance products. Healso served for two years as a staff attorney in the SEC ’s Division ofMarket Regulation. During his tenure with the SEC, Mr. Bisset partici-pated in several significant SEC projects, including the October 1987Market Break Study. He has extensive experience in all aspects of theSEC’s inspections and examination programs. Mr. Bisset is admittedto practice in the District of Columbia and Pennsylvania. He receivedhis B.S., magna cum laude, from Villanova University, his J.D. fromBoston University School of Law, and his LL.M. from GeorgetownUniversity Law Center, 1993.

Stephanie R. Breslow (Chapter 48) is a partner at Schulte Roth &Zabel LLP in New York City. Her practice focuses on the formationand operation of alternative investment funds (hedge, private equityand hybrid), regulatory issues affecting broker-dealers and investment

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managers, seed capital investing in fund managers, and the acquisitionof interests in investment management businesses. Ms. Breslow is onthe board of directors of 100 Women in Hedge Funds, a foundingmember of the New York Private Investment Fund Forum, and hasserved on the New York City Bar Association’s Corporate LawCommittee and Committee on the Revised Uniform Partnership Actas chair of the Association’s Subcommittee on Business Trusts. She islisted in The International Who’s Who of Business Lawyers, ChambersGlobal—The World’s Leading Lawyers and IFLR’s Guide to theWorld’s Leading Investment Funds Lawyers. She received her B.A.from Harvard University and her J.D. from Columbia UniversitySchool of Law.

Michael S. Caccese (Chapter 7) is a partner at K&L Gates LLP and isone of the Practice Area Leaders of the firm’s Financial ServicesPractice, which includes the Investment Management and Broker-Dealer Practice Groups. Mr. Caccese focuses his practice in the areas ofinvestment management, including mutual funds, closed-end funds,private investment funds, hedge funds, and managed accounts, inaddition to advising on investment management and broker-dealerregulatory compliance. He works extensively with investment firmson compliance issues, including all forms of GIPS and AIMR stan-dards. He was previously the General Counsel to the CFA Instituteand was responsible for overseeing the development of the AIMRPPS,GIPS, and other standards governing the investment managementprofession and investment firms. He can be reached at 617.261.3133and [email protected].

Kevin J. Campion (Chapter 56) is a partner in the Washington, D.C.office of Sidley Austin LLP and Co-Head of the Firm’s Broker-DealerSecurities Regulatory Practice Group. He advises a wide array offinancial services firms, including investment and commercial banks,broker-dealers and hedge funds—on a broad variety of regulatory,enforcement, compliance, and transaction matters. Mr. Campionfocuses his practice in particular on broker-dealer and market regula-tion matters, with particular emphasis upon regulations governingshort sales (Regulation SHO), short interest reporting, Regulation M,research analyst conflicts, FINRA advertising rules, clearance andsettlement, and broker-dealer registration and compliance issues.Mr. Campion also regularly assists advisers and hedge funds withtrading questions and long and short position disclosure requirements,including the requirements of sections 13(d), 13(f), and 16. He also

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assists clients, mostly clearing firms and prime brokers, in the defenseof SEC, FINRA, NYSE and state enforcement actions and investiga-tions, as well as securities law class actions. Mr. Campion hasrepresented the Securities Industry Financial Markets Associa-tion with respect to comment letters submitted to the SEC, and inobtaining a variety of no-action letters from the SEC Staff relatingto Regulation SHO and Rule 10a-1, including working with theSIFMA Prime Brokerage Committee on the new Prime Broker Letter.

Prior to joining the firm, Mr. Campion worked for over four yearswith the Securities and Exchange Commission’s Division of MarketRegulation. During his time with the SEC, Mr. Campion was respon-sible for administering and interpreting rules and regulations govern-ing issuers, broker-dealers, and other market participants inconnection with the offering, trading, and settlement of equity, debt,and derivatives. He also was responsible for analyzing requests forexemptive relief in connection with cross-border mergers and acquisi-tions and was consulted often by the Division of Enforcement to assistwith investigations into violations of rules governing the offering andtrading of securities. Mr. Campion assumed a leading role in severalrulemaking initiatives, including new short sale regulation underRegulation SHO, Interpretive Guidance on Married Put Transactions,Decimalization, Regulation NMS, and the SEC ’s Hedge Fund Report.

Mr. Campion is a frequent speaker at securities industry confer-ences and has written prior articles related to short sale regulations,securities lending, and beneficial ownership reporting requirements.Mr. Campion is listed in Chambers USA: America’s Leading Lawyersfor Business, having received an “Up and Coming” ranking in the areaof Financial Services Regulation: Broker-Dealer (Compliance; Nation-wide). Mr. Campion’s team has received recognition for its work oncomplex matters, most recently when the firm was named the U.S.News—Best Lawyers “Law Firm of the Year” in Securities Regulation.The firm also received the most first-tier national rankings, includingSecurities Regulation, of any U.S. law firm in the 2011/12 U.S. News—Best Lawyers “Best Law Firms” survey.

Christopher D. Christian (Chapters 49C & 49E) is a partner atDechert LLP and advises U.S. and European asset managers andinvestment funds and their boards of directors, including U.S. registeredfunds, funds organized under the European Union directive on Under-takings for Collective Investment in Transferable Securities (UCITS),and funds organized in other jurisdictions offered on a private basis.Mr. Christian’s practice has a significant international component. He

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advises offshore funds on compliance with U.S. regulatory requirementsand routinely counsels European retail and institutional funds onorganization, registration, corporate governance, and global distributionissues. He has assisted clients in coordinating offering advisory servicesand various types of investment funds in compliance with local lawin jurisdictions in Europe, Asia, the Middle East, and Latin and SouthAmerica.

Mr. Christian is Secretary of the Investment Funds Committee ofthe International Bar Association. He has spent considerable timeworking in Dechert LLP ’s London office and is a frequent conferencespeaker.

Matthew B. Comstock (Chapter 56A) is a partner at Murphy &McGonigle PC. Mr. Comstock has a diverse practice covering allaspects of the broker-dealer and trading and markets business. Heregularly advises broker-dealers, hedge funds, and other clients on avariety of transactional, compliance, and regulatory matters. Hisareas of expertise include broker-dealer financial responsibility, broker-dealer liquidations, securities credit regulation, compliance with self-regulatory organization rules, short selling, regulations governingmarket manipulation, securities lending, soft dollars, prime brokerage,and market structure. He has particular experience and expertisedealing with the provisions of the Dodd-Frank Act applicable to broker-dealers, including provisions relating to securities-based swap dealers.Mr. Comstock’s recent significant matters include representing majorfinancial services firms in matters relating to cross-border broker-dealer registration and operations issues, and in developing novel andcomplex investment products and services. Mr. Comstock was anattorney in the SEC ’s Division of Trading and Markets, where he heldthe positions of Branch Chief, Special Counsel and Staff Attorney inthe Office of Financial Responsibility. He had responsibility for avariety of matters relating to broker-dealer net capital requirements,customer protection, broker-dealer books and records requirements,margin, and broker-dealer liquidations. Mr. Comstock earned his B.A.from the University of Pittsburgh, his M.B.A. from the University ofPittsburgh, Joseph M. Katz School of Business, his J.D. from theUniversity of Pittsburgh School of Law, and his LL.M. from UniversitätAugsburg, Germany.

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Joshua B. Deringer (Chapter 48B) is a partner and chair of DrinkerBiddle & Reath LLP ’s nationally ranked Investment ManagementPractice Group. He counsels a wide range of national and interna-tional financial service companies involved in all aspects of theinvestment management industry, including registered investmentcompanies, hedge funds, and other alternative investment vehicles,as well as investment advisers. Mr. Deringer received his undergrad-uate degree from the University of Pennsylvania and his law degreefrom Fordham University School of Law. He is recognized in Cham-bers USA as a leading investment management lawyer and describedby a client as a lawyer who “describes things in terms that we canunderstand and takes a real-world approach to issues instead of apurely theoretical one.” In 2013, Mr. Deringer was recognized as aPennsylvania Lawyer on the Fast Track by The Legal Intelligencer.He is a member of the Hedge Fund Association, Managed FundsAssociation, and the Mid-Atlantic Hedge Fund Association. Mr.Deringer is a frequent speaker at securities law conferences and awidely published author. He has written many articles on investmentmanagement industry topics, and regularly comments on develop-ments in financial services and investment management for indus-try and business publications.

Joshua D. Dick (Chapter 31) is an associate in the Palo Alto office ofGibson, Dunn & Crutcher LLP. Mr. Dick is a member of the firm’sLitigation Department and practices in its Securities Litigation Group.Mr. Dick has significant experience litigating a broad range of mattersin both state and federal courts. He has successfully representedclients throughout the United States and abroad involving claimsbrought under the Securities Exchange Acts, the California UnfairCompetition Law, the Sherman and Clayton Acts, and the ForeignCorrupt Practices Act. Mr. Dick also has extensive experience in theprosecution and defense of commercial contracts and business tortclaims. Mr. Dick was recently a member of a trial team that obtaineda complete defense verdict following a bench trial in a nation-wideclass action. His other recent matters include: defending an unsoli-cited tender offer and related proxy contest launched by an interna-tional technology company; defending a major credit card company ina civil antitrust action; and defending a large, multi-national corpora-tion in a FCPA investigation including conducting an internal in-vestigation in cooperation with the Department of Justice.

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Mr. Dick graduated, cum laude, from the University of MichiganLaw School, where he served as an associate and articles editor for theJournal of Law Reform. Mr. Dick is a member of the California andNew York state bars. He is also admitted to practice before the U.S.District Court for the Southern District of New York.

Ellen R. Drought (Chapter 29) is a shareholder in the SecuritiesPractice Group of Godfrey & Kahn S.C., where she specializes ininvestment management law. Ms. Drought provides advice to mutualfunds and other financial services companies with respect to SECcompliance and reporting, mergers and acquisitions, new product for-mation and general corporate matters. She graduated cum laude fromWilliams College with a B.A. in history. She earned her M.A. in historyfrom the University of Wisconsin and her J.D. with honors from theUniversity of Wisconsin Law School. She served as senior articles editorof the Wisconsin Law Review and was selected for Order of the Coif.

Robert A. Fippinger (Chapters 54 & 55) was appointed Chief LegalOfficer to the Municipal Securities Rulemaking Board (MSRB) inMarch 2015. Previously, he had been a partner and senior counsel inthe New York office of Orrick, Herrington & Sutcliffe and hadspecialized in the law of public finance since 1970. After receivinghis undergraduate degree from Duke University and his law degreefrom the University of Michigan Law School, Mr. Fippinger received aPh.D. in 1969 at Northwestern University in its law and politicsprogram.

Mr. Fippinger was an adjunct professor at New York University lawschool where he taught the securities law of public finance, and he hastaught the securities law of public finance at Hofstra Law School. Hewas a visiting lecturer in law at Yale University Law School where hetaught the law of public finance for a four-year period.

In 2007, the National Association of Bond Lawyers awardedMr. Fippinger its annual Friel Medal for distinguished service in publicfinance. In 2010, he was appointed to serve as a member of theMunicipal Securities Rulemaking Board, and was reappointed to athree-year term in 2014. He served on the Board until his appoint-ment as Chief Legal Officer in 2015. Any information in this bookrelated to rulemaking activity of the MSRB since October 1, 2010, iscarefully restricted to information provided by the MSRB in its publicnotices and interpretations that are available on the MSRB website atwww.msrb.org.

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Susan I. Gault-Brown (Chapter 58) is a partner in K&L Gates’Washington, D.C. office and a member of the Investment Managementpractice. She advises participants in the financial services industry,including commodity trading advisors, commodity pool operators,investment advisers, private funds, and registered investment compa-nies on regulatory, transactional and counseling matters involving thesecurities and commodities laws. She also regularly provides advice withrespect to exemptions, no-action letters, and other forms of regulatoryrelief. Ms. Gault-Brown joined the firm after three years at the Securitiesand Exchange Commission where she was a senior counsel in theDivision of Investment Management’s Office of Chief Counsel. At theSEC, among other matters, Ms. Gault-Brown focused on the regulatorytreatment under the federal securities laws and commodities laws ofregistered funds and registered advisers that used OTC derivatives, witha particular focus on issues arising under the Investment Company Actand Investment Advisers Act. In addition, Ms. Gault-Brown regularlyprovided formal and informal interpretive guidance concerning a varietyof issues under the Investment Company Act and the InvestmentAdvisers Act, including investment company and investment adviserstatus determinations, affiliated transaction issues, and senior securityissues. Prior to joining the SEC, Ms. Gault-Brown was an associate at aleading ERISA law firm where she focused on ERISA fiduciary duty andprohibited transaction issues and provided advice concerning ERISA,federal securities laws, banking laws, and state trust and fiduciary laws.Ms. Gault-Brown began her legal career as a judicial clerk to JudgeConstance Baker Motley in the U.S. District Court for the SouthernDistrict of New York.

Danielle M. Gipson (Chapter 26) was an associate with GoodwinProcter LLP.

Gregory V. Gooding (Chapter 62) is a partner in Debevoise &Plimpton LLP and Co-Head of the firm’s Mergers & Acquisitionsgroup. His practice focuses on M&A and other transactions forfinancial institutions, private equity funds, and other domestic andinternational clients. Mr. Gooding also has extensive experience insecurities offerings, restructurings and special committee assign-ments. He is recognized for M&A by The Legal 500 US (2015), wherehe is lauded by clients for being “extremely responsive, diligent andbusiness savvy.” Mr. Gooding is also ranked as a leading M&A lawyerin Latin America by Chambers Global (2014–2015) and by ChambersUSA (2013–2015).

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Mr. Gooding is the author or co-author of numerous articles,including “U.S. and U.K. Share Purchase Agreements: ComparingApproaches,” Practical Law (2015); “Getting to an Answer in In reAnswers,” Private Funds Management (2014); “How Sell Side AdvisorsCan Reduce Litigation Risk in Light of Delaware’s Rural/Metro Deci-sion,” Journal of Investment Compliance (2014); “The LiquidityCrunch (This Year ’s Model): Recent Delaware Cases Involving Con-trolling Stockholders,” The M&A Lawyer (2012); “Yes Virginia, YouReally Can Waive Fraud Claims,” Private Equity Manager (2012);“Top-up Options and Tender Offers: Getting Across the Finish Line,”Mergers & Acquisitions (2011); “Everything Old is New Again: PrivateEquity PIPEs Go Up-Market,” The M&A Lawyer (2009); “Buying aPrivate Equity Fund Company,” Banking & Financial Services (2004);and “Going Private the Pure Way in Delaware,” Insights (2002). He isalso a contributing author of the Debevoise & Plimpton FinancialInstitutions Report, the Debevoise & Plimpton Private Equity Report,and The Private Equity Primer: The Best of the Debevoise & PlimptonPrivate Equity Report.

Mr. Gooding joined Debevoise in 1988 and became a partner in1996. He was resident in the firm’s Hong Kong office from its openingin 1994 until 1998. Mr. Gooding received his J.D. from Yale LawSchool in 1987, where he was Managing Editor of the Journal ofInternational Law, and his A.B. from Kenyon College in 1983. Prior tojoining the firm, he served as Law Clerk to the Honorable Robert Hill,U.S. Court of Appeals for the Fifth Circuit.

Nathan J. Greene (Chapters 45A & 45B) is a partner in Shearman andSterling LLP ’s Asset Management Group (where he is also DeputyPractice Group Leader) advising on all regulatory aspects of fund andinvestment advisory operations. His practice includes the formationand representation of U.S. and foreign investment companies, theirsponsors, advisers, directors and marketers, including: SEC registra-tion and exceptions from registration, SEC inspections and investiga-tions, fund formation, distribution and marketing, fund board andother governance matters, compliance manuals and compliance test-ing, negotiation with service providers, business partners and inves-tors, and reorganizations, purchases, sales, joint venture structuringand other corporate transactions involving asset managementbusinesses.

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In addition to asset management matters, Mr. Greene has beenactive in Shearman & Sterling’s pro bono asylum and domestic abusepractices, winning a 2002 victory on behalf of an asylum seeker in U.S.Immigration Court. Because that case established new law in its area,it was profiled in the New York Law Journal and listed in the LexisNexis Immigration Law “Immigration Cases of Interest” database.

Issa J. Hanna (Chapters 2, 2A, 3, & 36) is a member of EvershedsSutherland’s Financial Services Practice Group, where he advisesinvestment advisers, broker-dealers and annuity insurers on regula-tory issues. Before joining the firm as an associate, Mr. Hannaparticipated in Sutherland’s Summer Associate Program in 2008.He also served as an extern in the Alachua County Attorney ’s Officeand as a law clerk in the Civil Division of the Office of the U.S.Attorney for the Middle District of Florida. As an extern, Mr. Hannagained experience in enactment and enforcement of ordinances andzoning regulations, vested rights law, and federal voting rights statutes.During his time as a law clerk, he performed legal research in areasincluding federal removal statutes, administrative law, employment lawand medical malpractice. Mr. Hanna received his B.A. from DukeUniversity, where he served as Senior Editor and Staff Writer of TheDuke Chronicle. He received his J.D., cum laude, from the University ofFlorida Levin College of Law, where he was a Board Member of theFlorida Law Review.

Dr. Andrew J.H. Henderson (Chapter 49D) is a partner in EvershedsLLP ’s financial institutions group. Dr. Henderson specializes infinancial services regulation with over fifteen years of experienceas a financial services lawyer. He co-leads Eversheds LLP ’s non-contentious financial services regulation practice and works closelywith the firm’s Financial Services Consulting business. In additionto the legal directories referred to below, he is recommended in theIFLR 1000.

Dr. Henderson advises international asset managers, investmentadvisers, depositaries and custodians, investment banks, broker-dealers, and banks on all aspects of EU and UK financial servicesregulation. This includes advisory, project, and transactional workin connection with the Markets in Financial Instruments Directive,the Capital Requirements Directive and Regulation, the AlternativeInvestment Fund Managers Directive, the UCITS Directive, theMarket Abuse Directive and Regulation, governance and the Senior

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Managers Regime, the Retail Distribution Review, and issues relatingto the protection of client assets and client money, particularly thosearising from FCA Policy Statement 14/9.

Dr. Henderson also works closely with colleagues in the financialservices disputes and investigations group, having started his career asa contentious financial services lawyer. This includes, most recently,support in LIBOR-related investigations, conduct risk reviews, a sig-nificant enforcement action relating to breaches of the FCA ClientAsset Rules, and a skilled persons review of an asset manager ’s clientmoney arrangements.

He has been twice seconded to the UK Financial Services Authority,the Secretariat to the Bank of England Financial Markets Law Com-mittee, and to the compliance department of an international invest-ment bank. He has contributed to various academic and practitionertexts since 2000, including most recently Gore-Browne on EU Com-pany Law (Jordans: 2015) and Financial Services Law (3d ed.) (OUP:2014). Dr. Henderson was a college law lecturer at the University ofCambridge where he obtained a Ph.D. in public law.

Jeffrey O. Himstreet (Chapters 37, 39, 44, 57 & 61) is CorporateCounsel at PGIM, Inc. (f/k/a Prudential Investment Management, Inc.)Prior to Prudential, he was Regulatory Counsel of CIT Group, Inc. andcounsel with Bingham McCutchen LLP. Mr. Himstreet’s practice con-centrates on regulatory counseling concerning securities market andregulatory issues for investment advisers, dual registrants, broker-dealers, mutual funds and others in the financial services industry. Hehas provided securities enforcement defense before the SEC, FINRA,and other SRO and state regulators for members of the financialservices industry. He also conducts internal investigations anddefends securities litigation.

Before rejoining Bingham in 2011, Mr. Himstreet held two in-housepositions, first serving as the chief investment advisory support for adual registrant with $92B in managed assets and second as the chieflegal officer for a bank-affiliated wealth management division, over-seeing all legal and compliance functions for an affiliated investmentcompany, investment adviser, private bank, broker-dealer and trustcompany (offering both personal and institutional trust services). Priorto joining Bingham in 2000, Mr. Himstreet was a lawyer with theSEC’s Division of Investment Management in the Office of Invest-ment Adviser Regulation. Mr. Himstreet has an LL.M. in securitiesregulation, with honors, from Georgetown University Law Center.

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Peter M. Hong (Chapter 60) is a partner at Stradley Ronon Stevens &Young, LLP. Mr. Hong advises clients in matters pertaining to theregistration and regulation of registered and private investment com-panies, investment advisers, broker-dealers, commodity trading advi-sors, and commodity pool operators under federal and state laws. Hispractice includes providing advice regarding compliance with regula-tions of federal and state securities and commodities regulatoryauthorities and self-regulatory organizations such as the FinancialIndustry Regulatory Authority and the National Futures Association.In addition, Mr. Hong also advises clients in the formation of domesticand offshore hedge funds, including preparation of private placementmemoranda, operating agreements and subscription documents; prep-aration and negotiation of related service provider contracts; andcompliance with state blue sky filing requirements.

Prior to joining the firm, Mr. Hong served as special and seniorcounsel at the U.S. Securities and Exchange Commission. During histenure as special counsel in the Division of Investment Management,he actively participated in and influenced positions taken with respectto legislation or rulemaking regarding investment company disclosureregulation. He also served as senior counsel in the Office of ChiefCounsel for the SEC’s Division of Enforcement. In addition, Mr. Honginvestigated and prosecuted violations of the Commodity Exchange Actand its related rules as a trial attorney for the U.S. Commodity FuturesTrading Commission, Division of Enforcement in Washington, D.C.

Mr. Hong received his B.A. from Dickinson College, and his J.D.from American University Washington College of Law.

David Innes (Chapter 62) is a corporate partner in Debevoise &Plimpton LLP ’s London office and head of the UK private equitygroup. His practice covers a full range of UK and cross-border privateequity and M&A transactional work.

Mr. Innes has represented clients in some of the most prominenttransactions in recent years. He is “held in high regard by peers” andranked as a leading individual for Private Equity: Buyouts: High-endCapability in Chambers UK (2016). Legal 500 UK (2015) notes him asan “experienced transactional expert.” He has been described in thesedirectories as “very able,” a “good technical lawyer,” “a good executer ofdeals” and “client friendly and flexible.” He is also named as a”Leading Lawyer” in Private Equity by IFLR 1000 (2016), and rankedas a Notable Practitioner for Private Equity in Chambers Global (2014and 2015).

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Mr. Innes has written articles for a wide range of publications,contributes a chapter to Tolley’s Company Law, and regularly speaks atconferences on company law issues. Recent publications includeco-authoring “US and UK Share Purchase Agreements: comparingapproaches,” PLC Magazine (Jan., 2015), the deal structuring chapterin the Middle East and Africa edition of the BVCA’s InternationalSeries (Sept., 2013), “Mapping the Revised UK Takeover Landscape,”Law360 (Sept., 2013), “Oh, To Be in England!,” The Daily Deal (Jan.,2013) and “United Kingdom—Transactions,” Getting the DealThrough: Private Equity (2012, 2013 and 2015). Recent speakingengagements include “Choices of Law in Acquisitions Agreements:U.S. vs. U.K.,” Practising Law Institute (Apr., 2013), “Warranties andIndemnities,” British Venture Capital Association (Mar., 2013), and“Exits: Current Trends in Private Equity Divestments, Including Dual/Triple Tracks, Secondaries and Distressed Situations and Analysis ofRecent Deal Terms,” International Bar Association (Nov., 2012).

Mr. Innes received his B.A. and M.A. in Law from Trinity College,Oxford.

Thomas M. Johnson, Jr. (Chapter 31) is an associate in Gibson, Dunn& Crutcher LLP ’s Washington, D.C. office. He practices in the firm’sLitigation Department and is a member of the Labor and Employmentand Appellate and Constitutional Law Practice Groups.

Mr. Johnson received his J.D., magna cum laude, from Harvard LawSchool, where he was Deputy Editor-in-Chief of the Harvard Journalfor Law and Public Policy and won the Irving Oberman MemorialAward, for his third-year paper on separation of powers. Before joiningthe firm, he clerked for one year for the Honorable Jerry E. Smithon the Fifth Circuit Court of Appeals in Houston, TX. Mr. Johnsonreceived a B.A. in Government, magna cum laude, from GeorgetownUniversity in 2002. Mr. Johnson is admitted to practice in the state ofNew York and the District of Columbia.

Andrew B. Kales (Chapter 26) is of counsel at Bingham McCutchenLLP. Mr. Kales is a member of Bingham’s Financial InstitutionsCorporate and Regulatory group. Andrew focuses on a variety ofregulatory and transactional matters for financial services clients.Prior to joining Bingham, Mr. Kales practiced at Goodwin Procter inWashington, D.C. There he advised clients on a broad range of U.S.and foreign bank regulatory matters, including bank holding companyregulations, permissible bank activities and investments, bank-brokerage

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activities, affiliate transactions, anti-money laundering, privacy,outsourcing, and other securities and banking matters. He has alsoworked on regulatory issues in connection with bank-related corporatetransactions. He has practiced before the federal bank regulatoryagencies and bank regulators of various states, including the Officeof the Commissioner of Banks of the Commonwealth of Massachu-setts and the New Hampshire Banking Department. Mr. Kales isadmitted to practice in the District of Columbia and Maryland. Hereceived his B.A. from Brown University, his M.A. from Johns HopkinsUniversity, and his J.D. from Georgetown University Law Center.

Jesse P. Kanach (Chapters 45A & 45B) is a partner in Perkins CoieLLP ’s Business practice. He regularly represents a wide range offinancial institutions, including registered and private funds andinvestment advisers, on a variety of regulatory, corporate and transac-tional matters. His practice ranges from the formation and offeringof hedge funds and registered open- and closed-end investment com-panies, to the representation of independent directors and trustees, toacquisitions of investment advisory firms.

Mr. Kanach represents institutional investors on their investments,including in private equity, hedge, energy and real estate funds, and innegotiating separate account agreements. He advises on various fundstructures including onshore and offshore funds, master-feeders, spe-cial purpose vehicles and funds of funds. He counsels investmentmanagers on compliance reviews and internal investigations. Hefrequently advises companies on exceptions from U.S. InvestmentCompany Act registration. Based in Washington, D.C., his focus hasincluded tracking developments in the changing legislative and regu-latory framework applicable to the asset management industry.

Katherine L. Kelly (Chapter 23A) is an associate in the Washington,D.C. office of Eversheds Sutherland. Ms. Kelly is a securities lawyerwho represents broker-dealers, investment advisers, public companies,and individuals in examinations, investigations, and enforcementactions involving the Securities and Exchange Commission FinancialIndustry Regulatory Authority, state securities divisions, and otherregulators. In addition, Ms. Kelly represents clients in securities-related arbitrations and litigation, and counsels clients on securi-ties regulatory and compliance matters.

Before joining Eversheds Sutherland as an associate, Ms. Kelly wasa fellow with the American Civil Liberties Union of Maryland, whereshe gained experience in civil rights issues related to housing, free

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speech and education. Ms. Kelly also interned for the HonorableClayton Greene, Jr. of the Court of Appeals of Maryland. She receivedher J.D. from Vanderbilt University Law School and her B.A. fromSt. John’s College. Ms. Kelly is a member of the Maryland and Districtof Columbia bars.

Satish M. Kini (Chapter 26) is a partner at Debevoise & Plimpton,and co-chair of the firm’s Banking Group and a member of theFinancial Institutions Group. Mr. Kini is based in the Washington,D.C. office and advises domestic and international financial institu-tions on a wide range of regulatory and transactional banking issues.He has represented large financial services firms in transactionalmatters, including to secure regulatory approvals for transactionsfrom U.S. bank regulatory agencies, counseled banks and securitiesfirms in money laundering and other types of examination andenforcement proceedings, and worked extensively with clients ondata use, privacy, and data security issues. He has also representedclients before the U.S. Securities and Exchange Commission andTreasury Department.

Mr. Kini is the author or coauthor of numerous articles regardingbanking and securities law, including “Anti-Money Laundering DriveDoesn’t Justify Blacklisting Foreigners,” American Banker (Jan. 26,2001); “Banking Agencies Propose Revised Capital Rules GoverningMerchant Banking,” The Banking Law Journal (Apr. 2000); “The NewSEC Privacy Rules,” Insights: The Corporate and Securities LawAdvisor (Aug. 2000); and “Subordinated Debt: A Capital MarketsApproach to Bank Regulation,” 41 B.C. L. REV. 195 (2000). Mr. Kiniwas formerly Counsel in the Legal Division of the Federal ReserveBoard. Mr. Kini received his B.A., magna cum laude, from ColgateUniversity and his J.D. from the Columbia University School of Law,where he was managing editor of the Columbia Law Review, a HarlanFiske Stone Scholar, and a John M. Olin Fellow in law and economics.Following graduation from law school, he served as a law clerk to theHonorable Richard J. Cardamone, U.S. Court of Appeals for theSecond Circuit. Mr. Kini is a member of the New York and Districtof Columbia bars.

Katie Klaben (Chapter 56) is an associate in the Securities and FuturesRegulatory Group in the Washington, D.C. office of Sidley Austin LLP.Ms. Klaben graduated summa cum laude from the American UniversityWashington College of Law, where she served as a fellow for both theLegal Rhetoric Program and the Marshall-Brennan Constitutional

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Literacy Project. She earned her B.S. in Business Administration, with afocus on finance and international business, from the GeorgetownUniversity McDonough School of Business. Prior to joining the firm,Ms. Klaben worked in the Office of Compliance Inspections and Exam-inations in the U.S. Securities and Exchange Commission. She alsospent three years at SNL Financial, where she managed the SpecializedFinancial Services division.

Susan Krawczyk (Chapter 38) is a partner in the Washington office ofEversheds Sutherland. She focuses on regulatory and complianceissues for broker-dealers, investment advisers, insurers and otherfinancial service providers in the retail, institutional and retirementmarkets. She works with firms in developing marketing materials,establishing marketing and compensation arrangements, and imple-menting appropriate compliance systems and procedures. She hasbeen closely involved with numerous organizations in the establish-ment of broker-dealer firms and advisers and has developed andconducted training programs for all “levels” in broker-dealer firms,from sales reps to field supervisors, to home office personnel andboards of directors of broker-dealer firms. She represents clients beforethe Securities and Exchange Commission and the National Associa-tion of Securities Dealers, Inc., is a member of the NASD VariableInsurance Products Committee, and participates on other industrycommittees focusing on sales and marketing practices. She is amember of the District of Columbia Bar and the Virginia State Bar,and received a J.D. from the George Washington University NationalLaw Center.

Pamela M. Krill (Chapter 29) is a special counsel in Godfrey & Kahn,S.C.’s Investment Management Practice Group. She practices secu-rities and corporate law with particular emphasis on investmentadviser/ investment company regulation, SEC compliance and report-ing, and representation before the SEC, various stock exchanges andthe state securities commissions.

During a twenty-year legal career, Ms. Krill has gained substantialexperience working with investment advisers and investment compa-nies, counseling these clients on a wide range of legal issues, includingfederal and state regulation, corporate governance, strategic businessplanning, mergers and acquisitions and general corporate matters. Shealso has experience working with investment company boards ofdirectors (including independent directors), broker-dealers, and hedgefund managers. Ms. Krill recently rejoined the firm after having spent

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several years as General Counsel and Chief Legal Officer to a nationalinvestment management firm with its own retail and institutionalmutual funds, closed-end funds, separately managed accounts, andwrap fee programs. In this role, she gained valuable insight that allowsher to provide practical and innovative counsel to her financial servicesclients.

Ms. Krill received her J.D. from the University of Wisconsin LawSchool, graduating cum laude, and received her undergraduate degree,a Bachelor of Business Administration (B.B.A.) in Finance, Investmentand Banking, from the University of Wisconsin-Madison, where shegraduated with distinction. Ms. Krill is a member of the American BarAssociation and the State Bar of Wisconsin.

Ashley Kristoffersen (Chapter 28) is a consultant at ACA ComplianceGroup, which provides expert compliance consulting and GIPS®verification services to investment advisers, private funds, investmentcompanies, and broker-dealers.

Neil S. Lang (Chapter 34B) is a partner with Eversheds Sutherland.Mr. Lang represents public companies, their officers and directors,brokers, investment advisers and individuals in government andregulatory investigations, enforcement and litigation involving, amongothers, the Securities and Exchange Commission (SEC), the Depart-ment of Justice (DOJ), state regulatory agencies, the Financial IndustryRegulatory Authority (FINRA) and private litigants. He advises publiccompanies, broker-dealers, investment advisers and financial institu-tions on federal and state regulatory matters, disclosure issues andcompliance matters.

A member of Eversheds Sutherland’s Litigation practice group,Mr. Lang helped build the firm’s Securities Enforcement and Litigationand White Collar Defense Practice teams. He has more than twenty-five years of experience in securities enforcement, compliance,corporate governance disclosure issues, internal investigations andlitigation.

A former chief trial attorney for the Division of Enforcement ofthe SEC, Mr. Lang has litigated dozens of cases involving allegations offinancial fraud, fair value improprieties, market manipulation, insidertrading, accounting irregularities and proxy violations. He was also anExecutive Vice President and General Counsel of a publicly tradedfinancial institution. He brings years of enforcement, regulatory andbusiness experience to his practice, as well as an insider ’s working

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knowledge of the SEC ’s perspectives and public company internaldynamics and pressures.

Gregory T. Larkin (Chapter 62) is an associate of Debevoise &Plimpton LLP based in the Washington, D.C. office. Mr. Larkin is inthe Investment Management Group. He has primarily worked onregulatory and compliance issues related to the Investment CompanyAct and the Investment Advisers Act. Mr. Larkin joined the firm in2008. Mr. Larkin received a J.D. degree from New York UniversitySchool of Law in 2008. Mr. Larkin was named a member of the Orderof the Coif, a Pomeroy Scholar and an Articles Editor in the NYU LawReview. He received a B.S. in Engineering, summa cum laude, inOperations Research & Financial Engineering from Princeton Uni-versity in 2002. Mr. Larkin is a member of the Bar of the District ofColumbia.

Kurt M. Lebakken (Chapter 48A) is a partner at Ulmer & Berne LLP.Mr. Lebakken’s practice focuses on mergers and acquisitions, securitiesand investment fund matters. He has represented leading companieson numerous domestic and cross-border transactions and has exten-sive experience advising on regulatory and compliance matters, partic-ularly under the U.S. securities laws. His clients have included banks,funds, investment advisers, insurance companies and other financialintermediaries, as well as businesses operating in the energy, manu-facturing, technology, real estate, telecommunications, and food andbeverage industries.

Mr. Lebakken has regularly led teams on debt and equity corporatefinance transactions valued at over $100 million, and has advisedon completed financing transactions with an aggregate value ofapproximately $70 billion. His corporate finance and securitiespractice includes offerings of equity and debt securities, includinginvestment-grade debt, high-yield debt and convertible debt; publicsecurities offerings, including IPOs and follow-on offerings; privatesecurities offerings, including private placements, Rule 144A exemptofferings and Regulation S exempt offerings; debt-restructuring trans-actions such as debt-for-equity exchange offers and other self-tenders;domestic and cross-border offerings for U.S. and non-U.S. issuers;primary and secondary offerings; and financings for private invest-ment funds, including fund formation and advisory work.

In M&A, Mr. Lebakken has led teams on complex transactionsinvolving more than seventy jurisdictions, and has advised on com-pleted deals with an aggregate value of over $55 billion. His M&A

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practice includes stock and asset acquisitions and divestitures,both private and public; mergers and tender offers; joint ventures;private equity and hedge fund transactions; domestic and cross-bordertransactions for U.S. and non-U.S. clients; Hart-Scott-Rodino pre-merger notification counseling; and acquisition finance.

Mr. Lebakken also provides advice regarding ongoing corporategovernance and compliance matters. He often acts as outside generalcounsel to hedge fund managers, and routinely advises on the struc-turing and implementation of investments, capital raising and regu-latory compliance, particularly under the Securities Act, theInvestment Company Act and the Investment Advisers Act. He hasalso advised several leading issuers in the United States, Europe andLatin America regarding their reporting obligations under the Secu-rities Exchange Act.

Mr. Lebakken was most recently a Senior Attorney with Cravath,Swaine & Moore. He began his career at Sullivan & Cromwell and wasalso associated with Mayer Brown. He was also lead counsel for abillion-dollar line of business at a major multinational insurancecompany. He speaks fluent French and Spanish, and is proficient inPortuguese and Italian.

Mr. Lebakken is a member of the firm’s internal Ethics Committee.He received his B.A., with distinction, from the University ofWisconsin at Madison; his M.A. from Cornell University; his J.D.from Columbia Law School, where he was a Stone Scholar and theSenior Editor of the Columbia Law Review; and his LL.M., mentionbien, from the University of Paris II (Panthéon-Assas).

Scott J. Lederman (Chapters 46 & 46A) is a partner at GrosvenorCapital Management, L.P., a firm specializing in creating and manag-ing investment programs utilizing alternative investment strategiesfor marketable securities. Prior to joining Grosvenor in 1998,Mr. Lederman was, over five years, successively the General Counseland Chief Operating Officer of S.A.C. Capital Advisors, LLC, a multi-strategy hedge fund manager in Stamford, Connecticut. Mr. Ledermanhas practiced law since June 1982 and, before joining SAC, was apartner in the Chicago law firm of Coffield Ungaretti & Harris whichhe joined in 1988. He received a J.D., cum laude, from the Universityof Chicago in 1982, and an M.B.A. in Finance and a B.S., magna cumlaude, in Economics from The Wharton School of the University ofPennsylvania in 1979 and 1978, respectively. Mr. Lederman is amember of the Illinois and New York bars.

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Stuart D. Levi (Chapter 30) is a partner at Skadden, Arps, Slate,Meagher & Flom LLP, and is co-head of the Intellectual Property andTechnology Group and heads the firm’s outsourcing practice. He has abroad and diverse practice that includes outsourcing transactions,technology and intellectual property licensing, technology transfers,strategic alliances and joint ventures. Mr. Levi also counsels clients ona variety of issues, including intellectual property matters, privacyissues and legislative compliance. His background in computer scienceand the information technology industry allows Mr. Levi to under-stand the technology and business drivers underlying agreements andtransactions in this area.

In the outsourcing arena, Mr. Levi handles a wide variety oftransactions, including the outsourcing of: data centers; infrastructureand desktop support; application development and maintenance;business processes; HR and benefits; recruitment and relocationservices; financial services processing; and call centers. His experiencealso stretches across a broad range of industries, including financialservices, insurance, manufacturing, telecommunications, energy, con-sulting, travel, media and publishing. Mr. Levi supports clientsthrough all stages of an outsourcing project—from preparing theinitial RFP and facilitating vendor selection to negotiating all aspectsof the definitive agreement and schedules—and is actively involved inthe legal, business and technology components of each outsourcingdeal he handles.

Keith Loveland (Chapter 15) is an attorney with Loveland Consultingand is a nationally recognized author, attorney, consultant, andteacher within the fields of investments, securities and securitiesofferings, ethical versus fraudulent practices regarding investmentsand securities, and fiduciary matters. He has been qualified as anexpert regarding the above matters in state and federal courts, and inAAA and NASD/FINRA arbitrations, and also has served as anarbitrator and qualified neutral mediator.

Mr. Loveland served as a subject matter expert to the New YorkStock Exchange Qualification Committee from 1983 to 2001 as to allmatters related to business entity formation and offerings of invest-ments, among other matters. He currently serves as a subject matterexpert to the North American Securities Administrators’ Associationas to the requirements necessary for offerors of investments andsecurities under state law, and fraudulent practices related thereto,among other matters.

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Mr. Loveland has been a teacher for many years. Among otherengagements, he was Adjunct Professor, William Mitchell College ofLaw, from 1978 to 1987. He is currently Adjunct Faculty for TheCenter for Fiduciary Studies, teaching the Prudent Practices forInvestment Stewards.

Mr. Loveland is a member of the American Bar Association,Business Law Section, Committee on Federal Regulation of Securities,and Committee on State Regulation of Securities. He has been amember of the Financial Planning Association since 1983, servingon their Board of Directors from 2011 to 2013. He was a recipient oftheir Heart of Financial Planning Award in 2010. Mr. Loveland earnedhis B.A. from the University of Minnesota, Duluth, and his J.D. fromWilliam Mitchell College of Law. He is admitted to practice law inMinnesota, as well as the Federal District Court and the Court ofAppeals.

Steven S. Lucas (Chapter 53) is a partner with Nielsen MerksamerParrinello Gross & Leoni LLP, and specializes in political law, includ-ing campaign, election, lobby and ethics laws in various federal, stateand local jurisdictions. He specializes in state and local ballot mea-sures, and maintains a fifty-state national compliance practice in thearea of campaign and lobby law. As a lecturer in law at Stanford LawSchool, he teaches “Law and Politics” and “Election Law” for second-and third-year law students. He is also on the faculty of, and an authorfor, the Practising Law Institute’s “Advanced Compliance and EthicsWorkshop,” addressing national campaign and lobby compliance andpay-to-play issues. Since 2003, Mr. Lucas has served on the Board ofDirectors of Stillwater Mining Company (NYSE:SWC), a companythat mines platinum and palladium in Montana and is developinggold, PGM and copper mines in Canada and Argentina. He serves asthe Chairman of the Compensation Committee as well as a memberof the company ’s Audit Committee. Mr. Lucas previously served at theappointment of the Governor of California as Chairman of theBipartisan Commission on the Political Reform Act. He is a pastpresident of the California Political Attorneys Association. He has alsoserved on the California Secretary of State’s Task Force on OnlineDisclosure as well as the FPPC Chairman’s Advisory Task Force.

Mr. Lucas has published numerous opinion-editorial columnsrelating to constitutional and other legal issues in the Los AngelesTimes as well as other California newspapers, and has experienceworking for federal and state public officials and political campaigns.Mr. Lucas received his law degree from Harvard Law School, magna

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cum laude, where he was cross-enrolled at the John F. Kennedy Schoolof Government, Institute of Press, Politics and Public Policy. Hereceived a B.A. in Economics/Business, magna cum laude, from theUniversity of California, Los Angeles, and is a member of Phi BetaKappa.

Martin E. Lybecker (Chapter 59) is a partner in Perkins Coie LLP ’sBusiness practice. Mr. Lybecker is considered to be a leader in thedevelopment of the legal theories with regard to the substantial growthof bank securities activities. He also has considerable experiencerepresenting the insurance industry in disputes over the authority ofbanks to engage in insurance underwriting. Mr. Lybecker serves ascounsel to investment companies and their independent directors,investment advisers, broker-dealers, depository institutions and theirholding companies, insurance companies, and several financial ser-vices trade associations.

Before joining Perkins Coie LLP in 2010, Mr. Lybecker was a partnerlocated in the Washington, D.C. offices of Wilmer Cutler PickeringHale and Dorr LLP (2002–2010), Ropes & Gray LLP (1987–2002), andDrinker Biddle & Reath LLP (1981–1987), and served as AssociateDirector of the Division of Investment Management at the Securitiesand Exchange Commission (1978–1981). Mr. Lybecker has been alecturer in law at Georgetown University, the State University ofNew York at Buffalo, Duke University, and the University of NorthCarolina at Chapel Hill. He was Chair of the Committee on BankingLaw from 2002–2005, was Chair of the Committee on Developmentsin Investment Services from 1994–2002, was a member of the Councilgoverning the ABA Section of Business Law (2005–2009), and is nowVice-Chair of the Section. Mr. Lybecker has served as a member on theABA Presidential Task Forces on the Gatekeeper Regulation and theProfession since 2001, and on Financial Markets Regulatory Reformsince 2008. He holds membership in the American Law Institute, andhas been Profiled in Chambers USA: America’s Leading Lawyers forBusiness, Investment Management, and been selected by peers forinclusion in Best Lawyers in America, Mutual Fund Law, Banking Law.

Mr. Lybecker received a B.B.A. in Accounting and a J.D. from theUniversity of Washington, an LL.M. (in Taxation) from New YorkUniversity, and an LL.M. from the University of Pennsylvania, wherehe was a Graduate Fellow of the Center for the Study of FinancialInstitutions and the Securities Markets. Mr. Lybecker has been a SeniorLecturing Fellow in Law at Duke University Law School since 2000.

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Benjamin Lyon (Chapter 62) is an English and New Zealand–qualifiedassociate in Debevoise & Plimpton LLP ’s Corporate Department and amember of the firm’s Financial Institutions Group. He focuses oncorporate transactions in the insurance industry, including mergers &acquisitions, corporate governance and insurance regulatory advice, aswell as all other aspects of corporate law with significant experience inacting on a wide range of public and private mergers & acquisitions,capital markets transactions, joint ventures and other transactions bothin the UK and internationally. He regularly advises insurers, corporates,financial institutions, private equity clients and investment banks.

Mr. Lyon joined the firm in April 2012. He graduated from Auck-land University in 2002 with degrees in Law and Commerce (Financeand Accounting). Mr. Lyon was admitted as a solicitor of the SeniorCourts of England and Wales in 2012 and a barrister and solicitor ofthe High Court of New Zealand in 2002. Prior to joining the Londonoffice, Mr. Lyon worked as a senior in-house counsel at a majorinternational financial institution focusing on all legal aspects of theinstitution’s investment banking activities, and previously worked fora leading international law firm as a senior associate in the corporateteam from 2006 until 2010.

Mr. Lyon is a frequent author and speaker on legal developmentsaffecting the insurance industry. He is the co-author of “Insurance andInvestment Management M&A Deskbook,” Practising Law Institute(2015) and “The EU Solvency II Regime for Insurers: An Update onImplementation,” FC&S Legal (May 2015) and “The Final US BaselIII Capital Framework,” Practical Law Company (Aug. 2013).

Mr. Lyon is a member of the UK Chartered Insurance Institute andthe British Insurance Law Association.

Ryan MacDonald (Chapter 28) is a principal consultant at ACACompliance Group, which provides expert compliance consultingand GIPS® verification services to investment advisers, private funds,investment companies, and broker-dealers.

George F. Magera (Chapter 45) is a partner in Reed Smith’s FinancialIndustry Group, practicing in the area of Investment Management. Heis the leader of the firm’s Investment Adviser Group within the firm’sInvestment Management Group. He currently practices in the areas ofinvestment adviser regulation, investment management, and strategictransactions, including mergers, acquisitions and outsourcing arrange-ments. Mr. Magera also assists clients with a variety of general corpo-rate law matters.

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Mr. Magera regularly assists registered invetment advisers withdocumentations, compliance and transactional matters concerningtheir advisory businesses, and is experienced with mutual fund disclo-sure and other regulatory requirements. He has particular experience inrepresenting investment advisers, and other investment managementindustry participants (e.g., fund companies, sponsors, outsourcers), inconnection with documenting contractual relationships, product devel-opment initiatives and strategic transactions. Mr. Magera has assistedbuyers and sellers with all types of merger and acquisition transactions,including asset sales, stock sales, mergers, divestitures and joint ven-tures. He also has represented investment advisers and outsourcers inconnection with establishing outsourcing arrangements.

Richard D. Marshall (Chapter 24) is a partner in the New York officeof Ropes & Gray. Since entering private practice, Mr. Marshall hasconducted compliance reviews of investment companies, investmentadvisers, and broker-dealers; represented individuals and regulated enti-ties in investigations by the Securities and Exchange Commission andself-regulatory organizations; created hedge funds; and provided adviceand sought no-action relief for investment companies, investmentadvisers, and broker-dealers. Prior to joining the firm, Mr. Marshallwas Senior Associate Regional Administrator in the New York office ofthe Securities and Exchange Commission. In that position, Mr. Marshallsupervised a staff of seventy that conducted inspections of investmentcompanies and advisers in the New York region and oversaw enforce-ment matters related to those entities.

James G. Martignon (Chapter 48A) is a partner at Ulmer & BerneLLP. Mr. Martignon’s practice concentrates on the asset management,hedge fund, and financial services industries, including regulatory andcompliance matters, enforcement proceedings, securities litigation,internal investigations, broker-dealer disputes, complex civil litigation,and bankruptcy litigation. Mr. Martignon’s experience includes advis-ing hedge funds and fund-of-funds on Dodd-Frank compliance,including IA registration, preparation of Form ADV, creation of super-visor policies and procedures consistent with the Investment AdvisersAct and Investment Company Act requirements; litigating claimson behalf of a hedge fund against issuer involving more than$50M of fraudulently issued residential mortgage-backed securitiesunder the Securities Act of 1933 and California Blue Sky laws; rou-tinely representing investors and financial services firms in securitieslitigation, regulatory and enforcement matters, and in investigations;

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and representing clients in complex civil litigation including businesstorts, contract disputes, and trade secret and restrictive covenantdisputes.

Prior to entering the law, Mr. Martignon worked as a financialanalyst in international finance and consulting, including in theformer Soviet Union and Eastern Europe.

Mr. Martignon was named to the Illinois Super Lawyers RisingStars list (2012). He received his B.S.F.S. from Georgetown University,and his J.D. from Washington University School of Law.

Carol T. McClarnon (Chapter 49) is a special attorney in theWashington, D.C. office of Eversheds Sutherland. Ms. McClarnonhas more than twenty years of experience providing legal guidance onERISA and tax compliance to both employers and employee benefitservice providers. A member of Eversheds Sutherland’s Tax PracticeGroup, Ms. McClarnon typically advises financial services companieson ERISA and tax issues that impact their retirement services andinsurance product operations. In addition, she routinely works withsecurities counsel to perform legal analyses on cutting-edge annuityand retirement plan products that are under development. Ms.McClarnon represents plan sponsors and service providers before theInternal Revenue Service (IRS) and the Department of Labor, obtainingprohibited transaction exemptions, private letter rulings and/or volun-tary compliance relief. She works with the full range of retirementplans for both public and private employers. She has been active inthe American Bar Association, where she served as a vice chair of theEmployee Benefits Law Committee of the Tort and Insurance PracticeSection and as a member of the Employee Benefits Committee ofthe Section of Taxation.

Sean P. McDonnell (Chapter 31A) is an associate in Mayer Brown’sWashington, D.C. office and a member of the Litigation & DisputeResolution practice. He has experience in a wide variety of civil andcriminal matters, ranging from contractual disputes to complex regu-latory enforcement actions. Mr. McDonnell also has substantialinvestigation experience, having assisted in the conduct of internalinvestigations related to SEC and Department of Justice activity onbehalf of corporate clients. Mr. McDonnell was also a member of thelitigation team that successfully represented then-candidate RahmEmanuel against residency challenges to his mayoral candidacy,culminating in a unanimous decision in the Illinois Supreme Court.

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Prior to joining Mayer Brown, Mr. McDonnell served as law clerkto the Honorable Rebecca Pallmeyer of the United States DistrictCourt for the Northern District of Illinois. He graduated magna cumlaude from Harvard Law School in 2009, where he was the SeniorPolicy Editor of the Harvard Law and Policy Review. Mr. McDonnellhas been a guest lecturer at Northwestern University School of Lawon topics relating to the nexus between law and politics. He is anexecutive board member of the Democratic Party of Evanston and isactive in the American Constitution Society.

William Michael, Jr. (Chapter 31A) is a partner with Mayer BrownLLP and Co-Chair of the White Collar Defense & Compliance practicegroup. He is an experienced trial attorney with more than 100 jurytrials in state and federal courts focusing on complex federal whitecollar and regulatory defense, civil and criminal health care fraud,antitrust and complex internal investigations. Mr. Michael representsboth individuals and corporations in these matters, including: internalinvestigations, criminal antitrust, health care, securities fraud, crim-inal tax, qui tams, money laundering, conspiracy, environmental, andthe Foreign Corrupt Practices Act.

Jeffrey C. Morton (Chapter 28) is a partner at ACA ComplianceGroup, which provides expert compliance consulting and GIPS®verification services to investment advisers, private funds, investmentcompanies, and broker-dealers.

John Munch (Chapter 52) is counsel at SEI Investments DistributionCo., in Oaks, Pennsylvania.

Michael C. Nicholas (Chapter 49F) is a partner in the Securities Regu-lation & Investment Products (SRIP) Group of McCarthy TétraultLLP in its Toronto office. Mr. Nicholas’s practice is devoted to securitieslaw matters generally, with an emphasis on registration or licensingmatters; dealer, adviser, investment fund manager, market intermedi-ary and marketplace regulation; related compliance and enforcementmatters; litigation support; the regulation and implementation ofderivative transactions; the development of new financial productsand trading strategies, including monetization transactions, issuer putoptions, block trades and accelerated and prepaid share repurchases;and the regulation, development, restructuring, termination andunwinding of collective investment vehicles, including mutual fundsand hedge funds.

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Since 1982, Mr. Nicholas has been engaged either in the practice ofcorporate/securities law with McCarthy Tétrault LLP or in a regulatorycapacity with the Ontario Securities Commission or the Hong KongSecurities and Futures Commission. In July 1983, he was seconded tothe Ontario Securities Commission by the firm, where he acted aslegal advisor to the Commission and served as a member of the Com-mission’s Corporate Finance Division until September 1984. FromJuly 1989 to July 1992, Mr. Nicholas served as the Director of Corpo-rate Finance for the Hong Kong Securities and Futures Commission,where he was responsible for regulating and developing policy inrelation to takeover and merger transactions. Mr. Nicholas is a pastmember of the Securities Advisory Committee to the Ontario Secu-rities Commission and a past member of the National Policy No. 36Committee of the Investment Funds Institute of Canada. During2004, Mr. Nicholas served as co-chair of the Compliance and LegalWorking Group, one of the committees established by the OntarioSecurities Commission to consider the Fair Dealing Model prior to itsevolution into the CSA Registration Reform Project. He is a co-authorof CCH’s Canadian Securities Regulatory Requirements Applicable toNon-Resident Broker-Dealers, Advisers and Investment Fund Man-agers, a handbook of Canadian securities regulatory requirements fornonresident securities firms published in 2012. Mr. Nicholas receivedhis B.A. from the University of Guelph and his LL.B. from Queen’sUniversity. He was called to the Ontario bar in 1982.

Amanda N. Persaud (Chapter 47) is a partner in Ropes & Gray ’s privateinvestment funds practice in New York. Her practice focuses on theformation, fund-raising and operation of U.S. and internationalprivate investment funds, including private equity funds, hedge funds,fund-of-funds and other alternative asset classes such as real estate,special situations, mezzanine/distressed debt and hybrid funds.

Ms. Persaud has led numerous fund-raisers for prominent U.S. andinternational sponsors of private investment funds. She regularlyadvises on a wide range of governance, operational and regulatorymatters affecting sponsor clients. She has significant experience advis-ing sponsor clients in structuring and reorganizing private investmentfunds as well as assisting them with internal compensation andmanagement arrangements. Ms. Persaud has negotiated and struc-tured spin-outs of, strategic investments in, and sales of, alternativeasset management businesses and regularly provides fund-relatedadvice with respect to portfolio acquisitions and dispositions. Ms.Persaud received her B.A. from Duke University in 1994 and earned

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her J.D. from the University of Virginia School of Law in 1999. She isa member of the International Bar Association, the New York StateBar Association and serves on the Private Investment Funds Commit-tee of the Association of the Bar of the City of New York.

Mari-Anne Pisarri (Chapter 40) is a partner in the Washington, D.C.law firm of Pickard Djinis and Pisarri LLP, where her practice focuseson regulatory issues affecting investment advisers, broker-dealers,investment companies and businesses providing electronic servicesto the securities industry. She has written and spoken extensively onsecurities regulation, and she publishes an Investment Advisers Com-pliance Guide annually. Ms. Pisarri received her B.A., summa cumlaude, from St. Lawrence University, and her J.D., magna cum laude,Order of the Coif, Cornell Law School.

Alexandra Poe (Chapter 45) is a partner at Reed Smith LLP. Ms. Poe isa leader of the private fund formation and counseling practice in thefirm’s Business & Finance department. She has over twenty-five years’experience in investment management practice counseling managersof hedge funds, private equity funds, institutional accounts, mutualfunds and broker-dealer advised programs. Ms. Poe counsels hedge andprivate equity fund advisers in all stages of their business, includingfund formation, structuring the manager and its affiliates, adviserregistration, compliance program development, compliance trainingand advice, placement arrangements, marketing, client relations, sideletter and seeding arrangements, the creation and implementation ofliquidity crunch strategies, and day-to-day trading and operationsadvice. She has also designed and supervised international law sur-veys, created vehicles for investment in non-traditional assets such asships and trade receivables, and advised regarding establishment andrestructuring of managed account platforms. Other representationsinclude advice in connection with investment adviser acquisitions,implementation of compliance following prosecutorial settlementagreements, registered fund governance matters and hedge fund duediligence. Ms. Poe received her B.S. from Cornell University, and herJ.D. from New York University School of Law.

David W. Porteous (Chapter 48A) is a partner at Ulmer & Berne LLP.Mr. Porteous has more than 18 years of experience working for andrepresenting clients in the public and private sectors, with a particularemphasis in the financial services sector. He routinely counsels clientson regulatory compliance and risk management issues in addition to

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litigation, arbitration, enforcement proceedings and investigations. Hehas represented a variety of institutions in the securities and com-modities futures markets, including broker-dealers, clearing firms,hedge funds, commodity pools, public companies and their commit-tees, directors, officers and other senior managers.

Mr. Porteous was previously a Staff Attorney in the Division ofEnforcement of the U.S. Securities & Exchange Commission in NewYork. He also worked for Regional Counsel of the National Associationof Securities Dealers Regulation—Enforcement Division (now FINRA)in the Chicago and New Orleans offices.

Mr. Porteous received his B.A., with honors, from the University ofWisconsin at Madison, and his J.D., cum laude, from Tulane Uni-versity Law School.

Domenick Pugliese (Chapters 20 & 21) is a partner at Schiff Hardinand has broad, in-depth experience regarding all aspects of InvestmentCompany Act and Investment Advisers Act regulation. Mr. Pugliesecounsels all types of investment companies, including mutualfunds, closed-end funds, exchange-traded funds, and business develop-ment companies. He dedicates a substantial portion of his practice toadvising independent trustees and directors of mutual funds andvariable annuity trusts. Before entering private practice, Mr. Pugliesewas a deputy general counsel for the Alliance Mutual Funds and in-house counsel to the Prudential Mutual funds. Mr. Pugliese has beenrecognized by Chambers USA in 2016 and 2017. U.S. News & WorldReport cited him as one of the “Best Lawyers in America (2017).”Mr. Pugliese received his B.S. from the State University of New YorkBinghamton, and his J.D., with honors, from George WashingtonUniversity Law School, where he was a member of the GeorgeWashington University Law Review.

Andrew C. Raby (Chapter 48B) is an associate and member of DrinkerBiddle & Reath LLP ’s nationally ranked Investment ManagementPractice Group. Mr. Raby ’s practice focuses primarily on representingand advising sponsors of unregistered investment funds, organizedboth in the United States and offshore. He provides advice regard-ing the organization and structure of both managers and funds, includ-ing investment advisers (registered and unregistered), commoditytrading advisors, and commodity pool operators. Mr. Raby received hisundergraduate degree from the College of the Holy Cross and his J.D.from Washington University in St. Louis School of Law.

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William D. Regner (Chapter 62) is a partner in Debevoise & PlimptonLLP and Co-Head of the firm’s Mergers & Acquisitions Group. Hefocuses primarily on M&A, including public company and cross-border transactions, and investment management, corporate andsecurities law matters. He also regularly represents investment bank-ing firms in their roles as financial advisors in major transactions.

Mr. Regner is ranked as a leading M&A lawyer by Chambers USA(2013–2015). He is recommended by The Legal 500 US (2012–2015)and recognized by IFLR1000 (2015) as a leading M&A lawyer.Mr. Regner is the co-author of Takeovers: A Strategic Guide to Mergers& Acquisitions (Wolters Kluwer Law & Business 2010) and is acontributor to Corporate Governance: Law and Practice (MatthewBender 2006). He has written numerous articles on M&A andcorporate law matters, including “Delaware Court Decision CouldReduce Litigation Exposure in Going Private Transactions,” Debevoise& Plimpton Private Equity Report (2013); “Dealing with Mr. Big:Recent Developments in Transactions Involving Controlling Share-holders,” The Hedge Fund Law Report (2010); “The ‘Downturn’Roadmap: Parsing the Shift in Deal Terms,” Deal Lawyers (2007);“MBO Jumbo: What Directors Need to Know About Going Private,”Directors and Boards (2007); “Going Private in the US,” InternationalFinancial Law Review (2006); “What Buy-Side Directors Need toKnow,” International Financial Law Review (2005); “Looking at Lock-ups: Orman & Omnicare” and “Balancing the Equities,” The M&ALawyer (2004); “Combustion Hazard” and “Let’s Be Fair,” The DailyDeal (2004); “What’s Happening to the Business Judgment Rule?,”Insights (2003); “Delaware to Directors: Don’t Do Done Deals,” TheM&A Lawyer (2003); and “Hot Line,” “Booby Traps,” “Nerve Tonic”and “Putting it Together,” The Daily Deal (2003). He is also acontributing author of The Private Equity Primer: The Best of theDebevoise & Plimpton Private Equity Report and the Debevoise &Plimpton Private Equity Report.

Mr. Regner joined Debevoise as an associate in 1994 and became apartner in 2002. Mr. Regner received his A.B. from Colgate Universityin 1988 and his J.D., summa cum laude, from Benjamin N. CardozoSchool of Law in 1994, where he was Articles Editor of the CardozoLaw Review.

Jason C. Roberts (Chapter 49A) is the Founder and CEO of thePension Resource Institute (PRI) providing strategic consultingand training to retirement plan service providers (broker-dealers,RIAs, investment managers, recordkeepers, TPAs, etc.) and fiduciary

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education to plan sponsors. He is primarily responsible for tacticalplanning and business development at PRI and actively leads many ofPRI’s consulting projects.

Prior to founding PRI, Mr. Roberts was a partner and co-chair of theFinancial Services Group at Reish & Reicher—a leading ERISA lawfirm—where his practice focused on employee benefits and securitiesregulation. Mr. Roberts continues to provide counsel on ERISA andinvestment-related matters through the Law Offices of Jason C.Roberts, Esq. and is frequently retained as an expert witness onfiduciary claims. He represents clients in federal and state court atthe trial and appellate level (including the U.S. Supreme Court),FINRA arbitrations and government enforcement proceedings.

David E. Rosedahl (Chapter 15) is of counsel, Business Litiga-tion Section, Financial Markets Group of Briggs and Morgan P.A.Mr. Rosedahl has more than thirty years of experience in the financialmarkets industry, specifically in the securities regulatory area. Hepractices primarily in the areas of regulatory compliance and enforce-ment, financial markets counseling, corporate governance, and dis-pute resolution. Mr. Rosedahl’s unique background as a former chiefregulatory officer of the Pacific Exchange, managing director andgeneral counsel for Piper Jaffray Companies, and associate generalcounsel and corporate secretary for the Securities Industry Associationallows him to provide a balanced perspective when advising clientsconcerning investment and financial services issues, regulatory investi-gations, enforcement actions, remedial work and general inquiries. Heis a frequent speaker on securities matters and has taught securitieslitigation as an adjunct professor at William Mitchell College of Law.Mr. Rosedahl received a B.A. and a J.D. from Columbia University, andis admitted to practice in Minnesota and New York, and is a memberof the Minnesota and American bar associations.

Seth L. Rosen (Chapter 62) is of counsel to Debevoise & Plimpton LLPand a member of the firm’s Tax Department and Financial InstitutionsGroup whose practice focuses primarily on tax issues of particularimportance to insurance companies and their affiliates, includinginsurance company M&A, financings and restructurings, the develop-ment of insurance, reinsurance and annuity products and overall taxplanning. In addition, Mr. Rosen works with private equity groups andother investment managers who are active in the insurance sector. Healso represents tax-exempt clients, including public charities andprivate foundations. Chambers USA (2013–2014) recommends him

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as a leading tax lawyer. He is also recognized by The Legal 500 US(2013), where he is noted as “one of the best tax lawyers in thecountry.” Mr. Rosen received The Legal Aid Society ’s Award for Out-standing Pro Bono Service in 2003 and 2012 for his work teachingyoung lawyers how to counsel not-for-profit entities.

Mr. Rosen writes and speaks frequently on tax topics of importanceto the insurance industry. Recent lectures have included “M&A TaxIssues for Insurance Companies in the Current Environment,” FederalBar Association Income Tax Seminar (2013); “Ethics—DevelopmentsApplicable to In-House Tax Departments and Advisors,” Life Insur-ance Council of New York (2013); “Advanced Reinsurance,” InsuranceTax Conference (2012); “Case Study,” Insurance Tax Conference(2011); “Company Tax and Audit Update,” Life Insurance Council ofNew York (2009); “Corporate Restructuring,” Insurance Tax Confer-ence (2009); “Tax Aspects of Transactions,” Life Insurance Council ofNew York (2008); and “Not-for-Profit Incorporation,” The Legal AidSociety (2002–2013). Mr. Rosen is co-author of “XXX Reserve Fundingis Debt for Federal Tax Purposes,” Taxing Times (September 2009).

Mr. Rosen has served as Chair of both the Council on Taxation andthe Committee on Taxation of Corporations of the Association of theBar of the City of New York, as a Member-At-Large of the ExecutiveCommittee of the New York State Bar Association’s Tax Sectionand as a member of the Committee on Insurance Companies of theAmerican Bar Association’s Tax Section. Mr. Rosen serves as amember of the Board of Directors of the Insurance Tax Conference;as a member of the Board of Governors, and of the Executive, Financeand Assessment Committees, of the Reconstructionist RabbinicalCollege; and as a member of the Board of Trustees, and of the AuditCommittee, of the Newark Museum. Mr. Rosen was formerly a memberof the Board of Directors and Corporate Secretary of VisionSpring.

Mr. Rosen joined Debevoise in 1981 and became a partner in 1989.He received his B.A., magna cum laude, from the University ofPennsylvania in 1977 and his J.D., cum laude, from New YorkUniversity in 1980, where he was Executive Editor and Book ReviewEditor of the Law Review and a member of the Order of the Coif. From1980 to 1981, Mr. Rosen served as Law Clerk to the HonorableWilliam H. Timbers, U.S. Court of Appeals for the Second Circuit.

Peter M. Rosenblum (Chapters 50 & 51) is a partner in the Bostonoffice of Foley Hoag LLP, where he counsels a broad range of clients indiverse industries concerning business and regulatory matters, financ-ing strategies and structuring of corporate transactions. He is actively

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involved in the firm’s corporate and corporate finance practices, withan emphasis on public and private offerings of debt and equity, mergersand acquisitions, joint ventures and venture capital. Prior to enteringthe private practice of law, Mr. Rosenblum served as Law Clerk toChief Justice G. Joseph Tauro of the Massachusetts Supreme JudicialCourt. He graduated from Amherst College and Harvard Law School.

Robert Rosenthal (Chapter 41) is vice president and associate generalcounsel at Mass Mutual.

Brian L. Rubin (Chapters 23A & 34B) is a partner with EvershedsSutherland. He represents broker-dealers, investment advisers, invest-ment companies, public companies and individuals being examined,investigated and prosecuted by the U.S. Securities and ExchangeCommission (SEC), the Financial Industry Regulatory Authority,and states. He also represents securities clients in litigation andarbitration, and counsels them on regulatory and compliance matters.In addition, Mr. Rubin conducts internal investigations. Before join-ing Eversheds Sutherland, he was Deputy Chief Counsel with theNational Association of Securities Dealers’ Enforcement Department,where he managed attorneys and examiners in the Washington, D.C.home office and in the district offices. Brian also was Senior Counselin the SEC’s Division of Enforcement, where he investigated andprosecuted violations of federal securities laws. He was also SeniorCounsel in the SEC ’s Division of Enforcement. Mr. Rubin received hisB.S., cum laude, from the University of Pennsylvania’s WhartonSchool of Business, and his M.A. in Economics and his J.D. fromDuke University.

G. Philip Rutledge (Chapter 35) is a partner of Bybel Rutledge LLP.As an AV-rated lawyer by Martindale Hubbell, his practice focuseson corporate and securities law, regulation of financial intermediaries,and representation before the SEC, FINRA and state securities regu-lators. Mr. Rutledge is a nationally recognized expert in securitiesregulation and was instrumental in shaping various provisions ofsignificant U.S. financial services legislation, including the SecuritiesMarkets Improvement Act of 1996, the Gramm-Leach-Bliley Finan-cial Modernization Act of 1999, the Sarbanes-Oxley Act of 2002, andthe Dodd-Frank Wall Street Reform and Consumer Protection Act of2010. When in government, Mr. Rutledge served as an expert witnesson behalf of the Pennsylvania Office of the Attorney General in civilsecurities litigation and has testified as a securities expert before the

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U.S. Senate Permanent Subcommittee on Investigations. In privatepractice, he has been engaged as an expert witness in FINRA arbitra-tion proceedings and in civil litigation.

Sean D. Sadler (Chapter 49F) is a partner in the Securities Regulation& Investment Products Group of McCarthy Tétrault LLP in its Torontooffice. Since joining the firm in 1989, Mr. Sadler has been primarilyengaged in a securities trading and adviser regulation practice, withparticular emphasis on advising Canadian and nonresident dealersand advisers on the offering of their services in Canada, includingstructuring and regulation of collective investment vehicles and thepublic and private offering of investment products and securities, retailmutual funds, institutional pooled funds, hedge funds, closed-endfunds, separately managed accounts, wrap accounts, wealth manage-ment services, family offices and registered education savings plans. Mr.Sadler also regularly advises on securities law/and on private place-ments, commodity futures and OTC derivatives trading, acquisitions,divestitures and reorganizations of registrants and the merger of invest-ment fund complexes and the establishment of investment fund busi-nesses. Mr. Sadler has, together with local counsel, assisted clients inestablishing or restructuring investment funds in jurisdictions outsideCanada, including Bermuda, British Virgin Islands, Cayman Islandsand Mauritius.

For many years, Mr. Sadler has been a special lecturer in varioussecurities law topics at the University of Windsor, the University ofWestern Ontario, Dalhousie University and Queen’s University. He isa co-editor of CCH’s Annotated Ontario Securities Legislation. He isalso a co-author of CCH’s Canadian Securities Regulatory Require-ments Applicable to Non-Resident Broker-Dealers, Advisers andInvestment Fund Managers, a handbook of Canadian securities regu-latory requirements for non-resident securities firms published in2012.

Mr. Sadler appears in the 2013 edition of The Best Lawyers inCanada in the areas of mutual funds law, private funds law andsecurities law, in the International Who’s Who of Private FundsLawyers, 2014 and in the Who’s Who Legal: Canada 2012 in thearea of private funds. Mr. Sadler is recognized in Practical LawCompany ’s 2011/2012 Investment Funds Handbook as a recom-mended lawyer in Canada and has appeared in the Canadian LegalLexpert Directory, a guide to the leading law firms and practitionersin Canada, as a leading lawyer in the area of asset managementand investment funds. He received his B.A. from the University of

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Toronto, his J.D. from the University of Windsor and his LL.M. inbanking and financial services law from the Osgoode Hall Law School.Mr. Sadler was called to the Ontario bar in 1989.

Christopher M. Salter (Chapter 34A) is a partner in the Washington,D.C. office of Allen & Overy LLP. Mr. Salter ’s practice focusesprimarily on advising financial institution clients, and specificallybroker-dealers, investment advisers, private equity funds, and hedgefunds on compliance with the federal securities laws and regulations,and on compliance with the rules of the self-regulatory organizations(SROs), including the Financial Industry Regulatory Authority. Pre-viously, Mr. Salter worked at the U.S. Securities and ExchangeCommission as an Attorney in the Division of Market Regulation.He also is a Certified Public Accountant who worked as an AuditManager for the U.S. Government Accountability Office, and as a StaffAccountant for KPMG Peat Marwick, where he obtained extensiveaccounting and financial regulatory experience.

Mr. Salter has extensive experience advising clients with respect tobroker-dealer and investment adviser regulation. He routinely helpsbroker-dealers and investment advisers in registering with the SEC,the states, and becoming members of SROs. Mr. Salter routinelyadvises clients on their supervisory procedures and compliancepolicies, and assists clients with the development of their policiesand procedures. He has extensive experience with compliance reviewsand audits as well as internal investigations. Mr. Salter also repre-sents clients in enforcement actions before the SEC, SROs, the U.S.Attorney ’s Offices, and the state Attorney General’s Offices.

Lorna A. Schnase (Chapter 8) has been practicing corporate and secu-rities law for more than thirty years. Her practice emphasizes invest-ment management matters, primarily for registered investment advisersand mutual funds. Ms. Schnase counsels clients regarding a wide rangeof matters such as compliance programs, fiduciary duty, disclosure,custody, organizational issues, registration of funds and advisers withthe Securities and Exchange Commission, performance issues, adviserand fund advertising, changes of control, best execution, soft dollars,codes of ethics, director independence and other corporate governanceissues, reporting obligations, electronic document delivery, privacycompliance and other issues.

Ms. Schnase practices independently in Houston, Texas. Prior toestablishing her independent practice, she was a partner of the lawfirm of Davis, Graham & Stubbs LLP. Prior to that, Ms. Schnase

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practiced with the law firm of Baker & McKenzie in Los Angeles andwith the Dechert law firm in Denver. She is a member of the AdvisoryBoard of the Mutual Fund Directors Forum and the Editorial AdvisoryBoard of the journal, Practical Compliance & Risk Management for theSecurities Industry.

Ms. Schnase graduated cum laude from Harvard Law School with aJ.D. degree in 1982. In 1979, Ms. Schnase graduated summa cumlaude from the University of Denver with a B.A. degree in mathe-matics. She was elected to Phi Beta Kappa and the Mortar BoardHonor Society. She is a member of the bar in the states of Texas(1991), California (1989) (inactive) and Colorado (1982) (inactive).

Lee A. Schneider (Chapter 62) is a member of Debevoise & PlimptonLLP ’s Corporate Department and is based in the New York office. Heis the head of the broker-dealer regulatory practice and a member ofthe Financial Institutions Group. He also focuses on financial tech-nology issues. His practice includes the representation of both U.S.and non-U.S. broker-dealers, banks, private fund sponsors and finan-cial services technology companies. He provides day-to-day counsel tothese clients on a wide range of matters, including regulatory andenforcement issues, conduct of business questions and general corpo-rate concerns. Mr. Schneider works with Debevoise transactionallawyers on structuring and negotiations when the deals involvefinancial services and technology companies. He regularly assistsboth financial services firms and their vendors in negotiating technol-ogy agreements for all types of services and considering the regulatoryissues associated with such technologies. He also advises broker-dealers in the start-up phase of their existence, helping with theirapplication for membership, initial structuring and development ofpolicies and procedures. He speaks on and moderates panels discuss-ing all areas of financial services and technology law, and is quotedfrequently on these matters in publications including BloombergNews, Law360 and the Securities Lending Times.

Prior to joining Debevoise, Mr. Schneider was General Counseland a member of the Executive Committee at ConvergEx, a globaltechnology firm specializing in proprietary software products andtechnology-driven execution services. Mr. Schneider previouslyserved as the lead in-house counsel for broker-dealers at The Bank ofNew York, and prior to that worked as an associate for seven years,including as both a corporate and litigation associate at a leadinginternational law firm.

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Mr. Schneider is the author of “Regulatory Priorities for FinTechFirms—and Investors—in the Coming Year,” Journal of Taxation andRegulation of Financial Institutions, Volume 29, Number 04 (Mar./Apr., 2016). He is also the co-author of “SEC’s CAT Plan and the costto Industry,” Law360 (May, 2016); “New Best-Execution GuidanceProvokes Significant Questions,” Law360 (Dec., 2015); “The SECHands Out Halloween Treat To Crowdfunding Supporters,” BusinessLaw Today (Dec., 2015); “SEC Regulation Of Cybersecurity and TechRisk Converges,” Law360 (Oct., 2015); “FINRA Adds New Dimensionto Broker-Dealer Responsibility,” Law360 (Sept., 2015); “Basel Com-mittee Adopts Net Stable Funding Ratio,” The Harvard Law SchoolForum on Corporate Governance and Financial Regulation (Dec.,2014); “Questions and Answers on the Liquidity Coverage Ratio,”The Harvard Law School Forum on Corporate Governance andFinancial Regulation (Oct., 2014); “How to Implement Proceduresfor the LCR Rules,” Compliance Reporter (Sept., 2014); “Jobs Act TitleIII Crowdfunding Moves Closer to Reality,” The Harvard Law SchoolForum on Corporate Governance and Financial Regulation (Dec.,2013); “A Touch of Solace for Broker-Dealer Compliance Personnel,”Law360 (Nov., 2013); “Debevoise & Plimpton Discusses SEC ’s Gui-dance on Supervisory Liability for a Broker-Dealer ’s Compliance andLegal Personnel,” The Columbia Law School Blue Sky Blog (Nov.,2013); and “Debevoise Discusses SEC Amendments to FinancialResponsibility and Custody Rules,” The CLS Blue Sky Blog: ColumbiaLaw School’s Blog on Corporations and the Capital Markets (Sept.,2013).

Mr. Schneider joined Debevoise in 2012. He received his J.D.summa cum laude from American University Washington College ofLaw, and his B.A. in Economics from the University of Michigan.Mr. Schneider served as a law clerk for the Hon. Roger J. Miner withthe U.S. Court of Appeals for the Second Circuit.

Barry P. Schwartz (Chapter 21) is a founding partner of ACA Com-pliance Group, which provides expert compliance consulting andGIPS® verification services to investment advisers, private funds,investment companies, and broker-dealers. Mr. Schwartz is responsi-ble for coordinating and conducting mock inspections of investmentadvisers, investment companies, and hedge funds. Mr. Schwartz alsoassists ACA clients in responding to SEC deficiency letters, reviewingbest execution and trading practices, preparing advertisements thatcomply with the federal securities laws and developing customizedpolicies and procedures.


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Jason C. Schwartz (Chapter 31) is a partner in the Washington, D.C.office of Gibson, Dunn & Crutcher LLP. He is a member of the firm’sLabor and Employment Practice Group and its Litigation Department.He also serves in the firm’s Office of General Counsel. Mr. Schwartzpractices primarily in the areas of labor, employment and trade secretlitigation. He was recognized as a recommended lawyer in labor andemployment litigation and workplace and employment law coun-seling by The Legal 500 US. His practice includes the full range oflabor and employment matters, including those involving wage-hourand discrimination laws, non-competition agreements and tradesecrets, Sarbanes-Oxley and other whistleblower protection laws, theEmployee Retirement Income Security Act (ERISA), and the Occupa-tional Safety and Health Act (OSHA). Mr. Schwartz has litigatedemployment matters in state and federal courts and administrativeforums throughout the country, as well as in arbitration, has repre-sented clients before federal, state and local regulatory agencies andhas conducted sensitive internal investigations. Mr. Schwartz also hassignificant experience in administrative law and rulemakings. Heserved as counsel to the Fair Labor Standards Reform Coalition, andhe played a leading role in preparing comments on behalf of thebusiness community relating to the U.S. Department of Labor ’s newovertime exemption regulations. He is also a member of the U.S.Chamber of Commerce Labor Relations Committee, and he testifiedbefore Congress regarding OSHA enforcement programs on behalf ofthe U.S. Chamber of Commerce. Mr. Schwartz frequently speaks andwrites on employment law and trade secret–related topics.

Mr. Schwartz earned his J.D., magna cum laude, from the George-town University Law Center, where he was elected to the Order of theCoif and received the George Brent Mickum III Prize and the CharlesA. Keigwin Award for the best academic record in first-year courses.From 1995 to 1996, Mr. Schwartz worked as a Legislative Assistant toCongressman Jon D. Fox. Mr. Schwartz received a B.A., cum laude, ininternational affairs from the George Washington University.Mr. Schwartz is admitted to practice in the District of Columbia,Virginia and Maryland, as well as in numerous federal courts.

Phyllis A. Schwartz (Chapter 48) is a partner at Schulte Roth & ZabelLLP in New York City. Her practice areas include private equity fundformation (primarily venture capital, buyout, mezzanine and realestate funds, as well as joint ventures), structuring managementarrangements and advising fund managers on securities and partnership


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law issues. In the area of private equity financings, she advises funds ontheir investments in private equity and debt securities. In recognition ofher work, she has been named to The International Who’s Who ofPrivate Funds Lawyers and IFLR’s Guide to the World’s Leading Invest-ment Funds Lawyers. She is a member of the New York City BarAssociation’s Committee on Private Investment Funds and the NewYork Private Investment Fund Forum. She received her A.B. fromSmith College and her J.D. from Columbia University School of Law.

Andrew C. Small (Chapter 15) is general counsel and executivedirector of Legal, Compliance and Fraud & Loss Prevention forScottrade, Inc., a leading online brokerage. Prior to joining Scottradein August 2003, Mr. Small was Vice President and ComplianceCounsel at A.G. Edwards & Sons, Inc. where he was responsible forlegal, regulatory and compliance issues relating to e-commerce, tech-nology, operations and anti-money laundering. He formerly served asan enforcement attorney with both FINRA and the Chicago BoardOptions Exchange. He is currently a member of FINRA’s e-BrokerageCommittee and Nominating Committee for District 4. Mr. Smallpreviously served as Chairman of FINRA’s District Committee forDistrict 4 and on the Board of Directors of the National Society ofCompliance Professionals. Mr. Small is a graduate of DePaulUniversity School of Law, Chicago, Illinois.

W. Mark Smith (Chapter 49) is a partner at Eversheds Sutherland.Since 1981, Mark has advised clients on tax, ERISA and other issuesrelated to retirement, executive compensation, insurance, cafeteriaand other employee benefit plans. He is engaged on behalf of plansponsors, insurance companies, investment advisers and managers,broker-dealers, consulting firms and other service providers for a rangeof consulting, transactional, regulatory and litigation matters. Prior tojoining Eversheds Sutherland, Mark clerked for then-Chief JudgeClement Haynsworth of the U.S. Court of Appeals for the FourthCircuit. He served as the 1991–1992 Chair of the Employee Bene-fits Committee of the American Bar Association Tort Trial andInsurance Practice Section and for several years as a delegate to theABA Joint Committee on Employee Benefits. Mark serves on the boardof directors of the D.C. Bar Foundation and has served on the advisoryboards of several programs and publications, including the George-town Corporate Counsel Institute. He has made more than seventypresentations to a variety of audiences and contributed to more than


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twenty-five articles and books. Mark is recognized in The Best Lawyersin America, 2005–2007, in Employee Benefits Law, and is a Fellow ofthe American College of Employee Benefits Counsel.

Colleen Snow (Chapter 31A) is an associate in Mayer Brown LLP ’sWhite Collar Defense & Compliance practice in Washington, D.C.She focuses her practice on the counseling and defense of corpora-tions and individuals in Foreign Corrupt Practices Act enforcementmatters. Colleen is a cum laude graduate of Tulane University LawSchool, where she received her J.D. in 2014.

Lawrence P. Stadulis (Chapter 60) is a partner at Stradley RononStevens & Young, LLP. Mr. Stadulis advises clients in matters pertain-ing to the registration and regulation of investment advisers andinvestment companies under federal and state securities laws. Healso manages related issues pertaining to investment advisers andinvestment companies, including matters involving ERISA, broker-dealer regulation and banking laws.

Mr. Stadulis is a frequent lecturer and author on legal matterspertaining to the investment management industry. He prepares amonthly column on recent SEC developments for The InvestmentLawyer, a legal publication that focuses on the investment manage-ment industry.

Before joining Stradley Ronon, Mr. Stadulis was a partner withanother prominent law firm. Prior to that, he was special counsel inthe Office of Chief Counsel, Division of Investment Management,U.S. Securities and Exchange Commission. As special counsel,Mr. Stadulis was principally responsible for responding to no-actionand interpretive requests under the Investment Company Act of 1940and Investment Advisers Act of 1940.

Mr. Stadulis was recommended as a national leader in “investmentfunds: registered funds” in the 2011, 2010, 2009 and 2008 editions ofChambers USA: America’s Leading Lawyers for Business.

Mr. Stadulis received his B.A., magna cum laude, from BostonCollege, and his J.D. from Boston College Law School.

Bibb L. Strench (Chapters 4A, 17 & 42) is counsel at Seward & KisselLLP. Mr. Strench’s practice focuses on exchange-traded funds, invest-ment advisers, mutual funds and SMA sponsors. He provides adviceon regulatory, compliance, entity formation, auditor independence,corporate governance and other issues related to the operation of the


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aforementioned businesses. Mr. Strench began his career as a staffattorney in the Division of Investment Management of the U.S.Securities and Exchange Commission, where he was principallyresponsible for granting exemptive orders and responding to no-actionand interpretive requests under the Investment Company Act of 1940and Investment Advisers Act of 1940. Mr. Strench is admitted topractice in the District of Columbia, Texas, and Washington. Hereceived a B.A., magna cum laude, from Vanderbilt University and aJ.D. from the University of Virginia School of Law, 1988.

John H. Sturc (Chapter 31) is a partner with Gibson, Dunn &Crutcher LLP and is co-chair of the firm’s Securities EnforcementPractice Group. He joined the firm’s Washington, D.C. office in 1990,where he focuses on securities and financial institutions enforcementmatters, securities law, internal investigations, and criminal and civillitigation. Prior to joining the firm, Mr. Sturc worked for eight yearswith the Securities and Exchange Commission (SEC), six of thoseyears as the Associate Director of the Division of Enforcement, thesecond-ranking official in that division. He supervised investigationsand litigation concerning all aspects of the federal securities laws, withprincipal emphasis upon insider trading, market manipulation, andfinancial disclosure violations. Among Mr. Sturc’s best-known matterswere the commission’s cases against Dennis Levine, Ivan Boesky,Martin Siegel, Michael Milken, and Drexel Burnham Lambert, Inc.Mr. Sturc previously served as Deputy Chief Litigation Counsel and asAssistant Chief Trial Attorney. He also was an Assistant U.S. Attorneyin Washington, D.C., where he had extensive experience as a trial andappellate attorney with civil and criminal cases, and led grand juryinvestigations.

Mr. Sturc has authored numerous publications dealing with en-forcement of federal securities and banking laws. He was listed inThe Best Lawyers in America® 2012 for Securities Law and namedThe Securities Law Lawyer of the Year. He was also ranked as oneof Washington’s Top Lawyers for securities law by WashingtonianMagazine in 2009. He received the Presidential Award for MeritoriousExecutive Service in 1987 and is a frequent participant in continuinglegal education programs concerning securities law and compliance,criminal law and banking law.

Mr. Sturc is a member of the American Bar Association Sections ofBusiness Law, Litigation, and Criminal Justice, and is a member of theNational Advisory Board and the SEC Institute, Inc. He was previouslythe vice president of the Assistant United States Attorneys Association

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in the District of Columbia. He is a member of the bar of the Districtof Columbia, and is admitted to practice before the followingcourts: U.S. Court of Appeals, District of Columbia; U.S. DistrictCourt, District of Columbia; U.S. Court of Appeals for the FourthCircuit; U.S. District Court for the District of Maryland; Districtof Columbia Court of Appeals; and the District of Columbia SuperiorCourt. Mr. Sturc received his J.D., cum laude, from Harvard LawSchool, and his B.A., summa cum laude, from Cornell University.

Heather Traeger (Chapter 15A) is a partner in O’Melveny & MyersLLP’s Washington, D.C. office and a member of the Financial ServicesPractice. Ms. Traeger advises financial institutions on their regulatoryand compliance obligations under the Securities Exchange Act of 1934,the Investment Advisers Act of 1940, the Investment Company Act of1940, and other federal and state laws and regulations affecting invest-ment companies, advisers, and broker-dealers.

Prior to joining O’Melveny, Ms. Traeger was Associate Counsel atthe Investment Company Institute (ICI), where her work focused onregulation and legislation, including Dodd-Frank and other initiatives,that are transforming the oversight and operation of investmentcompanies, advisers, and broker-dealers. She also coordinated ICI’sactivity on “pay-to-play” regulatory initiatives concerning manage-ment of public plan assets. Previously, during nearly a decade at theSecurities and Exchange Commission, Ms. Traeger served in severalpositions, including Senior Counsel to Commissioner Roel Campos,Counsel to Commissioner Isaac Hunt, and Senior Counsel in theDivision of Market Regulation (now Trading and Markets).

Bonnie Treichel (Chapter 49A) is the Associate General Counsel andVice President, Product Development, of the Pension Resource Insti-tute (PRI), providing strategic consulting, education, and technology-based solutions for retirement plan service providers and plan spon-sors. Ms. Treichel’s day-to-day focus is on review of legal mattersfacing the organization and its clients, as well as on product develop-ment and the firm’s technological initiatives. Prior to joining PRI, Ms.Treichel was an associate with Edgerton and Weaver, where herpractice was dedicated to civil litigation for financial services clients(both brokerage firms and individuals) in matters before state andfederal courts, FINRA, the SEC, and other regulatory bodies. Today,she also continues to provide legal counsel on ERISA- and investment-related matters through the Retirement Law Group, PC.

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Ms. Treichel is active in the Women’s Legal Association of LosAngeles and the National Association of Plan Advisor ’s GovernmentAffairs Committee. She graduated with honors from Truman StateUniversity, earning a degree in Political Science; she also earned aJ.D. from Pepperdine University School of Law, where she earned acertificate from the Palmer Center for Entrepreneurship & the Lawand where she graduated with honors.

Laurence A. Urgenson (Chapter 31A) is a partner in Mayer Brown’sWashington, D.C. office and is a member of the White Collar Defense& Compliance practice. Laurence has been widely recognized as oneof the preeminent Foreign Corrupt Practices Act (FCPA) authorities inthe United States. He has represented corporate and individual clientsin all aspects of FCPA and anti-corruption issues in countries acrossthe world for nearly four decades. Recently, Laurence was named oneof Benchmark Litigation’s 2014 White Collar Crime Litigation Stars.He was also recognized nationally as one of eight FCPA Masters atthe first annual Main Justice Best FCPA Lawyers Client ServiceAwards in 2013. Prior to joining private practice, Laurence held keyleadership positions at the U.S. Department of Justice (DOJ). As theDOJ’s Acting Deputy Assistant Attorney General, he primarily super-vised the Fraud Section, General Litigation and Legal Advice Section,and Office of Policy and Management Analysis. Additionally, he tes-tified before various congressional committees regarding the Depart-ment’s white collar crime initiatives. He also served as the DOJ’sChief of the Fraud Section for the Criminal Division, where he advisedU.S. Attorneys on white collar crime issues; supervised the prosecu-tion of bank, securities, and defense procurement frauds; and oversawthe FCPA Unit and the Defense Procurement Fraud Unit. Earlier in hiscareer, Laurence served as a Chief Assistant U.S. Attorney for theEastern District of New York. He is currently the chairman of theboard of editors of the Business Crimes Bulletin.

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Table of Chapters

VOLUME 1

PART I: Background

Chapter 1 Overview

PART II: Advisers Status; SEC-State Jurisdiction

Chapter 2 Investment Adviser Status Questions

Chapter 2A Broker-Dealer Status Issues Under the Advisers Act

Chapter 3 The Jurisdictional Divide Between the SEC andthe States

PART III: Registration and Disclosure; Form ofOrganization

Chapter 4 Registration and Disclosure: The Form ADV

Chapter 4A Form of Organization

PART IV: Attracting Clients

Chapter 5 Referrals

Chapter 6 Advertising by Investment Advisers

Chapter 7 Practical Considerations for PerformanceAdvertising by Advisers

PART V: The Adviser-Client Relationship

Chapter 8 An Investment Adviser’s Fiduciary Duty

Chapter 8A Broker-Dealer and Adviser Uniform Standardof Care

Chapter 9 The Advisory Contract

Chapter 10 Investment Adviser Compensation

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Chapter 11 Custody and Protection of Customer Accounts

Chapter 12 Investment Restrictions

Chapter 13 Proxy Voting

Chapter 14 Privacy of Client Financial Information:An Overview

Chapter 15 Practical Implications Regarding theSafeguarding of Customer Information

Chapter 15A New Client Relationships

PART VI: Brokerage and Trading Practices

Chapter 16 Selecting the Broker

Chapter 17 Soft Dollars

Chapter 18 Affiliated Brokerage

Chapter 19 Trading Conflicts

Chapter 20 Investment Adviser Trading Desk Activities

Chapter 21 Trading Errors

PART VII: Adviser Compliance Programs

Chapter 22 Investment Adviser Compliance Programs

Chapter 23 The Role of the Investment Adviser ChiefCompliance Officer

Chapter 23A Investment Adviser Chief ComplianceOfficer Liability

Chapter 24 Conducting an Investment Company/AdviserCompliance Review

Chapter 25 Business Continuity Planning

Chapter 26 Anti-Money Laundering Requirements forInvestment Advisers

Chapter 27 Code of Ethics, Personal Trading, and InsiderTrading Policies and Procedures

Chapter 28 Gifts and Entertainment

Chapter 29 Insider Trading by Advisory Personnel

Chapter 30 Outsourcing by Financial Services Firms


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Chapter 31 SEC and CFTC Whistleblower Rules andAnti-Retaliation Protections

Chapter 31A Enforcement of the Foreign CorruptPractices Act and Other Anti-Bribery Laws

PART VIII: Recordkeeping, SEC Examinations,and Enforcement

Chapter 32 SEC Record-Keeping Requirements

Chapter 33 SEC Inspections

Chapter 34 Enforcement of the Advisers Act

Chapter 34A Collateral Consequences for Investment Advisers& Associated Persons

Chapter 34B How to Handle SEC Investigations

PART IX: State Adviser Regulations

Chapter 35 State Regulation of Investment Advisers

Chapter 36 State Law Issues Relevant toSEC-Registered Advisers

Chapter 37 State Investment Adviser Examinationsand Enforcement

VOLUME 2

PART X: Retail Advisory Services

Chapter 38 Status of Financial Planning Underthe Advisers Act

Chapter 39 Regulation and Supervision of FinancialPlanning Business

Chapter 40 Broker-Dealer Advisory Services

Chapter 41 Insurance Company Agent Advisory Activity

PART XI: Advisory Products

Chapter 42 Mutual Funds

Chapter 43 Wrap Fee Programs

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Chapter 44 Mutual Fund Asset Allocation Programs

Chapter 45 Model-Based Wrap Fee Programs

PART XII: Private Funds

Chapter 45A Ability of an Investment Adviser to Rely onCommon Registration

Chapter 45B Private Fund Reporting by Investment Advisers

Chapter 46 Hedge Funds

Chapter 46A The Hedge Fund Manager—Practical ComplianceConsiderations

Chapter 47 Private Equity Funds: Legal Analysis of Structural,ERISA, Securities and Other Regulatory Issues

Chapter 48 Advisers to Private Equity Funds—Practical Compliance Considerations

Chapter 48A Private Fund Managers’ Duties to Investors:Rule 206(4)-8 and Reducing the Risk ofRegulatory Action

Chapter 48B Private Funds and Custody Rule Compliance

PART XIII: Advisory Services in the RetirementMarketplace

Chapter 49 Investment Advice for Employee BenefitPlans and IRAs

Chapter 49A ERISA Compliance: Practical Considerations &Best Practices for Broker-Dealers and Advisers andTheir Representatives That Sell or ServiceRetirement Plans

Chapter 49B Advisers to Collective Trust Funds

PART XIV: Offshore Advisory Services

Chapter 49C Offering Cross-Border Advisory andBroker-Dealer Services to Non-U.S. Clients

Chapter 49D Investment Adviser Regulation in theUnited Kingdom: An Overview


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Chapter 49E Offering Cross-Border Investment Products andAdvisory Services to Clients in Latin America

Chapter 49F Canada: Securities Regulatory RequirementsApplicable to Non-Resident Broker-Dealers,Investment Advisers, and Investment FundManagers

VOLUME 3

PART XV: Foreign Advisers Offering AdvisoryServices in the United States

Chapter 50 Overview of Institutional andOffshore/Foreign Advisory Activity

Chapter 51 Offshore/Non-U.S. Advisers

PART XVI: The Municipal Marketplace

Chapter 52 Pay to Play

Chapter 53 Designing a Political Law Compliance Programfor Broker-Dealers and Advisers

Chapter 54 Municipal Advisor Regulation

Chapter 55 Investment Adviser Regulation of Public FinanceActivity

PART XVII: Regulatory Reporting

Chapter 56 SEC Reporting Requirements Under Section 13of the Exchange Act

Chapter 56A Investment Adviser Treasury and Related ReportingRequirements

PART XVIII: Special Topics

Chapter 57 Exempt Reporting Advisers: Substantive Provisionsof the Advisers Act

Chapter 58 Commodity Trading Advisor Statusand Regulation

Chapter 59 Family Offices

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Chapter 60 Investment Adviser Use of Social Media andRelated Regulations

Chapter 61 Valuation Issues Under the InvestmentAdvisers Act

Chapter 62 Investment Management M&A

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Table of Contents

VOLUME 1

About the Editor ..............................................................................ix

About the Contributors..................................................................xi

Table of Chapters............................................................................lv

PART I: Background

Chapter 1 Overview

Clifford E. Kirsch

§ 1:1 The Investment Advisory Profession................................ 1-3§ 1:2 Sources of Law.................................................................. 1-3§ 1:3 The Investment Advisers Act of 1940.............................. 1-5

§ 1:3.1 A Glance at the Advisers Act RegulatoryFramework................................................................. 1-7

[A] Registration Under the Investment Advisers Act ...... 1-7[B] Conduct Standards/Restrictions on Activities ........... 1-7[C] Attracting Clients ...................................................... 1-8[C][1] Advertising ............................................................ 1-8[C][2] Referral Fees .......................................................... 1-8[D] The Adviser-Client Relationship ............................... 1-9[D][1] Advisory Agreements............................................. 1-9[D][2] Compensation....................................................... 1-9[D][3] Suitability .............................................................. 1-9[D][4] Custody ................................................................. 1-9[D][5] Proxy Voting........................................................ 1-10[E] Brokerage and Trading Pictures ............................... 1-10[E][1] Duty of Best Execution ....................................... 1-10[E][2] Soft Dollars ......................................................... 1-10[E][3] Trading ................................................................ 1-10[F] Interaction with Government Municipalities:

Pay to Play Practices ................................................ 1-11[G] Compliance ............................................................. 1-11

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[G][1] Record-Keeping Obligations ................................ 1-11[G][2] Compliance Program: Rule 206(4)-7 ................... 1-12[G][3] Insider Trading and Code of Ethics..................... 1-12[G][4] Privacy................................................................. 1-13[G][5] Business Continuity Planning............................. 1-13

§ 1:4 State Law........................................................................ 1-13§ 1:4.1 Overview of State Securities Regulation ................. 1-13

[A] State Uniformity...................................................... 1-14[A][1] Uniform Securities Acts ...................................... 1-14[A][2] North American Securities Administrators

Association, Inc.’s Model Laws ........................... 1-15[A][3] National Securities Markets Improvements

Act....................................................................... 1-15§ 1:4.2 State Regulation of State-Registered Advisers and

Their Personnel ....................................................... 1-15[A] Jurisdictional Issues................................................. 1-16[A][1] Definition of an Adviser Under State Law.......... 1-16[A][2] Which State’s Law Applies.................................. 1-16[A][2][a] Sorting Out Multiple State Regulation ............. 1-16[A][2][a][i] Relief for Advisers Registered in Multiple

States—Section 222 of the InvestmentAdvisers Act .................................................. 1-16

[A][2][a][ii] NASAA’s Initiative to Provide Relief toAdvisers Registered in Multiple States .......... 1-17

[B] Registration Issues................................................... 1-17[B][1] Registering the Adviser........................................ 1-18[B][1][a] De Minimis Exception from Registration......... 1-18[B][2] Registration of Advisory Personnel...................... 1-18[B][3] Registration of Branch Offices............................. 1-19[C] Substantive Regulation ............................................ 1-19[C][1] Conduct Regulation ............................................ 1-19[C][2] Net Capital Requirements................................... 1-19[C][3] Safekeeping of Assets .......................................... 1-20[C][3][a] Custody ............................................................ 1-20[C][3][b] Bonding Requirements...................................... 1-20[D] Record-Keeping Requirements and Inspections ....... 1-20[D][1] Record Keeping.................................................... 1-20[D][2] Inspections .......................................................... 1-21

§ 1:4.3 State Regulation of SEC-Registered Advisers andTheir Personnel ....................................................... 1-21

[A] Notice Filings by SEC-Registered Advisers .............. 1-21[B] Registration of Advisory Personnel .......................... 1-22[B][1] Exam Requirement.............................................. 1-22[B][1][a] State Uniformity............................................... 1-23[B][2] Application Process ............................................. 1-23

§ 1:4.4 Investment Adviser Registration Depository........... 1-24


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§ 1:5 The Investment Company Act of 1940 ..........................1-24§ 1:6 The Employee Retirement Income Security

Act of 1974......................................................................1-27§ 1:7 Financial Industry Regulatory Authority (FINRA)...........1-30§ 1:8 Private Associations.........................................................1-30§ 1:9 A Note About Citations ..................................................1-31

PART II: Advisers Status; SEC-State Jurisdiction

Chapter 2 Investment Adviser Status Questions

Clifford E. Kirsch & Issa J. Hanna

§ 2:1 Introduction ......................................................................2-2§ 2:2 Definition Under the Investment Advisers Act.................2-4

§ 2:2.1 “Engaging in the Business of Advising Others” ........2-5[A] Holding Out ...............................................................2-5[B] Special or Additional Compensation ..........................2-6[C] Specificity and Regularity of Investment Advice.........2-6[D] Advising Others ..........................................................2-7

§ 2:2.2 Providing Advisory Services Concerning Securities .....2-8[A] Concerning Securities.................................................2-8[B] Judgmental .................................................................2-9

§ 2:2.3 Advisory Services Provided for “Compensation” .....2-10§ 2:3 Entities Excluded from the Definition.............................2-11

§ 2:3.1 Banks and Bank Holding Companies ......................2-11[A] Banks and Bank Holding Companies That Act As

Advisers to a Registered Investment Company ........2-12§ 2:3.2 Lawyers, Accountants, Engineers, and Teachers ......2-12§ 2:3.3 Broker-Dealers ..........................................................2-14§ 2:3.4 Publishers and Authors ............................................2-14

[A] Generally ..................................................................2-14[B] Investment Website Operators..................................2-17

§ 2:3.5 U.S. Government Obligations..................................2-18§ 2:3.6 Family Offices...........................................................2-19§ 2:3.7 Parties Excluded by SEC Regulation or Order .........2-19

§ 2:4 Exemptions from Registration.........................................2-20§ 2:4.1 The Intrastate Exemption (Section 203(b)(1)) .........2-20§ 2:4.2 The Insurance Company Exemption

(Section 203(b)(2)) ....................................................2-21§ 2:4.3 Historical Note: The Defunct Private Investment

Adviser Exemption ...................................................2-21§ 2:4.4 Foreign Private Adviser Exemption

(Section 203(b)(3) and Rule 202(a)(30)-1) ..................2-24§ 2:4.5 Exemption for Small Business Investment

Company Advisers (Section 203(b)(7)) .....................2-26

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§ 2:4.6 Venture Capital Fund Adviser Exemption(Section 203(l) and Rule 203(l)-1) ........................... 2-26

§ 2:4.7 Small Private Fund Adviser Exemption .................. 2-28[A] Exemption Under the Investment Advisers Act

(Section 203(m) and Rule 203(m)-1) ....................... 2-28[B] NASAA’s Proposed Model Rule................................ 2-29

§ 2:4.8 Charitable Organization Exemption(Section 203(b)(4)) ................................................... 2-29

§ 2:4.9 Exemption for Commodity Trading Adviser(Section 203(b)(6)) ................................................... 2-29

§ 2:5 Specific Contexts ............................................................ 2-30§ 2:5.1 Financial Planners ................................................... 2-30§ 2:5.2 General Partner in a Limited Partnership............... 2-31§ 2:5.3 Affiliates of a Registered Investment Adviser ......... 2-32

[A] Insurance Companies .............................................. 2-33[B] The Richard Ellis No-Action Letter ......................... 2-35[C] Foreign Advisers ...................................................... 2-36[D] Special Purpose Vehicles .......................................... 2-38

§ 2:5.4 Real Estate Advisers to Pension Plans .................... 2-38§ 2:5.5 Financial Advisors to Municipal Issuers................. 2-39

[A] Municipal Advisor Rule ........................................... 2-42

Appendix 2A The Defunct Private Investment AdviserExemption..................................................... App. 2A-1

Chapter 2A Broker-Dealer Status Issues Under theAdvisers Act


§ 2A:1 Introduction—the Broker-Dealer Exclusion Under theAdvisers Act....................................................................2A-2

§ 2A:1.1 Elements of the Broker-Dealer Exclusion ...............2A-6[A] Solely Incidental ......................................................2A-6[A][1] 2005 Rulemaking—“Original”

Rule 202(a)(11)-1.................................................2A-7[A][1][a] Circumstances Under Which Services

Were Not Incidental Under “Original”Rule 202(a)(11)-1 ..............................................2A-7

[A][2] FPA Decision—Original Rule 202(a)(11)-1Vacated ................................................................2A-9

[A][3] 2007 Rulemaking—“New” ProposedRule 202(a)(11)-1.................................................2A-9

[B] Special Compensation ...........................................2A-10[B][1] 2005 Rulemaking—“Original”

Rule 202(a)(11)-1...............................................2A-12


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[B][2] FPA Decision.....................................................2A-12[B][3] 2007 Rulemaking—Proposed “New”

Rule 202(a)(11)-1...............................................2A-12§ 2A:1.2 Fee-Based Brokerage Programs ..............................2A-13§ 2A:1.3 Discount Brokerage Programs (Including

Electronic Trading Programs) ................................2A-14§ 2A:1.4 Dual Registrants....................................................2A-14§ 2A:1.5 Recent Regulatory Developments..........................2A-15

[A] The RAND Report.................................................2A-15[B] Calls for Harmonization of Broker-Dealer and

Adviser Regulation.................................................2A-16[B][1] Background........................................................2A-16[B][2] The 2009 Investor Protection Act.....................2A-17[B][2][a] Generally ........................................................2A-17[B][2][b] Broker-Dealer Fiduciary Duty .........................2A-17[B][2][c] Adviser Fiduciary Duty...................................2A-17[B][2][d] Compensation Practices .................................2A-18[B][2][e] SRO for Investment Advisers .........................2A-18[B][3] The House Proposal ..........................................2A-18[B][4] Senate Banking Committee Proposal ................2A-19[B][5] Dodd-Frank Wall Street Reform and

Consumer Protection Act of 2010 ....................2A-19[B][5][a] The SEC Study ...............................................2A-20[B][5][b] Review of Comments Submitted ....................2A-21[B][5][c] SEC Report .....................................................2A-22[B][6] Practical Implications to Consider—

Potential Harmonized Standard of Care ...........2A-26§ 2A:2 Registered Representatives............................................2A-27

§ 2A:2.1 Ability of Registered Representatives toRely on Broker-Dealer Exclusion...........................2A-27

§ 2A:2.2 Registered Representatives Engaging in theAdvisory Business..................................................2A-28

[A] Brokerage Firm Duty to SuperviseRepresentative Advisory Activity ...........................2A-28

Chapter 3 The Jurisdictional Divide Between theSEC and the States


§ 3:1 Introduction ..................................................................... 3-2§ 3:2 Determining Whether an Adviser Is Subject to

SEC Registration or State Registration ............................. 3-3§ 3:2.1 Buffer for Mid-Sized Advisers.................................... 3-7§ 3:2.2 The “Regulatory Assets Under Management”

Test ............................................................................ 3-7

(Inv. Adv. Reg., Rel. #11, 6/17)

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[A] Securities Portfolio..................................................... 3-7[B] Continuous and Regular Supervisory or

Management Services ................................................ 3-8§ 3:2.3 Advisers Exempt from the Prohibition on

SEC Registration ....................................................... 3-9[A] Pension Consultants; Affiliates of SEC Advisers;

and Newly Formed Advisers Expecting toBe Eligible for SEC Registration............................... 3-10

[B] Multi-State Investment Advisers ............................. 3-11[C] Internet Investment Advisers .................................. 3-11

§ 3:2.4 Annual Filing .......................................................... 3-12§ 3:3 What Authority Do States Have over SEC-Registered

Advisers?......................................................................... 3-12§ 3:4 What Authority Does the SEC Have with Respect to

State-Registered Advisers? .............................................. 3-13§ 3:5 To Which State Law Is a State-Registered Adviser

Subject? .......................................................................... 3-14§ 3:6 Are Individuals Working for SEC-Registered Advisers

Subject to State Regulation? ........................................... 3-15§ 3:6.1 Investment Adviser Representative ......................... 3-16

[A] Definition of Investment Adviser Representative .... 3-16[A][1] Supervised Person................................................ 3-16[A][2] The Ten-Percent Test .......................................... 3-16[B] Place of Business ..................................................... 3-17

§ 3:6.2 Solicitors to SEC-Registered Advisers ..................... 3-18§ 3:7 Are Individuals Who Work for State-Registered

Advisers Subject to State Regulation?............................. 3-19§ 3:8 Are Individuals Who Work for State-Registered

Advisers Subject to SEC Regulation?.............................. 3-19

PART III: Registration and Disclosure;Form of Organization

Chapter 4 Registration and Disclosure: The Form ADV

Clifford E. Kirsch

§ 4:1 Introduction ..................................................................... 4-2§ 4:2 ADV Part 1A .................................................................... 4-4

§ 4:2.1 Adviser Background Information (Items 1–4)........... 4-4§ 4:2.2 The Adviser ’s Business (Items 5–6).......................... 4-4

[A] Regulatory Assets Under Management...................... 4-5[B] Other Business Activities........................................... 4-5

§ 4:2.3 Financial Industry Affiliation and Private FundReporting (Item 7)..................................................... 4-5


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§ 4:2.4 Participation or Interest in Client Transactions(Item 8)...................................................................... 4-7

§ 4:2.5 Custody (Item 9) ....................................................... 4-7§ 4:2.6 Persons Controlling the Adviser (Item 10) ............... 4-8§ 4:2.7 Disciplinary History (Item 11).................................. 4-9§ 4:2.8 Small Business (Item 12) .......................................... 4-9

§ 4:3 Form ADV Part 1B: State-Registered Advisers.................. 4-9§ 4:4 Client Disclosure: Form ADV Part 2................................ 4-9

§ 4:4.1 Part 2A: The Brochure ............................................ 4-10[A] Item 1: Cover Page .................................................. 4-10[B] Item 2: Material Changes........................................ 4-10[C] Item 3: Table of Contents........................................ 4-10[D] Item 4: Advisory Business ....................................... 4-10[E] Item 5: Fees and Compensation.............................. 4-11[F] Item 6: Performance-Based Fees and

Side-by-Side Management........................................ 4-12[G] Item 7: Types of Clients .......................................... 4-12[H] Item 8: Methods of Analysis, Investment

Strategies and Risk of Loss ...................................... 4-12[I] Item 9: Disciplinary Information ............................ 4-12[J] Item 10: Other Financial Industry Activities

and Affiliations ........................................................ 4-12[K] Item 11: Code of Ethics, Participation or

Interest in Client Transactions andPersonal Trading ...................................................... 4-13

[L] Item 12: Brokerage Practices ................................... 4-13[M] Item 13: Review of Accounts................................... 4-13[N] Item 14: Client Referrals and Other

Compensation ......................................................... 4-14[O] Item 15: Custody..................................................... 4-14[P] Item 16: Investment Discretion .............................. 4-14[Q] Item 17: Voting Client Securities ............................ 4-14[R] Item 18: Financial Information............................... 4-14[S] Item 19: Requirements for State-Registered

Advisers ................................................................... 4-15§ 4:4.2 Part 2A: Appendix 1—The Wrap-Fee

Program Brochure.................................................... 4-15§ 4:4.3 Part 2B: The Brochure Supplement ........................ 4-15

[A] Generally ................................................................. 4-15[B] Covered Advisory Personnel .................................... 4-16[C] Required Items......................................................... 4-16

§ 4:4.4 Delivery Requirements ............................................ 4-17[A] Brochure .................................................................. 4-17[A][1] Initial Delivery .................................................... 4-17[A][2] Annual Delivery .................................................. 4-18

(Inv. Adv. Reg., Rel. #11, 6/17)

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[A][3] Interim Delivery.................................................. 4-18[A][4] Flexibility Provided with Respect to

Sub-Advisory Programs ....................................... 4-19[B] Brochure Supplement .............................................. 4-19

§ 4:5 Financial and Disciplinary Information ......................... 4-20§ 4:5.1 2010 Amendments.................................................. 4-20§ 4:5.2 Prior to the 2010 ADV Amendments:

Rule 206(4)-4........................................................... 4-20§ 4:6 SEC Approval of the Adviser ’s Form ADV..................... 4-21§ 4:7 Duty to Maintain Current Form ADV........................... 4-22§ 4:8 Termination of Registration ........................................... 4-23§ 4:9 Electronic Filing Requirement—The Investment

Adviser Registration Depository ..................................... 4-24

Chapter 4A Form of Organization

Bibb L. Strench

§ 4A:1 Introduction ..................................................................4A-2§ 4A:2 Whether to Form a Legal Entity....................................4A-2

§ 4A:2.1 Sole Proprietorship ..................................................4A-2[A] Advantages of a Sole Proprietorship ........................4A-3[B] Disadvantages of a Sole Proprietorship....................4A-3

§ 4A:2.2 Legal Entity .............................................................4A-3§ 4A:3 Types of Legal Entities...................................................4A-4

§ 4A:3.1 Corporation .............................................................4A-4[A] C Corporation .........................................................4A-4[A][1] Advantages of a C Corporation...........................4A-4[A][2] Disadvantages of a C Corporation ......................4A-5[B] S Corporation ..........................................................4A-5[B][1] Advantages of an S Corporation..........................4A-5[B][2] Disadvantages of an S Corporation.....................4A-5[C] Shareholder Liability................................................4A-6

§ 4A:3.2 Limited Liability Company .....................................4A-6§ 4A:3.3 Partnership...............................................................4A-7

[A] General Partnership versus Limited Partnership .....4A-7[B] Limited Liability Partnership ...................................4A-8

§ 4A:3.4 Business Trust .........................................................4A-9§ 4A:4 Selecting the Form of Entity..........................................4A-9

§ 4A:4.1 Choosing the Best Form of Entity ..........................4A-9§ 4A:4.2 Number of Entities................................................4A-10

§ 4A:5 Naming the Business ..................................................4A-11§ 4A:5.1 Name Availability..................................................4A-11§ 4A:5.2 Reserving the Name ..............................................4A-12

§ 4A:6 Where to Form the Entity ...........................................4A-12§ 4A:6.1 Advantages of Home State ....................................4A-13§ 4A:6.2 Advantages of Delaware ........................................4A-13


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§ 4A:6.3 Organizing the Entity in a State OtherThan Its Location .................................................4A-13

§ 4A:7 Setting Up the Entity ..................................................4A-14§ 4A:7.1 Setting Up a Corporation .....................................4A-14§ 4A:7.2 Setting Up an LLC................................................4A-15§ 4A:7.3 Setting Up a Partnership.......................................4A-15§ 4A:7.4 Setting Up a Business Trust .................................4A-16

§ 4A:8 Employer Identification Number.................................4A-16§ 4A:9 Governing Agreement .................................................4A-16§ 4A:10 Business Formalities....................................................4A-17§ 4A:11 Other Considerations ..................................................4A-18

PART IV: Attracting Clients

Chapter 5 Referrals

Clifford E. Kirsch

§ 5:1 Introduction ..................................................................... 5-2§ 5:2 Rule 206(4)-3.................................................................... 5-2

§ 5:2.1 Scope of the Rule ...................................................... 5-2[A] Generally ................................................................... 5-2[B] Solicitor versus Adviser ............................................. 5-3[C] What Is Solicitation Activity?.................................... 5-4[C][1] Generally ............................................................... 5-4[C][2] Collective Investment Vehicles ............................. 5-4[D] When Is a Fee Deemed to Be Paid to Cover

Solicitation Activity?.................................................. 5-5§ 5:2.2 Qualification Requirements....................................... 5-5§ 5:2.3 Written Agreement Requirement............................... 5-6§ 5:2.4 Disclosure and Other Additional Requirements ....... 5-6

[A] Generally ................................................................... 5-6[B] Third-Party Solicitation Arrangements...................... 5-7[C] Affiliated Solicitors .................................................... 5-8[D] Impersonal Advisory Services .................................... 5-8

§ 5:3 Status of the Solicitor ....................................................... 5-8§ 5:3.1 Registration Under the Investment Advisers Act ..... 5-8§ 5:3.2 Registration and Licensing Under State Law............ 5-9

[A] Solicitor to an SEC-Registered Adviser ...................... 5-9[B] Solicitor to a State-Registered Adviser ....................... 5-9

§ 5:4 Duty to Supervise Solicitation Activity .......................... 5-10

(Inv. Adv. Reg., Rel. #11, 6/17)

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Chapter 6 Advertising by Investment Advisers

Clifford E. Kirsch

§ 6:1 Introduction ..................................................................... 6-2§ 6:2 Investment Advisers Act Rule 206(4)-1............................ 6-2

§ 6:2.1 Definition of “Advertisement”................................... 6-2§ 6:2.2 The Rule’s Framework .............................................. 6-4§ 6:2.3 Testimonials .............................................................. 6-5§ 6:2.4 Past Specific Recommendations ................................ 6-7

[A] SEC Staff Interpretative Positions.............................. 6-7§ 6:2.5 Automatic Selection Devices..................................... 6-9§ 6:2.6 Free Services .............................................................. 6-9§ 6:2.7 Catchall Category...................................................... 6-9

§ 6:3 Performance Advertising................................................... 6-9§ 6:3.1 Public Communications of Model Performance..... 6-11§ 6:3.2 Public Communications of Actual Performance..... 6-12

[A] Which of the Adviser ’s Accounts Must BeIncluded in Determining Actual Performance......... 6-12

[B] Conditions Imposed on Actual Performance........... 6-13§ 6:3.3 One-on-One Presentations of Model and

Actual Performance ................................................. 6-14§ 6:4 SEC Enforcement Focus on Misleading

Advertisements............................................................... 6-15§ 6:5 Investment Company Advertising.................................. 6-17

§ 6:5.1 Rule 482 Advertisements ........................................ 6-18§ 6:5.2 Generic Advertisements .......................................... 6-18§ 6:5.3 Supplemental Sales Literature ................................. 6-18§ 6:5.4 NASD Rules ............................................................ 6-18

Chapter 7 Practical Considerations for PerformanceAdvertising by Advisers

Michael S. Caccese

§ 7:1 Introduction ..................................................................... 7-2§ 7:2 Performance Advertising................................................... 7-4

§ 7:2.1 General Requirements ............................................... 7-4§ 7:2.2 Model Performance ................................................... 7-6§ 7:2.3 Hypothetical Backtested Performance ....................... 7-8§ 7:2.4 Gross-of-Fee and Net-of-Fee Performance............... 7-10

[A] Net-of-Fee Performance ........................................... 7-10[B] Gross-of-Fee Performance ........................................ 7-11[B][1] One-on-One Presentations.................................. 7-11[B][2] Consultants......................................................... 7-11[B][3] Side-by-Side Gross and Net-of-Fee Performance .....7-12

§ 7:2.5 Model Fees .............................................................. 7-12


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§ 7:2.6 Portability ................................................................ 7-13§ 7:2.7 Record-Keeping ........................................................ 7-15§ 7:2.8 Advertising Policies and Procedures........................ 7-18§ 7:2.9 Recent SEC Focus on Performance ......................... 7-20

§ 7:3 Global Investment Performance Standards (GIPS®)...... 7-24§ 7:3.1 General Background ................................................ 7-25

[A] Overview of the Standards....................................... 7-25[B] Interpretation of the Standards................................ 7-26[C] Enforcement of the Standards ................................. 7-27

§ 7:3.2 Fundamentals of Compliance ................................. 7-28[A] Definition of the Firm ............................................. 7-29[A][1] General Guidelines ............................................. 7-29[A][2] Redefinition of the Firm...................................... 7-30[A][3] Total Firm Assets ................................................ 7-31[A][4] Alternative Investment Valuation ....................... 7-32[A][5] Sub-Advisors........................................................ 7-33[B] GIPS Policies and Procedures .................................. 7-34[C] Claim of Compliance .............................................. 7-34[C][1] Notification Requirement.................................... 7-35[D] Firm Fundamental Responsibilities ......................... 7-36

§ 7:3.3 Input Data............................................................... 7-38§ 7:3.4 Calculation Methodology ........................................ 7-39§ 7:3.5 Constructing Composites........................................ 7-41

[A] Carve-Outs .............................................................. 7-45[A][1] General Requirements......................................... 7-45[A][2] Cash Allocation Requirements............................ 7-47[A][3] Required Disclosures ........................................... 7-48[B] Side Pockets ............................................................. 7-48

§ 7:3.6 Disclosures .............................................................. 7-50[A] Current Disclosure Requirements ........................... 7-50[B] Proposed Guidance Regarding Pooled Funds ........... 7-53

§ 7:3.7 Presentation and Reporting ..................................... 7-54[A] Performance Record Portability................................ 7-56[B] Supplemental Information....................................... 7-60

§ 7:3.8 Advertising Guidelines ............................................ 7-62§ 7:3.9 Verification .............................................................. 7-64

PART V: The Adviser-Client Relationship

Chapter 8 An Investment Adviser’s Fiduciary Duty

Lorna A. Schnase

§ 8:1 Introduction ..................................................................... 8-2§ 8:2 Fundamental Nature of the Adviser-Client Relationship....8-2

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 8:3 Legal Basis for An Adviser ’s Fiduciary Duties.................. 8-3§ 8:3.1 Common Law............................................................ 8-3§ 8:3.2 Federal Statutory Law................................................ 8-4

[A] Investment Advisers Act Section 206........................ 8-4[B] Dodd-Frank Act ...........................................................8-7[B][1] Advisers ................................................................. 8-7[B][2] Municipal Advisors ............................................... 8-7

§ 8:3.3 Other Provisions Impacting an Adviser ’sFiduciary Duty........................................................... 8-9

[A] Investment Company Act Sections 36(a) and36(b) ........................................................................ 8-10

[B] State Blue Sky Laws................................................. 8-11[C] ERISA ...................................................................... 8-12[D] Broker-Dealer Laws.................................................. 8-13

§ 8:4 Basic Fiduciary Duties an Adviser Owes to Its Clients..... 8-14§ 8:5 How the Basic Fiduciary Duties Apply to a

Particular Adviser ..............................................................8-15§ 8:6 Altering or Waiving an Adviser ’s Fiduciary Duties ........ 8-16§ 8:7 Specific Examples of an Adviser ’s Fiduciary Duties ....... 8-19

§ 8:7.1 Duty of Care ........................................................... 8-20§ 8:7.2 Duty of Loyalty ....................................................... 8-24§ 8:7.3 Duty of Obedience .................................................. 8-33§ 8:7.4 Duty to Act in Good Faith ..................................... 8-34§ 8:7.5 Duty of Disclosure .................................................. 8-36

§ 8:8 Emerging Fiduciary Issues .............................................. 8-37§ 8:8.1 Duty to Oversee Sub-Advisers and Other Service

Providers ....................................................................8-38§ 8:8.2 Duty to Vote Proxies............................................... 8-40§ 8:8.3 Duty to Assess a Client’s Mental Competence...... 8-42§ 8:8.4 Duty to Protect Client Assets from Business

Disruptions.............................................................. 8-45§ 8:8.5 Robo-Advisers and Fiduciary Duty.......................... 8-47

§ 8:9 Standard of Conduct Applicable to an Adviser ’sFiduciary Duty................................................................ 8-49

§ 8:9.1 Negligence Versus Gross Negligence....................... 8-49§ 8:9.2 State of Mind; Scienter; Willfulness ....................... 8-54

§ 8:10 Ensuring Discharge of an Adviser ’s Fiduciary Duty .........8-56§ 8:10.1 Policies and Procedures Addressing Fiduciary

Duties ........................................................................8-56§ 8:10.2 Training of Personnel on Fiduciary Duty ............... 8-57

Appendix 8A Sample Training Module: HypotheticalFiduciary Duty Scenarios.............................. App. 8A-1


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Chapter 8A Broker-Dealer and Adviser UniformStandard of Care

Clifford E. Kirsch

§ 8A:1 Introduction ...................................................................8A-2§ 8A:2 Chronology—Regulatory Response to Convergence of

Broker-Dealer and Advisory Services ..............................8A-2§ 8A:3 Standard of Care Imposed Under the Current

Regulatory Structure .................................................. 8A-5§ 8A:4 Treatment of Broker-Dealers Under the Investment

Advisers Act ..................................................................8A-7§ 8A:4.1 Generally .................................................................8A-7§ 8A:4.2 RAND Report ..........................................................8A-7

§ 8A:5 Harmonizing the Broker-Dealer and InvestmentAdviser Standard of Care................................................8A-8

§ 8A:6 Legislative Proposals.......................................................8A-9§ 8A:6.1 Investor Protection Act of 2009..............................8A-9§ 8A:6.2 House Proposal......................................................8A-10§ 8A:6.3 Senate Banking Committee Proposal....................8A-11§ 8A:6.4 Dodd-Frank Wall Street Reform and Consumer

Protection Act of 2010..........................................8A-11[A] The SEC Study ......................................................8A-14[B] SEC’s Request for Cost/Benefit Data.....................8A-17[B][1] Assumptions About a Possible Uniform

Fiduciary Standard.............................................. 8A-18[B][2] Possible Uniform Fiduciary Standard................8A-19[B][3] Possible Alternatives to a Uniform Standard ....8A-20[B][4] Key Industry Concerns......................................8A-20[B][5] Information About Changes Made in

Response to 2007 Wrap Fee AccountRule Case ..........................................................8A-21

[B][6] Information About Further RegulatoryHarmonization..................................................8A-21

§ 8A:7 Practical Implications to Consider ...............................8A-22§ 8A:8 SEC Activity: 2013–2016 .............................................8A-23§ 8A:9 Other Initiatives ...........................................................8A-24

§ 8A:9.1 Separate Department of Labor ProposedRule—Definition of the Term “Fiduciary” ............8A-24

§ 8A:9.2 The GAO’s Financial Planner Study ....................8A-25

Chapter 9 The Advisory Contract

Clifford E. Kirsch

§ 9:1 Introduction ..................................................................... 9-1§ 9:2 Fees................................................................................... 9-2

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 9:3 Scope of Services .............................................................. 9-3§ 9:4 Conflicts of Interest.......................................................... 9-4§ 9:5 Administrative Issues ....................................................... 9-4§ 9:6 Liability ............................................................................ 9-5§ 9:7 Controversies and Dispute Resolution ............................. 9-5§ 9:8 Representations and Acknowledgments ........................... 9-7§ 9:9 Terminating, Assigning, and Amending........................... 9-7

Chapter 10 Investment Adviser Compensation

Clifford E. Kirsch

§ 10:1 Introduction ................................................................... 10-2§ 10:2 Disclosure Requirements Under the Investment

Advisers Act.................................................................... 10-3§ 10:3 SEC Staff Positions......................................................... 10-3

§ 10:3.1 Reasonableness of the Fee Amount ........................ 10-4§ 10:3.2 Percentage Guidelines ............................................. 10-4§ 10:3.3 Fees Received in Connection with Affiliated

Mutual Funds.......................................................... 10-4§ 10:4 Imposition of Fees Upon the Termination of

an Advisory Relationship................................................ 10-5§ 10:5 Performance Fees............................................................ 10-6

§ 10:5.1 Relevant Statutory and Rule Language ................... 10-7§ 10:5.2 Types of Compensation Arrangements Falling

Within Performance Fee Prohibition..................... 10-16[A] Direct Incentive Fees ............................................. 10-16[B] Contingent Fee Arrangements............................... 10-16[B][1] Advisory Fee Refunds and Rebates .................... 10-17[C] Mutual Fund Fee Arrangements ............................ 10-18

§ 10:5.3 Exceptions.............................................................. 10-18[A] Exception for Asset-Based Fees .............................. 10-18[B] Exception for Fulcrum Fees ................................... 10-19[B][1] Appropriateness of Index................................... 10-20[B][2] Period over Which Performance Is Measured......10-21[C] Rule 205-3 Exception for Wealthy Clients............. 10-21[C][1] 1998 Amendments............................................ 10-22[C][2] Threshold Adjustments..................................... 10-23[C][2][a] 2016 Threshold Adjustment .......................... 10-24[C][3] Look-Through Provision.................................... 10-25[C][4] Rule 205-3 Applicability to Collective Trust

Funds and Insurance Company SeparateAccounts Under Investment Company ActSection 3(c)(11) ................................................. 10-25

[D] Qualified Purchaser Fund ...................................... 10-26[E] Foreign Clients ...................................................... 10-26


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§ 10:6 Performance Fees Under ERISA ................................... 10-26§ 10:7 Performance Fees: Dually Registered Broker-Dealers/

Investment Advisers ..................................................... 10-27

Chapter 11 Custody and Protection of Customer Accounts

Clifford E. Kirsch

§ 11:1 Introduction ................................................................... 11-3§ 11:2 Text of Investment Advisers Act Rule 206(4)-2.............. 11-4§ 11:3 Definition of Terms...................................................... 11-11

§ 11:3.1 Custody ................................................................. 11-11§ 11:3.2 Independent Representative................................... 11-12§ 11:3.3 Operational Independence..................................... 11-12§ 11:3.4 Qualified Custodian .............................................. 11-13

§ 11:4 Arrangements Where an Adviser Has Custody ............ 11-13§ 11:4.1 Determining Custody Prior to the 2003 and 2010

Amendments to Rule 206(4)-2.................................11-13[A] Automatic Deduction of Advisory Fees ................. 11-14[B] Affiliates ................................................................ 11-14

§ 11:4.2 Current Definition of “Custody” (As DefinedUnder the 2003 and 2010 Amendments) ............ 11-15

[A] Possession of Client Funds or Securities ............... 11-15[A][1] Assets That Are Not Funds or Securities.......... 11-16[A][2] No Compensation Received by Adviser ............ 11-17[B] Authority to Withdraw Funds or Securities

Maintained with a Custodian ............................... 11-17[B][1] Automatic Deduction of Advisory Fees ............. 11-17[C] Legal Ownership—Pooled Investment

Vehicles and Trusts................................................ 11-17[D] Affiliates of the Adviser ......................................... 11-18[E] Common Scenarios ............................................... 11-18

§ 11:5 Rule 206(4)-2 Controls................................................. 11-20§ 11:5.1 Requirements Prior to the 2003 Amendments ........11-20§ 11:5.2 Current Requirements (Requirements Imposed

Pursuant to the 2003 and 2010 Amendments) .......11-21[A] Assets Must Be Held by a Qualified Custodian .... 11-22[A][1] Exception for Mutual Fund Shares Purchased

Directly from Transfer Agent...............................11-22[A][2] Privately Offered Securities ............................... 11-22[A][2][a] Private Stock Certificates................................ 11-23[B] Notice .................................................................... 11-24[C] Delivery of Account Statements to Clients ........... 11-24[D] Surprise Audit Requirement .................................. 11-24[D][1] Hiring of an Independent Public Accountant......11-25[D][2] Contents of Written Agreement with

an Independent Public Accountant ................... 11-25

(Inv. Adv. Reg., Rel. #11, 6/17)

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[D][3] Conducting the Surprise Examination .............. 11-26[E] Internal Control Report ......................................... 11-26[E][1] Form of the Internal Control Report................. 11-27[F] Exceptions.............................................................. 11-28[F][1] Advisers to Limited Partnerships ...................... 11-28[F][2] Advisers to Registered Investment

Companies ........................................................ 11-28§ 11:5.3 Treatment of Dually Registered Investment

Advisers/Broker-Dealers Under the Rule ............... 11-28§ 11:6 Custody of Mutual Fund Assets................................... 11-29§ 11:7 Custody As an SEC Exam Focus.................................. 11-30§ 11:8 GAO 2013 Study Costs Associated with the

Custody Rule ................................................................ 11-30

Chapter 12 Investment Restrictions

Clifford E. Kirsch

§ 12:1 Introduction ................................................................... 12-1§ 12:2 Establishment of Investor Guidelines ............................ 12-2

§ 12:2.1 Generally ................................................................. 12-2§ 12:2.2 Enforcement Actions .............................................. 12-3

§ 12:3 Suitability Under the Advisers Act ................................. 12-4§ 12:3.1 Generally ................................................................. 12-4§ 12:3.2 Proposed Adviser Suitability Rule ........................... 12-5§ 12:3.3 Churning ................................................................. 12-6

§ 12:4 Investment Restrictions Under the InvestmentCompany Act ................................................................. 12-6

§ 12:4.1 Generally ................................................................. 12-6§ 12:4.2 Investments in Other Investment Companies ....... 12-7§ 12:4.3 Investing in Securities-Related Business ................. 12-9§ 12:4.4 Liquidity ................................................................ 12-10§ 12:4.5 Diversification Requirements ................................ 12-11§ 12:4.6 Leveraged Investments .......................................... 12-11

§ 12:5 ERISA ........................................................................... 12-12

Chapter 13 Proxy Voting

Clifford E. Kirsch

§ 13:1 Introduction ................................................................... 13-2§ 13:2 Requirements Under the Advisers Act: Rule 206(4)-6 .... 13-3

§ 13:2.1 Written Policies and Procedures.............................. 13-4§ 13:2.2 Disclosures to Clients About How to Obtain

Voting Information.................................................. 13-6§ 13:2.3 Describe Policies and Procedures ............................ 13-6§ 13:2.4 Record Keeping ........................................................ 13-6


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§ 13:3 Requirements Under the Investment Company Act ...... 13-6§ 13:3.1 Funds Covered Under the Rules ............................. 13-6§ 13:3.2 Disclosure of Proxy Voting Policies and

Procedures................................................................ 13-7[A] Whose Policies and Procedures Are Required

to Be Disclosed? ...................................................... 13-7[B] What Type of Disclosure Is Required About the

Policies and Procedures? .......................................... 13-7§ 13:3.3 Disclosure of Actual Voting Records....................... 13-8

[A] Mechanism for Disclosing Voting Record to SEC......13-9[B] Mechanism for Disclosing Voting Record

to Shareholders ........................................................ 13-9§ 13:4 DOL Interpretive Bulletin 94-2 .................................... 13-10

Chapter 14 Privacy of Client Financial Information:An Overview

Clifford E. Kirsch

§ 14:1 Introduction ................................................................... 14-2§ 14:2 Scope of Coverage........................................................... 14-2

§ 14:2.1 Which Advisers Are Subject to Regulation S-P?..... 14-2§ 14:2.2 What Type of Information Is Covered? .................. 14-3

[A] Personally Identifiable Financial Information.......... 14-3§ 14:2.3 Which Advisory Clients Are Covered? ................... 14-3

[A] Individuals ............................................................... 14-3[B] Application to Institutions ...................................... 14-4

§ 14:3 Privacy and Opt-Out Notices ......................................... 14-4§ 14:3.1 Requirement to Provide Initial Privacy Notice ....... 14-4

[A] Who Is a Consumer?............................................... 14-4[B] Who Is a Customer?................................................ 14-4

§ 14:3.2 Requirement to Provide Annual PrivacyNotice to Customer ................................................ 14-5

§ 14:3.3 Requirement to Provide Revised Notice.................. 14-5§ 14:3.4 Information Required to Be Included in

Privacy Notices ........................................................ 14-5§ 14:3.5 Manner of Delivery ................................................. 14-6

§ 14:4 Opt-Out Requirements................................................... 14-6§ 14:4.1 Form of Opt-Out Notice ......................................... 14-7§ 14:4.2 Exercising the Right to Opt Out ............................ 14-7

§ 14:5 Exceptions ...................................................................... 14-7§ 14:6 Required Procedures ....................................................... 14-8

§ 14:6.1 Safeguard Rule ......................................................... 14-8§ 14:6.2 Proper Disposal of Consumer Information ............ 14-9§ 14:6.3 2008 Rulemaking Proposal ..................................... 14-9

§ 14:7 Regulation S-AM .......................................................... 14-10

(Inv. Adv. Reg., Rel. #11, 6/17)

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Chapter 15 Practical Implications Regarding theSafeguarding of Customer Information

Andrew C. Small, David E. Rosedahl & Keith Loveland

§ 15:1 Introduction ................................................................... 15-3§ 15:2 SEC Regulation S-P Safeguards Rule .............................. 15-7

§ 15:2.1 Information Security Programs (ISPs) ..................... 15-9[A] Generally ................................................................. 15-9[B] Internal and External Risk Assessment................. 15-10[C] Developing Safeguarding Policies........................... 15-11[D] Additional ISP Safeguards...................................... 15-13

§ 15:2.2 Responding to Unauthorized Access or Use ofPersonal Information............................................. 15-14

§ 15:2.3 Disposal of Personal Information ......................... 15-14§ 15:2.4 Record-Keeping ...................................................... 15-15§ 15:2.5 Additional Exception to Notice and Opt-Out

Requirements—Limited Information DisclosureWhen Personnel Leave Their Firms ..................... 15-15

§ 15:2.6 Status of Rule Making .......................................... 15-17§ 15:3 FINRA Guidance .......................................................... 15-17

§ 15:3.1 Registered Representatives Changing Firms:Regulatory Notice 07-36 ....................................... 15-17

§ 15:3.2 FINRA Rules: Information EncryptionRequirements: FINRA Rule 8210 ......................... 15-18

§ 15:3.3 FINRA Rules: Business Continuity Plan:FINRA Rule 4370.................................................. 15-19

§ 15:4 Investigations and Enforcement ................................... 15-19§ 15:4.1 Improper Recruiting Practices ............................... 15-20

[A] NEXT Financial Group, Inc. ................................. 15-20[B] Woodbury Financial Services, Inc. ......................... 15-22

§ 15:4.2 Unsecure Disposal of Client Records:J.P. Turner & Company, LLC................................ 15-22

§ 15:4.3 Insufficient Antivirus Protection:Commonwealth Equity Services, LLP ................... 15-23

§ 15:4.4 Fraudulent Use of Client information .................. 15-23[A] Sale of Information: SEC v.

Mondschein & UNCI, Inc. .................................... 15-23[B] Fraudulent Use of Information:

Merriman Curhan Ford & Co. .............................. 15-24[C] Improper Sharing of Confidential Customer

Information—Tomlinson....................................... 15-25§ 15:4.5 Inadequate Server and Web Portal Security .......... 15-26

[A] No Written Supervisory Procedures—LPLFinancial Corp. ...................................................... 15-26

[B] Open Web Portal Access—D.A. Davidson & Co. ....15-27


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[C] Weak Access Controls—Lincoln FinancialSecurities Inc. ........................................................ 15-27

[D] Inadequate Firewall and PasswordProtection—Centaurus Financial........................... 15-28

[E] Failure to Encrypt Laptop—Sterne, Agee & Leach....15-28§ 15:4.6 Supervisors/Executives Accountable—GunnAllen

Financial ................................................................ 15-28§ 15:4.7 Transmitting Information to Non-Affiliates—

Jeffrey N. Lombardi ............................................... 15-29§ 15:4.8 Failure to Safeguard Hard Copy Records—

Hernan Chassy, Jr. ................................................ 15-29§ 15:4.9 Failure to Update Written Supervisory

Procedures—Patrick Walker ................................... 15-30§ 15:5 Red Flags Rules—Identity Theft Prevention

Programs (Reg S-ID) ..................................................... 15-30§ 15:6 States’ Efforts to Safeguard Customer Information...... 15-32

§ 15:6.1 Breach Notice Statutes .......................................... 15-32§ 15:6.2 Security Freeze Laws ............................................. 15-33§ 15:6.3 Social Security Number Protection Laws.............. 15-33§ 15:6.4 Disposal of Personal Information Laws................ 15-34§ 15:6.5 Encryption Statutes/Rules...................................... 15-34

§ 15:7 Implementing Policies and Procedures......................... 15-35§ 15:8 Customer Self-Protection of Data ................................ 15-36§ 15:9 Safeguarding Examinations .......................................... 15-38§ 15:10 Cybersecurity................................................................ 15-39

§ 15:10.1 OCIE Cybersecurity Initiative ............................... 15-40§ 15:10.2 Cybersecurity Frameworks .................................... 15-40

[A] NIST Framework................................................... 15-40[B] ISO/IEC 27002 Standard ....................................... 15-41[C] SANS 20 Critical Security Controls ...................... 15-42

§ 15:10.3 Cybersecurity Litigation Lessons........................... 15-43[A] Eli Lilly .................................................................. 15-44[B] BJ’s Wholesale ....................................................... 15-44

§ 15:10.4 Additional Cybersecurity Resources ...................... 15-45§ 15:11 Conclusion ................................................................... 15-45

Chapter 15A New Client Relationships

Heather Traeger

§ 15A:1 Introduction ................................................................15A-3§ 15A:2 Solicitation of New Clients .........................................15A-3

§ 15A:2.1 Rule 206(4)-3: Cash Solicitation Rule...................15A-4§ 15A:2.2 Permissible Use of Solicitors.................................15A-4§ 15A:2.3 Disclosure Requirements.......................................15A-6

[A] Impersonal Advisory Services ................................15A-6

(Inv. Adv. Reg., Rel. #11, 6/17)

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[B] Solicitor Affiliates ..................................................15A-6[C] Third Parties..........................................................15A-7

§ 15A:2.4 Application in Certain Unique Circumstances....... 15A-7§ 15A:2.5 Books and Records ................................................15A-8§ 15A:2.6 Enforcement ..........................................................15A-8§ 15A:2.7 Other Regulations Impacting Solicitors ................15A-8

§ 15A:3 Political Contributions by Certain InvestmentAdvisers: “Pay-to-Play” ................................................15A-9

§ 15A:3.1 Rule 206(4)-5: The “Pay-to-Play” Rule .................15A-9[A] Prohibited Contributions.....................................15A-10[B] Payments to Third Parties ...................................15A-11[C] Prohibited Solicitation and Coordination............15A-12

§ 15A:3.2 Exceptions and Exemptive Relief ........................15A-13§ 15A:3.3 Books and Records ..............................................15A-14§ 15A:3.4 State and Municipal Regulation..........................15A-14§ 15A:3.5 CFTC Regulation ................................................15A-15§ 15A:3.6 Enforcement ........................................................15A-15

§ 15A:4 Rule 204-3: The Brochure Rule .................................15A-16§ 15A:4.1 Required Information ..........................................15A-17

[A] Initial Delivery Requirements..............................15A-17[B] Information to be Delivered Annually.................15A-18

§ 15A:4.2 Exceptions to Delivery Requirements .................15A-18§ 15A:4.3 Electronic Delivery ..............................................15A-19§ 15A:4.4 Books and Records ..............................................15A-19

§ 15A:5 CFTC Disclosure Obligations ...................................15A-19§ 15A:5.1 CPO Disclosures .................................................15A-19§ 15A:5.2 Exemptions from Disclosures .............................15A-20§ 15A:5.3 CTA Disclosures..................................................15A-21§ 15A:5.4 Exemptions from Disclosures .............................15A-21

§ 15A:6 Privacy of Client Information....................................15A-22§ 15A:6.1 Privacy Rules: Regulation S-P .............................15A-22

[A] Overview of Regulation S-P .................................15A-22[B] Consumer Versus Customer................................15A-23[C] Notice and Opt-Out Rules...................................15A-24[D] Content Requirements.........................................15A-25[E] Delivery Requirements ........................................15A-26[F] Model Privacy Form ............................................15A-27[G] Safeguard Rule .....................................................15A-28[H] Disposal Rule.......................................................15A-28[I] Enforcement ........................................................15A-29

§ 15A:6.2 Affiliate Marketing: Regulation S-AM.................15A-30§ 15A:6.3 Identity Theft Rules: Red Flags Rules.................15A-31

[A] Overview of the Red Flags Rules..........................15A-31[B] Financial Institutions and Creditors ...................15A-32[C] Application to Investment Advisers.....................15A-32[D] Covered Accounts................................................15A-33


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§ 15A:6.4 Compliance Obligations......................................15A-34[A] Elements of a Program ........................................15A-34[B] Administration of a Program...............................15A-35[C] Guidelines for a Program.....................................15A-36

§ 15A:7 Investment Advisory Contracts .................................15A-36§ 15A:7.1 Section 205(a) and Rule 202(a)(1)-1:

The Advisory Contract........................................15A-36§ 15A:7.2 Restrictions on Compensation............................15A-38

[A] General ................................................................15A-38[B] Exceptions............................................................15A-38[C] Indemnification Provisions..................................15A-40

§ 15A:7.3 Suggested Provisions............................................15A-40§ 15A:7.4 Side Letters ..........................................................15A-41

[A] Conflicts of Interest.............................................15A-41[B] Disclosure............................................................15A-42

§ 15A:8 Voting Proxies............................................................15A-43§ 15A:8.1 Rule 206(4)-6: Proxy Voting ................................15A-43§ 15A:8.2 Books and Records ..............................................15A-44

§ 15A:9 Fiduciary Obligations ................................................15A-45§ 15A:9.1 Generally ............................................................15A-45

[A] Conflicts of Interest............................................15A-46[B] Principal or Agency Transactions .......................15A-47[C] Directed Brokerage Arrangements ......................15A-49

§ 15A:10 Rule 206(4)-2: Custody of Client Accounts...............15A-50§ 15A:10.1 Surprise Examination Requirement ...................15A-52§ 15A:10.2 Heightened Requirements for Affiliate

Custodians..........................................................15A-52§ 15A:10.3 Exceptions...........................................................15A-53§ 15A:10.4 Recordkeeping and Compliance Procedures.......15A-54§ 15A:10.5 Enforcement .......................................................15A-55

§ 15A:11 ERISA Considerations ...............................................15A-56§ 15A:11.1 Exemptions.........................................................15A-56

[A] “25 Percent Test” ................................................15A-56[B] Other Exemptions ..............................................15A-57

§ 15A:11.2 Operating as an ERISA Fund.............................15A-57§ 15A:12 Anti-Money Laundering ............................................15A-58

§ 15A:12.1 Bank Secrecy Act................................................15A-58§ 15A:12.2 Criminal Money Laundering Laws ....................15A-60§ 15A:12.3 Best Practices: Optional AML Programs............15A-60

[A] Customer Identification Program .......................15A-61[B] Subscription Agreement Representations ...........15A-61

§ 15A:12.4 Reliance on Financial Institutions .....................15A-62§ 15A:13 Tax Considerations....................................................15A-63

Appendix 15A-A Template: Client OnboardingInformation .......................................App. 15A-A-1

(Inv. Adv. Reg., Rel. #11, 6/17)

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PART VI: Brokerage and Trading Practices

Chapter 16 Selecting the Broker

Clifford E. Kirsch

§ 16:1 Introduction ................................................................... 16-1§ 16:2 Who Selects the Broker?................................................. 16-1§ 16:3 Duty of Best Execution................................................... 16-2§ 16:4 SEC Review of Best Execution........................................ 16-3

§ 16:4.1 Internal Controls..................................................... 16-3§ 16:5 Conflicts of Interest........................................................ 16-4

Chapter 17 Soft Dollars

Bibb L. Strench & Thomas E. Bisset

§ 17:1 Introduction ................................................................... 17-2§ 17:2 Section 28(e)................................................................... 17-4

§ 17:2.1 Eligible Research...................................................... 17-6[A] Research................................................................... 17-6[B] Meetings .................................................................. 17-7[C] Data and Software ................................................... 17-7[D] Research and Ratings............................................... 17-7[E] Mass-Marketed Publications.................................... 17-7[F] Tangible Products and Services................................ 17-7[G] Proxy Services .......................................................... 17-7

§ 17:2.2 Eligible Brokerage .................................................... 17-8§ 17:3 Mixed-Use Products ....................................................... 17-9§ 17:4 Third-Party Research .................................................... 17-11§ 17:5 Types of Securities Transactions Falling Within the

Safe Harbor................................................................... 17-11§ 17:5.1 2001 SEC Position Extending Section 28(e) to

NASDAQ Trades ................................................... 17-12§ 17:6 Special Considerations with Respect to Pension

Plans............................................................................. 17-12§ 17:7 Special Considerations with Respect to Mutual

Funds............................................................................ 17-13§ 17:7.1 Board Approval ...................................................... 17-13§ 17:7.2 Disclosure Obligations .......................................... 17-16§ 17:7.3 Acquiring Items Outside Section 28(e) ................. 17-17

§ 17:8 Form ADV Disclosure .................................................. 17-17§ 17:9 Compliance Obligations ............................................... 17-18§ 17:10 Other SEC Initiatives ................................................... 17-19

§ 17:10.1 1998 SEC Staff Report on Soft Dollar Practices.......17-19


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§ 17:10.2 SEC Enforcement Activity..................................... 17-19[A] Enforcement Cases Against Advisers..................... 17-19[B] Enforcement Cases Against Broker-Dealers........... 17-20

Chapter 18 Affiliated Brokerage

Clifford E. Kirsch

§ 18:1 Introduction ................................................................... 18-1§ 18:2 Regulation Under Investment Advisers Act ................... 18-2§ 18:3 Regulation Under Other Statutes ................................... 18-2

Chapter 19 Trading Conflicts

Clifford E. Kirsch

§ 19:1 Introduction ................................................................... 19-2§ 19:2 The Regulation of Principal and Agency

Cross-Transactions Under Section 206(3) ...................... 19-3§ 19:2.1 The Scope of Section 206(3)’s Coverage................. 19-4

[A] Whether Section 206(3) Reaches Affiliates of theAdviser? ................................................................... 19-4

[B] What Is the Meaning of Purchase or Sale of aSecurity? .................................................................. 19-4

[C] What Types of Principal Trades Are Subject toSection 206(3)? ........................................................ 19-5

[D] When Is an Entity Entitled to Rely on theException for a Broker-Dealer Not Acting Asan Investment Adviser in Connection with aTransaction? ............................................................ 19-6

[E] When Is an Adviser Acting As a Broker inEffecting a Transaction?........................................... 19-7

[E][1] Cross-Trades Effected Through IndependentBroker.................................................................. 19-7

[E][2] Cross-Trades Effected Through the Adviser ........ 19-7§ 19:2.2 Effecting Principal and Agency Cross-Transactions

Under Section 206(3): The Requirement ofInformed Client Consent ........................................ 19-8

[A] Required Disclosure................................................. 19-8[B] Timing of Required Disclosure and Client

Consent ................................................................... 19-9[C] Frequency with Which Client Consent Must

Be Obtained ............................................................. 19-9[D] Ability of Client to Withhold Consent .................. 19-10[E] Means of Obtaining Consent ................................ 19-10

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 19:3 Requirements Under Other Regulations ...................... 19-10§ 19:3.1 Requirements Under the Investment

Company Act ........................................................ 19-10[A] Principal Trades ..................................................... 19-10[B] Agency Trades........................................................ 19-11

§ 19:3.2 Requirements Under ERISA.................................. 19-11[A] Principal Transactions ........................................... 19-11[B] Agency Cross-Transactions .................................... 19-11

§ 19:4 Exemptive Rules Under the Investment Advisers Act ....19-12§ 19:4.1 Rule 206(3)-2: Agency Cross-Transactions............ 19-12§ 19:4.2 Rule 206(3)-1: Impersonal Advisory Services........ 19-13§ 19:4.3 Temporary Rule 206(3)-3T.................................... 19-13

§ 19:5 Aggregating Client Trades ............................................ 19-16§ 19:6 SEC Review of Regulatory Standards of

Care Applying to Broker-Dealers andInvestment Advisers ..................................................... 19-19

Chapter 20 Investment Adviser Trading Desk Activities

Domenick Pugliese

§ 20:1 Introduction ................................................................... 20-2§ 20:2 Identification and Monitoring of Conflicts .................... 20-3§ 20:3 Managing the Conflicts .................................................. 20-4

§ 20:3.1 Allocation of Investment Opportunity.................... 20-4[A] Identifying the Conflicts.......................................... 20-4[B] Managing Trade Aggregation and Investment

Opportunity Conflicts ............................................. 20-5[C] Side-By-Side Portfolio Management....................... 20-12

§ 20:3.2 Best Execution ....................................................... 20-13[A] The Adviser ’s Obligation....................................... 20-13[B] Best Practices in Seeking Best Execution............... 20-14[C] Choosing a Broker/Dealer...................................... 20-15[D] Testing for Best Execution ..................................... 20-16[E] Use of Brokerage Committees ............................... 20-17[F] Recordkeeping........................................................ 20-17

§ 20:3.3 Soft Dollars ........................................................... 20-17[A] Background ............................................................ 20-18[B] The 2006 Release—The Analytical Framework

for Applying Section 28(e) ..................................... 20-19[B][1] Test 1: Does the Product or Service Fall

Within the Specific Statutory Limits ofSection 28(e)(3)(A), (B), or (C)? ......................... 20-19

[B][1][a] Research Services—The “Advice, Analysesand Reports” Test ........................................... 20-19

[B][1][b] Market Research ............................................. 20-21


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[B][1][c] Mass-Marketed Publications........................... 20-22[B][1][d] Brokerage Services—The Temporal Test ......... 20-22[B][2] Test 2—The Lawful and Appropriate

Assistance Test .................................................. 20-24[B][3] Test 3—The Cost Test ...................................... 20-24[B][3][a] Mixed-Use Items ............................................ 20-24[B][3][b] Third-Party Research and Commission

Sharing Arrangements .................................... 20-25

Chapter 21 Trading Errors

Barry P. Schwartz & Laura E. Amory

§ 21:1 Introduction ................................................................... 21-1§ 21:2 What Is a Trade Error? ................................................... 21-2§ 21:3 Error Correction Policies and Procedures ....................... 21-3

§ 21:3.1 What Should Be Included in Trade ErrorPolices and Procedures?........................................... 21-4

§ 21:3.2 Should Polices and Procedures Be Disclosed? ........ 21-5§ 21:3.3 When Should Errors Be Corrected? ........................ 21-6

§ 21:4 Who Should Bear the Cost of Trade Errors?................... 21-7§ 21:4.1 Can Clients Absorb Losses Resulting from Errors?..... 21-7§ 21:4.2 Can Advisers Retain Gains Resulting from

Errors? ..................................................................... 21-8§ 21:4.3 Error Accounts......................................................... 21-9

§ 21:5 Can an Adviser Use Soft Dollars to Correct Errors? .... 21-11

PART VII: Adviser Compliance Programs

Chapter 22 Investment Adviser Compliance Programs

Clifford E. Kirsch

§ 22:1 Background..................................................................... 22-2§ 22:1.1 Text of Rule 206(4)-7 .............................................. 22-2§ 22:1.2 Coverage .................................................................. 22-3

§ 22:2 Adoption and Implementation of WrittenPolicies and Procedures .................................................. 22-3

§ 22:2.1 Required Scope of Written Policies and Procedures ....22-3§ 22:2.2 Format ..................................................................... 22-4§ 22:2.3 Written Supervisory Procedures............................... 22-5

§ 22:3 Annual Review ............................................................... 22-5§ 22:4 Documenting and Reporting the

Annual Review Findings................................................. 22-6§ 22:4.1 Practical Considerations Regarding

Documentation of the Review’s Findings............... 22-6

(Inv. Adv. Reg., Rel. #11, 6/17) lxxxv

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§ 22:4.2 Reporting Internally ................................................ 22-7§ 22:4.3 Reporting to the SEC .............................................. 22-7

§ 22:5 Chief Compliance Officer............................................... 22-8§ 22:6 Record Keeping ............................................................... 22-8§ 22:7 SEC Enforcement Activity Related to Compliance

Program Deficiencies...................................................... 22-8§ 22:8 Requirements Under the Investment Company Act ...... 22-9

§ 22:8.1 Text of Rule 38a-1................................................. 22-10§ 22:8.2 Adoption and Implementation of Written

Policies and Procedures ......................................... 22-13[A] Required Scope of Written Policies and

Procedures ............................................................. 22-13[B] Oversight of Service Providers’ Policies and

Procedures ............................................................. 22-14§ 22:8.3 Board Approval of Written Policies and

Procedures.............................................................. 22-15§ 22:8.4 Annual Review ...................................................... 22-16§ 22:8.5 Chief Compliance Officer ..................................... 22-16

[A] CCO Competency; Seniority in Organization....... 22-16[B] CCO Independence from Fund Management........ 22-16[C] CCO Report and Meeting with the Board............. 22-16[D] Oversight of Service Providers ............................... 22-17

§ 22:8.6 Record Keeping ...................................................... 22-18§ 22:8.7 Treatment of Unit Investment Trusts Under

the Rule ................................................................. 22-18

Chapter 23 The Role of the Investment AdviserChief Compliance Officer

Domenick Pugliese

§ 23:1 Introduction ................................................................... 23-2§ 23:2 Requirements of Rule 206(4)-7....................................... 23-3§ 23:3 The CCO’s Responsibilities Under Rule 206(4)-7 ......... 23-3

§ 23:3.1 The Risk/Reward Equation...................................... 23-3§ 23:3.2 Contrasting the CCO’s Duties and

Responsibilities with the Adviser ’s Duties andResponsibilities ........................................................ 23-4

§ 23:4 Structuring the CCO Position—LimitingLiability .......................................................................... 23-6

§ 23:4.1 CCO Qualifications and Competence .................... 23-7§ 23:4.2 Resource Availability ............................................... 23-8§ 23:4.3 CCO Indemnification and Insurance ..................... 23-9

§ 23:5 The CCO and Risk Management .................................. 23-9§ 23:6 The Annual Review Process ......................................... 23-10

§ 23:6.1 Compliance Risk Assessment ............................... 23-11

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§ 23:6.2 Testing Methodologies........................................... 23-12[A] Transactional Testing............................................. 23-12[B] Periodic Testing (Retesting Data) ........................... 23-13[C] Forensic Testing (Trend Analysis) .......................... 23-13

§ 23:7 Post-Annual Review...................................................... 23-14

Chapter 23A Investment Adviser Chief ComplianceOfficer Liability

Brian L. Rubin & Katherine L. Kelly

§ 23A:1 Introduction ................................................................23A-2§ 23A:1.1 Overview................................................................23A-2§ 23A:1.2 The Relevant Rule.................................................23A-2§ 23A:1.3 Theories of Liability ..............................................23A-3

§ 23A:2 Direct Violations .........................................................23A-3§ 23A:2.1 Conduct Related to the Role of CCO...................23A-3

[A] False Compliance Reviews ....................................23A-3[B] False Form ADV....................................................23A-4

§ 23A:2.2 Other Conduct ......................................................23A-4§ 23A:3 Aiding and Abetting and Causing ...............................23A-5

§ 23A:3.1 Policies and Procedures .........................................23A-5§ 23A:3.2 Principal Trades .....................................................23A-6§ 23A:3.3 Books and Records ................................................23A-6§ 23A:3.4 Fraudulently Responding to Requests for

Proposal .................................................................23A-7§ 23A:4 Failure to Supervise .....................................................23A-7

§ 23A:4.1 Direct-Line Supervision.........................................23A-7§ 23A:4.2 Urban: Non-direct Line Supervision .....................23A-8§ 23A:4.3 Guidance Regarding Non-Direct Line

Supervision ..........................................................23A-10

Chapter 24 Conducting an Investment Company/Adviser Compliance Review

Richard D. Marshall

§ 24:1 Introduction ................................................................... 24-2§ 24:2 Defining the Content of an Annual Compliance

Review ............................................................................ 24-5§ 24:2.1 Guidance from Auditing Standards ........................ 24-5

§ 24:3 A Plan for an Annual Compliance Review..................... 24-8§ 24:3.1 Assess the Culture of Compliance.......................... 24-8§ 24:3.2 Perform a “Gap” Analysis of the

Compliance Procedures ........................................... 24-9§ 24:3.3 Interviews of Key Personnel and Certifications ...... 24-9

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§ 24:3.4 Testing ................................................................... 24-10§ 24:3.5 Follow Existing Procedures.................................... 24-16§ 24:3.6 Email Review......................................................... 24-16§ 24:3.7 Testing the Compliance Procedures of Third

Parties .................................................................... 24-16§ 24:3.8 The Haunting Challenge of the

Market Timing Scandal......................................... 24-17§ 24:4 Documenting the Annual Review ................................ 24-19§ 24:5 Preserving Confidentiality ............................................ 24-21

§ 24:5.1 The Attorney-Client Privilege ............................... 24-21§ 24:5.2 Work Product Doctrine ......................................... 24-22§ 24:5.3 Self-Evaluative Privilege ......................................... 24-22§ 24:5.4 Limitations of Possible Confidentiality................. 24-23

§ 24:6 What Compliance Deficiencies Can BeDeemed Immaterial ..................................................... 24-24

§ 24:7 Appropriate Remedial Measures When ProblemsAre Detected................................................................. 24-24

§ 24:7.1 Properly Investigate the Alleged Violation ............ 24-25§ 24:7.2 Stop All Violative Conduct ................................... 24-26§ 24:7.3 Disclosing Violations............................................. 24-26

[A] Disclosure to the Regulators.................................. 24-26[B] Disclosure to Clients ............................................. 24-27

§ 24:7.4 Compensating Clients for Injury .......................... 24-28§ 24:7.5 Disciplining Wrongdoers ....................................... 24-28§ 24:7.6 Learning from Mistakes: Improving the

Compliance System............................................... 24-30§ 24:8 Ethical Issues in Conducting Compliance Reviews...... 24-30

§ 24:8.1 Code of Ethics of the Institute of InternalAuditors ................................................................. 24-30

§ 24:8.2 CFA Institute......................................................... 24-31§ 24:8.3 The AICPA............................................................ 24-32§ 24:8.4 Difficult Issues in Developing a Code of

Ethics for Compliance Professionals ..................... 24-33§ 24:9 Liability for a Defective Annual Review ....................... 24-39

§ 24:9.1 Statutory Obligation to Supervise ......................... 24-40§ 24:9.2 Special Statutory Obligations to Supervise ........... 24-41§ 24:9.3 Supervision As a Defense to Liability................... 24-42

[A] Control Person Liability and Liability inSEC Actions........................................................... 24-42

[B] Directors’ Duty of Care ......................................... 24-44[C] Federal Sentencing Guidelines............................... 24-45

§ 24:9.4 Business Considerations........................................ 24-45

Appendix 24A Guidance on the Elements of a SuccessfulCompliance Program ................................ App. 24A-1

Appendix 24B Detailed Descriptions of PossibleCompliance Tests .......................................App. 24B-1

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Chapter 25 Business Continuity Planning

Clifford E. Kirsch

§ 25:1 Introduction ................................................................... 25-1§ 25:2 SEC’s 2016 Proposed BCP and Transition Plans Rule......25-2§ 25:3 NASAA Rules Applying to State-Registered Advisers ..... 25-3§ 25:4 Regulatory Guidance on BCP......................................... 25-3

§ 25:4.1 2013 SEC, CFTC, and FINRA BCP BestPractices Advisory.................................................... 25-3

§ 25:4.2 BCP Targeted Exam Letter Following HurricaneSandy ....................................................................... 25-4

§ 25:4.3 FINRA BCP Questions and Answers...................... 25-7§ 25:5 FINRA Rule 4370........................................................... 25-7

§ 25:5.1 Text of FINRA Rule 4370 ....................................... 25-8§ 25:5.2 FINRA Rule 4370—Business Continuity Plan

Requirements......................................................... 25-10[A] Coverage and Required Elements .......................... 25-10[A][1] Reliance on a Parent Corporation’s Plan........... 25-11[A][2] Reliance on Others............................................ 25-12[A][2][a] Clearing Firm ................................................. 25-12[B] Approval, Updating, and Annual Review .............. 25-12[C] Customer Disclosure Requirements ...................... 25-12[C][1] Plan Modifications ............................................ 25-13[D] Emergency Contact Information ........................... 25-13

Chapter 26 Anti-Money Laundering Requirements forInvestment Advisers

Satish M. Kini, Andrew B. Kales &Danielle M. Gipson

§ 26:1 Introduction ................................................................... 26-2§ 26:2 Overview of Money Laundering ..................................... 26-3

§ 26:2.1 The Money Laundering Process.............................. 26-3§ 26:2.2 Use of Investment Advisers in the Money

Laundering Process.................................................. 26-3§ 26:3 Legal Requirements for Investment Advisers ................. 26-4

§ 26:3.1 Criminal Money Laundering Laws ......................... 26-4§ 26:3.2 The Bank Secrecy Act ............................................. 26-5§ 26:3.3 Reporting Requirements .......................................... 26-6

[A] Currency Transaction Reports (CTRs)..................... 26-6[B] International Transportation of Currency or

Monetary Instruments (CMIRs).............................. 26-6[C] Foreign Bank and Financial Accounts

Reports (FBARs)....................................................... 26-7

(Inv. Adv. Reg., Rel. #11, 6/17) lxxxix

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[D] Suspicious Activity Reports (SARs).......................... 26-7[E] BSA Record Keeping ................................................ 26-8

§ 26:3.4 OFAC Sanction Programs ....................................... 26-8[A] Specially Designated Nationals (SDNs)................... 26-9[B] Country Sanctions Programs................................. 26-10

§ 26:4 Withdrawn Proposed AML Program Rules forInvestment Advisers ..................................................... 26-10

§ 26:5 Compliance Measures .................................................. 26-11§ 26:5.1 Required Measures ................................................ 26-11§ 26:5.2 Additional Measures Worthy of Consideration........26-11§ 26:5.3 OFAC Compliance Programs ................................ 26-12

[A] OFAC Compliance Guidance ................................ 26-12[A][1] 2004 Guidance.................................................. 26-12[A][2] 2008 Guidance.................................................. 26-13[A][2][a] Screening Focus .............................................. 26-13[A][2][b] Identity Verification........................................ 26-13[A][2][c] Risk Factors .................................................... 26-14[A][2][d] Organizational Factors.................................... 26-14[B] BSA/AML Examination Manual ............................ 26-14

Chapter 27 Code of Ethics, Personal Trading, andInsider Trading Policies and Procedures

Clifford E. Kirsch

§ 27:1 Introduction ................................................................... 27-3§ 27:2 Text of Act and Rules ..................................................... 27-4§ 27:3 Code of Ethics ................................................................ 27-9

§ 27:3.1 Standards of Conduct............................................ 27-10§ 27:3.2 Reporting and Pre-Approval of Personal

Securities Transaction ........................................... 27-10[A] Who Needs to Report ............................................ 27-11[B] Transaction Reports ............................................... 27-11[C] Holdings Reports ................................................... 27-12[D] Exceptions from Reporting .................................... 27-12[E] Pre-Approval of Certain Investments .................... 27-13[F] Review of Personal Securities Holdings and

Transaction Reports ............................................... 27-13[G] Procedures to Address Personal Trading ................ 27-13

§ 27:3.3 Compliance Considerations .................................. 27-14[A] Reporting of Violations .......................................... 27-14[B] Distribution of the Code ....................................... 27-14[C] Integrating the Code Within the Advisory

Organization.......................................................... 27-15§ 27:3.4 Record-Keeping Requirements ............................... 27-15

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§ 27:4 Insider Trading Policies and Procedures ....................... 27-16§ 27:5 Sarbanes-Oxley Code of Ethics Requirements.............. 27-18§ 27:6 Mutual Fund Codes of Ethics....................................... 27-18

§ 27:6.1 Adoption of Rule 17j-1 in 1980 ........................... 27-18§ 27:6.2 1994 Industry Best Practices Report and

Subsequent SEC Amendments.............................. 27-19§ 27:6.3 Overview of Investment Company Act

Rule 17j-1 Requirements..........................................27-19[A] Adoption of Written Code of Ethics ...................... 27-19[B] Board Oversight ..................................................... 27-19[C] Annual Report ....................................................... 27-20[D] Access Person Reports ........................................... 27-20[E] Preapproval Requests ............................................. 27-20[F] Public Disclosure ................................................... 27-20

§ 27:6.4 Interplay with Advisers Act Rule 204A-1 ............. 27-20§ 27:7 SEC Enforcement ......................................................... 27-21

§ 27:7.1 Personal Trading.................................................... 27-21§ 27:7.2 Implementation of Code of Ethics........................ 27-23

Chapter 28 Gifts and Entertainment

Jeffrey C. Morton, Ryan MacDonald &Ashley Kristoffersen

§ 28:1 Introduction ................................................................... 28-2§ 28:2 Investment Advisers Act................................................. 28-2

§ 28:2.1 SEC Staff Guidance................................................. 28-3§ 28:3 Other Regulatory Guidance............................................ 28-4

§ 28:3.1 FINRA ..................................................................... 28-4[A] FINRA Rule 3220 and Notice to

Members 06-69 ....................................................... 28-4[B] NASD Notice to Members 06-06............................ 28-5[C] NASD Report on Examination Findings

Regarding Gifts and Gratuities ................................ 28-6[D] FINRA Gifts, Gratuities and Non-Cash

Compensation ......................................................... 28-6§ 28:3.2 Department of Labor............................................... 28-7

§ 28:4 Industry Guidance.......................................................... 28-8§ 28:4.1 Investment Adviser Association .............................. 28-8§ 28:4.2 CFA Institute........................................................... 28-9§ 28:4.3 Other Professional Organizations ........................... 28-9

§ 28:5 Items to Consider in Developing Gifts andEntertainment Policies ................................................. 28-10

§ 28:5.1 Gifts: Value Limits ................................................ 28-10§ 28:5.2 Valuation of Gifts .................................................. 28-10§ 28:5.3 Aggregation of Gifts .............................................. 28-11§ 28:5.4 De Minimis and Promotional Items ..................... 28-11

(Inv. Adv. Reg., Rel. #11, 6/17) xci

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§ 28:5.5 Personal Gifts/Exclusions ...................................... 28-11§ 28:5.6 Entertainment........................................................ 28-11§ 28:5.7 Gifts Incidental to Business Entertainment ......... 28-12§ 28:5.8 Travel ..................................................................... 28-12§ 28:5.9 Political Contributions/Government Officials....... 28-12§ 28:5.10 Books and Records ................................................ 28-13§ 28:5.11 Pre-Clearance and Reporting................................. 28-13§ 28:5.12 Role of the Chief Compliance Officer .................. 28-14

§ 28:6 Regulatory Proceedings ................................................. 28-15§ 28:6.1 Jefferies & Co........................................................ 28-15§ 28:6.2 Fidelity Investments .............................................. 28-15§ 28:6.3 Guggenheim Partners Investment

Management LLC.................................................. 28-16§ 28:6.4 State Street Bank and Trust Company ................. 28-17

§ 28:7 Conclusion ................................................................... 28-17

Chapter 29 Insider Trading by Advisory Personnel

Ellen R. Drought & Pamela M. Krill

§ 29:1 Introduction ................................................................... 29-2§ 29:2 Insider Trading Basics .................................................... 29-6§ 29:3 Special Rules Applicable to Investment Advisers ........... 29-8§ 29:4 Structuring an Effective Compliance Program ............. 29-13

§ 29:4.1 First Steps.............................................................. 29-13§ 29:4.2 Required Elements................................................. 29-17§ 29:4.3 Testing of Program ................................................ 29-19§ 29:4.4 Other Recommended Practices ............................. 29-20§ 29:4.5 Potential Pitfalls Drawn from Enforcement

Cases ..................................................................... 29-23§ 29:5 Conclusion ................................................................... 29-25

Chapter 30 Outsourcing by Financial Services Firms

Stuart D. Levi

§ 30:1 Overview......................................................................... 30-3§ 30:1.1 Benefits of Outsourcing Financial Services ............. 30-4§ 30:1.2 Risks of Outsourcing Financial Services................. 30-4

§ 30:2 Drafting Considerations ................................................. 30-5§ 30:2.1 Compliance with the Law....................................... 30-5§ 30:2.2 Compliance with Policies and Procedures .............. 30-6§ 30:2.3 Subcontracting ......................................................... 30-6§ 30:2.4 Key Staff .................................................................. 30-6§ 30:2.5 Termination ............................................................. 30-7§ 30:2.6 Security.................................................................... 30-7

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§ 30:2.7 Indemnification ....................................................... 30-7§ 30:2.8 Audits ...................................................................... 30-8§ 30:2.9 Data Protection ....................................................... 30-8

§ 30:3 U.S. Regulatory Framework............................................ 30-8§ 30:3.1 Federal Reserve Board.............................................. 30-9

[A] Overview.................................................................. 30-9[B] Risk Mitigation in Financial Services

Outsourcing ........................................................... 30-10[B][1] Identifying Challenges and Risks ...................... 30-11[B][2] Best Practices for Mitigating Risk ..................... 30-12[C] FRB Supervisory Letter: Outsourcing of

Information and Transaction Processing ............... 30-14§ 30:3.2 Office of Comptroller of Currency........................ 30-16

[A] Overview................................................................ 30-16[B] Foreign-Based Third-Party Service Providers.......... 30-17[C] Risk Management for Banks ................................. 30-18[D] Standards for Safeguarding Customer

Information ........................................................... 30-19[E] Country Risk ......................................................... 30-20[F] Third-Party Relationships ...................................... 30-21[F][1] Categories of Risk ............................................. 30-21[F][2] Risk Management ............................................. 30-22[F][3] Oversight........................................................... 30-23

§ 30:3.3 Federal Deposit Insurance Corporation ................ 30-24[A] Overview................................................................ 30-24[B] Foreign-Based Third-Party Service Providers.......... 30-24[B][1] Categories of Risk ............................................. 30-25[B][2] Risk Assessment ............................................... 30-25[C] Offshoring of Data Services ................................... 30-27[C][1] Identifying Risks ............................................... 30-27[C][2] Recommendations and Best Practices ............... 30-29[D] Country Risk Management ................................... 30-32[E] Outsourcing Technology Products and Services..... 30-32[E][1] Effective Practices for Selecting a Service

Provider ............................................................. 30-33[E][2] Tools to Manage Technology Providers’

Performance Risk: Service Level Agreements .... 30-34[E][3] Techniques for Managing Multiple Service

Providers............................................................ 30-35[F] Compliance with Bank Service Company Act....... 30-37

§ 30:3.4 Office of Thrift Supervision .................................. 30-38[A] Overview................................................................ 30-38[B] Information Technology and Risk Controls .......... 30-38[C] Third-Party Arrangements ..................................... 30-40[C][1] Regulation and Examination Requirements ...... 30-40[C][2] Management Responsibilities............................ 30-41

(Inv. Adv. Reg., Rel. #11, 6/17)

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[C][3] OTS Supervision ............................................... 30-43[D] Internal Controls and Outsourcing ....................... 30-43

§ 30:3.5 National Credit Union Administration ................ 30-44[A] Overview................................................................ 30-44[B] Due Diligence Over Third-Party Service

Providers ................................................................ 30-45§ 30:3.6 Federal Financial Institutions Examination

Council .................................................................. 30-45[A] Overview................................................................ 30-45[B] Evaluating a Financial Institution’s Risk

Management Processes.......................................... 30-46[B][1] Risk Management ............................................. 30-46[B][2] Board and Management Responsibilities .......... 30-46[B][3] Risk Assessment and Requirements ................. 30-47[B][4] Service Provider Selection.................................. 30-47[B][5] Contract Issues ................................................. 30-48[B][6] Ongoing Monitoring ......................................... 30-51[B][7] Business Continuity Plans ................................ 30-51[B][8] Information Security/Safeguarding .................... 30-52[B][9] Multiple Service Provider Relationships............ 30-52[B][10] Outsourcing to Foreign Service Providers.......... 30-52

§ 30:3.7 Financial Industry Regulatory Authority............... 30-55[A] Overview................................................................ 30-55[B] A Member ’s Responsibilities Regarding

Outsourcing ........................................................... 30-55[B][1] Accountability and Supervisory

Responsibility .................................................... 30-56[B][2] Prohibited Outsourcing Activity........................ 30-57

§ 30:3.8 New York Stock Exchange .................................... 30-57[A] Overview................................................................ 30-57[B] Proposed Rules Regarding Outsourcing ................. 30-58[B][1] Prohibited Activities .......................................... 30-58[B][2] Prior Written Notice.......................................... 30-59[B][3] Due Diligence ................................................... 30-59[B][4] Oversight........................................................... 30-60[B][5] Disclosure ......................................................... 30-61[B][6] Renewals ........................................................... 30-61

§ 30:4 Foreign and International Regulation........................... 30-61§ 30:4.1 EU’s Markets in Financial Instruments

Directive ................................................................ 30-61[A] Overview................................................................ 30-61[B] Applicability........................................................... 30-62[C] Requirements......................................................... 30-62[C][1] Level 1 Directive ............................................... 30-62[C][2] Level 2 Directive ............................................... 30-63[C][3] Obligations on Investment Firms ..................... 30-63


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[C][4] Obligations of Member States........................... 30-65[C][5] Exceptions ......................................................... 30-65[C][6] Application to Existing Outsourcing

Arrangements.................................................... 30-65§ 30:4.2 Joint Forum Outsourcing Principles ..................... 30-66§ 30:4.3 IOSCO Outsourcing Principles ............................. 30-68

Chapter 31 SEC and CFTC Whistleblower Rules andAnti-Retaliation Protections

John H. Sturc, Jason C. Schwartz,Joshua D. Dick & Thomas M. Johnson, Jr.

§ 31:1 Introduction ................................................................... 31-3§ 31:2 Affected Entities ............................................................. 31-4§ 31:3 Essential Elements of Whistleblower Award Eligibility .... 31-4

§ 31:3.1 Definition of a Whistleblower................................. 31-4§ 31:3.2 Voluntary Submission of Original Information ...... 31-5

[A] Voluntary ................................................................. 31-5[B] Original Information ............................................... 31-6[C] 120-Day Look Back Provisions................................ 31-7

§ 31:3.3 Successful Enforcement Action ............................... 31-8[A] Calculating Amount Recovered ............................... 31-9

§ 31:4 Exclusions from Award Eligibility ................................ 31-10§ 31:4.1 Principals ............................................................... 31-10§ 31:4.2 Attorneys ............................................................... 31-10§ 31:4.3 Compliance Personnel........................................... 31-11§ 31:4.4 Individuals Retained to Conduct Inquiry ............. 31-12§ 31:4.5 Accountants........................................................... 31-12§ 31:4.6 Other Exclusions ................................................... 31-12

§ 31:5 Exceptions to Exclusion from Award Eligibility ........... 31-12§ 31:6 Factors Considered in Determining the

Amount of Award......................................................... 31-13§ 31:6.1 Factors That May Increase an Award................... 31-14

[A] Significance of Information ................................... 31-14[B] Degree of Assistance Provided ............................... 31-14[C] Programmatic Interest of SEC or CFTC ............... 31-15[D] Participation in Internal Compliance Programs .... 31-15

§ 31:6.2 Factors That May Decrease an Award.................. 31-16[A] Whistleblower Culpability ..................................... 31-16[B] Delay in Reporting Violation ................................. 31-16[C] Interference with Internal Compliance

Programs................................................................ 31-17[D] Potential Adverse Incentives.................................. 31-17

§ 31:7 Treatment of Culpable Individuals ............................... 31-17

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 31:8 Whistleblower Confidentiality and Anonymity............ 31-18§ 31:9 Whistleblower Protections: The Anti-Retaliation

Provisions ..................................................................... 31-18§ 31:9.1 Relationship Between New Dodd-Frank and

SOX Retaliation Claims ........................................ 31-20§ 31:9.2 SEC Authority to Enforce Anti-Retaliation

Provisions .............................................................. 31-21§ 31:9.3 Non-Waivability of Anti-Retaliation Protections......31-21§ 31:9.4 Extraterritorial Application.................................... 31-21

§ 31:10 SEC Communications with Whistleblowers andAttorney-Client Privilege .............................................. 31-22

§ 31:11 Confidentiality Agreements.......................................... 31-22§ 31:12 Arbitration and Alternative Dispute Resolution........... 31-22§ 31:13 Practical Considerations for Responding to the

Whistleblower Rules ..................................................... 31-23§ 31:13.1 Culture of Compliance.......................................... 31-23

[A] Promote Compliance ............................................. 31-24[B] Codes of Conduct and Training ............................ 31-25[C] Mandatory Reporting of Potential Violations ........ 31-25

§ 31:13.2 Internal Reporting Procedures............................... 31-26[A] Accessible Internal Reporting Systems .................. 31-26[B] Communicating Importance of Internal

Reporting ............................................................... 31-26§ 31:13.3 Human Resources ................................................. 31-27

[A] Screening New Employees ..................................... 31-27[B] Employee Evaluations............................................ 31-27[C] Manager Training .................................................. 31-27[D] Documentating of Whistleblower Employment

Actions .................................................................. 31-27[E] Exit Forms and Separation Releases ...................... 31-28

§ 31:13.4 Internal Investigations........................................... 31-28[A] Investigative Plans ................................................. 31-28[B] Keeping Whistleblower Apprised ........................... 31-29[C] Employee Interviews.............................................. 31-29[D] Use of Counsel ...................................................... 31-29[E] Policies Regarding Privileged and Confidential

Information ........................................................... 31-30§ 31:14 Implications of the Whistleblower Rules for

Enforcement Practice.................................................... 31-30§ 31:14.1 Self-Reporting ........................................................ 31-31§ 31:14.2 Protect the Company ’s Privileges ......................... 31-31§ 31:14.3 Assess Public Disclosure Issues ............................ 31-32


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Chapter 31A Enforcement of the Foreign CorruptPractices Act and Other Anti-Bribery Laws

William Michael, Jr., Laurence A. Urgenson,Sean P. McDonnell, Matthew J. Alexander &Colleen Snow

§ 31A:1 Overview.......................................................................31A-3§ 31A:2 Legal Elements .............................................................31A-5

§ 31A:2.1 Anti-Bribery and Accounting Provisions ...............31A-5[A] Anti-Bribery Provisions..........................................31A-5[B] Accounting Provisions ...........................................31A-5

§ 31A:2.2 Jurisdiction Pursuant to the FCPA .......................31A-6[A] Anti-Bribery ...........................................................31A-6[A][1] Issuers ...............................................................31A-6[A][2] Domestic Concerns...........................................31A-7[A][3] Persons Other Than Issuers or Domestic

Concerns ...........................................................31A-7[B] Scope of the Term “Foreign Officials”....................31A-8

§ 31A:2.3 Facilitation Payments ..........................................31A-11§ 31A:2.4 Affirmative Defenses ...........................................31A-13§ 31A:2.5 Statute of Limitations .........................................31A-13§ 31A:2.6 DOJ Opinion Process ..........................................31A-14§ 31A:2.7 Penalties ..............................................................31A-15§ 31A:2.8 Consultants, Agents, and Other Third-Party

Intermediaries: Managing the Risks ofLiability for the Conduct of OthersUnder a Willful Blindness Theory ........................ 31A-17

§ 31A:3 Mergers & Acquisitions..............................................31A-20§ 31A:4 FCPA Enforcement Activity and Developments.........31A-21

§ 31A:4.1 Whistleblower Rules Under theDodd-Frank Act...................................................31A-21

§ 31A:4.2 Review of Enforcement Actions ..........................31A-22[A] Generally .............................................................31A-22[B] Some Significant Cases Brought by the DOJ and

the SEC ................................................................. 31A-23[B][1] VimpelCom.....................................................31A-23[B][2] Alstom SA.......................................................31A-24[B][3] Avon Products Inc. ..........................................31A-25[B][4] Archer Daniels Midland..................................31A-26[B][5] Weatherford International ...............................31A-27[B][6] Siemens AG ....................................................31A-27[B][7] BAE Systems PLC ...........................................31A-28[B][8] Diebold Inc......................................................31A-29[B][9] Marubeni Corporation ....................................31A-30[B][10] Johnson & Johnson.........................................31A-31[B][11] BizJet International Sales and Support Inc. ....31A-32

(Inv. Adv. Reg., Rel. #11, 6/17)

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[B][12] The Gabon “Sting” Prosecutions.....................31A-33[C] SEC Enforcement Actions Taken

Without the DOJ .................................................31A-34[C][1] Eastern Europe ................................................31A-34[C][2] Asia/South Asia ...............................................31A-35[C][3] South America ................................................31A-37[C][4] Africa/Middle East ...........................................31A-38

§ 31A:4.3 Trends..................................................................31A-39[A] Individual Enforcement and the Yates Memo .....31A-39[B] A Voluntary Disclosure Renaissance? DOJ’s

Enforcement Plan and Pilot Program ..................31A-41[C] Global Enforcement and Cooperation Remain

on the Rise as the UK Bribery Act Heats Up ......31A-43[D] Unexpected Enforcers: Brazil and Operation

Lava Jato ..............................................................31A-45[E] The World Bank As an Anticorruption Agent.....31A-46[F] Judicial Scrutiny of Deferred Prosecution

Agreements..........................................................31A-46[G] Jurisdiction Over Foreign Nationals ....................31A-47[H] Control Person Liability ......................................31A-49[I] Sovereign Wealth Funds and the Financial

Services Industry .................................................31A-50§ 31A:5 Overview of FCPA Compliance Practice.....................31A-51

§ 31A:5.1 Generally .............................................................31A-51§ 31A:5.2 Sources of Guidance............................................31A-52

§ 31A:6 Conclusion .................................................................31A-57

PART VIII: Recordkeeping, SEC Examinations, andEnforcement

Chapter 32 SEC Record-Keeping Requirements

Clifford E. Kirsch

§ 32:1 Introduction ................................................................... 32-2§ 32:2 Required Records Under the Investment Advisers Act .....32-3

§ 32:2.1 Financial Records—Rule 204-2(a)(1);(2); (4); (5); (6)......................................................... 32-3

§ 32:2.2 Corporate Records—Rule 204-2(a)(10) .................... 32-3§ 32:2.3 Order Memoranda—Rule 204-2(a)(3)...................... 32-3§ 32:2.4 Written Communications—Rule 204-2(a)(7) .......... 32-3§ 32:2.5 Advertisements/Performance Information ............... 32-4

[A] Copies of Advertisements—Rule 204-2(a)(11) ......... 32-4[B] Demonstrating the Calculation of

Performance—Rule 204-2(a)(16).............................. 32-4[B][1] Historical Note—The 2004 Hedge Fund Rule ......32-6


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(Inv. Adv. Reg., Rel. #11, 6/17)

§ 32:2.6 Client Disclosures—Rule 204-2(a)(14) .................... 32-6§ 32:2.7 Records Relating to Discretionary Authority—

Rule 204-2(a)(8); (9) ................................................ 32-7§ 32:2.8 Records Relating to Referral Fees—

Rule 204-2(a)(15) ..................................................... 32-7§ 32:2.9 Records Relating to Portfolio Management

Services—Rule 204-2(c)(1)–(2) ................................. 32-7§ 32:2.10 Code of Ethics; Access Person Reports of

Transactions and Holdings—Rule 204-2(a)(12); (13) ............................................ 32-8

[A] Framework Prior to 2004 ........................................ 32-8[B] Current Framework ................................................. 32-9

§ 32:2.11 Records Relating to Custody Accounts—Rule 204(b)(1)–(5); (a)(17)(iii) ................................ 32-10

§ 32:2.12 Records Relating to Political Contributions toGovernment Officials—Rule 204(a)(18) ................ 32-11

§ 32:2.13 Records Relating to Proxy Voting—Rule 204-2(c)......32-11§ 32:2.14 Records Relating to Compliance Policies and

Procedures.............................................................. 32-12§ 32:2.15 Emails.................................................................... 32-12

§ 32:3 Time, Place, and Mode of Storing Records Under theAdvisers Act.................................................................. 32-13

§ 32:3.1 Reliance on Third-Party Record Keepers............... 32-14§ 32:3.2 Electronic Storage .................................................. 32-14

§ 32:4 Record Keeping Under the InvestmentCompany Act ............................................................... 32-16

§ 32:5 Record Keeping Under ERISA ...................................... 32-16

Chapter 33 SEC Inspections

Clifford E. Kirsch

§ 33:1 Overview......................................................................... 33-2§ 33:2 SEC Authority ................................................................ 33-2§ 33:3 The SEC Adviser ’s Exam Program: Types and

Scopes of Examinations.................................................. 33-4§ 33:3.1 Routine Inspections................................................. 33-4§ 33:3.2 Cause Inspections ................................................... 33-4§ 33:3.3 Risk/Sweep Inspections ........................................... 33-5§ 33:3.4 Coordination and Outreach Efforts ........................ 33-6§ 33:3.5 Current Focus Areas ............................................... 33-7§ 33:3.6 The Financial Crisis and Madoff Aftermath ........ 33-11

[A] Background ............................................................ 33-12[B] User Fees ............................................................... 33-13[C] SRO ....................................................................... 33-13[D] Authorize FINRA to Examine Dual Registrants

for Compliance with the Advisers Act................... 33-14

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§ 33:4 Mechanics of an Inspection.......................................... 33-14§ 33:4.1 Preparation ............................................................ 33-14

[A] SEC Preparation .................................................... 33-14[B] Preparation by the Firm......................................... 33-15[C] Role of the CCO.................................................... 33-16

§ 33:4.2 The SEC’s Request for Information ..................... 33-16§ 33:4.3 “Culture of Compliance”....................................... 33-17§ 33:4.4 Issues Related to Document Production............... 33-19

[A] Privilege Issues....................................................... 33-21[B] Seeking Confidential Treatment ............................ 33-25

§ 33:4.5 SEC’s Activity on the Premises ............................ 33-26§ 33:4.6 Notification of Findings ........................................ 33-26§ 33:4.7 Responding to Deficiency Letters.......................... 33-27§ 33:4.8 Confidentiality of Findings ................................... 33-28

Chapter 34 Enforcement of the Advisers Act

Clifford E. Kirsch

§ 34:1 Introduction ................................................................... 34-1§ 34:2 SEC Enforcement Actions .............................................. 34-3§ 34:3 Failure to Supervise ........................................................ 34-4

§ 34:3.1 Who Is Subject to Sanctions for Failing toSupervise? ................................................................ 34-5

[A] Who Is a Supervisor?............................................... 34-6[A][1] Personnel in the Management Chain ................. 34-6[A][2] Compliance and Legal Personnel ........................ 34-6

§ 34:3.2 Discharging Supervisory Responsibility .................. 34-7[A] Designing and Implementing Adequate

Procedures.................................................................... 34-7[B] Meaningful Follow-Up............................................. 34-8

§ 34:4 Reporting Violations to the SEC Staff .......................... 34-10§ 34:5 Injunctions and Other Court Remedies ....................... 34-13§ 34:6 Private Actions ............................................................. 34-13

Chapter 34A Collateral Consequences for InvestmentAdvisers & Associated Persons

Christopher M. Salter

§ 34A:1 Collateral Consequences Defined.................................34A-2§ 34A:2 When to Conduct a Collateral Consequences Review..... 34A-3

§ 34A:2.1 Settlements or Other Adverse Actions..................34A-3§ 34A:2.2 Transactions, Significant Investments or

Joint Ventures Involving an Investment Adviser..... 34A-4§ 34A:2.3 Dual Registrants....................................................34A-4


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§ 34A:3 Collateral Consequences, Remediation andReporting Obligations...................................................34A-4

§ 34A:3.1 Disqualification Under Section 9(a) of theInvestment Company Act .....................................34A-4

[A] Impact of Section 9(a) Disqualification .................34A-4[B] Section 9(c) Exemption Applications.....................34A-5[C] Reporting Obligations ............................................34A-6

§ 34A:3.2 Disqualification from Securities RegistrationExemptions ............................................................34A-6

[A] Regulation A Exemptions ......................................34A-7[B] Regulation D Exemptions......................................34A-8[B][1] Rule 505............................................................34A-8[B][2] Rule 506............................................................34A-8[C] Regulation E Exemptions.....................................34A-11[D] Applying for Relief and/or Waivers.......................34A-12[E] Eligibility for Safe Harbors for Forward-Looking

Statements ............................................................ 34A-14[E][1] Section 21E of the Exchange Act and

Section 27A of the Securities Act....................34A-14[E][2] Applying for Waivers .......................................34A-15[F] Eligibility for Streamlined Offering Process .........34A-16[F][1] Rule 405 of the Securities Act.........................34A-16[F][2] Applying for Waivers .......................................34A-17[G] Receipt of Investment Adviser Solicitation Fees

Under Investment Advisers Act Rule 206(4)-3 ..... 34A-19§ 34A:3.3 Permissive Action by the SEC ............................34A-21

[A] Section 203(e) and 203(f) Sanctions ....................34A-21[B] Section 9(b) of the Investment Company Act .....34A-23[C] Reporting Obligations ..........................................34A-24

§ 34A:3.4 Collateral Consequences and StateRegulatory Regimes .............................................34A-24

§ 34A:3.5 Collateral Consequences andRegulated Affiliates..............................................34A-25

§ 34A:3.6 Collateral Consequences, Reporting andNotification Requirements—Form ADV .............34A-26

§ 34A:4 Reporting and Notification Requirements ..................34A-28§ 34A:4.1 Form BD..............................................................34A-28§ 34A:4.2 Forms U4 and U5...............................................34A-29§ 34A:4.3 Schedule 13D Filing............................................34A-30§ 34A:4.4 Form N1-A ..........................................................34A-30§ 34A:4.5 Forms 7-R and 8-R .............................................34A-31

(Inv. Adv. Reg., Rel. #11, 6/17)

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Chapter 34B How to Handle SEC Investigations

Neil S. Lang & Brian L. Rubin

§ 34B:1 Hypothetical ................................................................. 34B-2§ 34B:2 Analysis ........................................................................ 34B-4

§ 34B:2.1 Getting Started ...................................................... 34B-4[A] Learning About Investigations............................... 34B-4[A][1] Contacting the SEC Staff .................................. 34B-4[A][2] Reviewing the SEC Enforcement Manual ......... 34B-6[A][3] Requesting the Formal Order ............................ 34B-6[A][4] Reviewing Prior Examinations .......................... 34B-7[B] Exploring the Facts ................................................ 34B-8[B][1] Gathering Documents....................................... 34B-8[B][2] Interviewing Employees .................................... 34B-8[B][3] Privilege/Work Product Concerns .................... 34B-10[C] When Is It Necessary to Disclose

an Investigation? ................................................. 34B-12[C][1] Disclosure Obligations .................................... 34B-12[C][1][a] SEC Reporting Obligations ........................... 34B-12[C][1][b] Other Disclosure Obligations ....................... 34B-14[C][2] Voluntary Disclosure....................................... 34B-15

§ 34B:2.2 Reacting to the SEC Staff ’s Requests ................. 34B-15[A] Negotiating Production Deadlines....................... 34B-16[B] Responding Completely and Accurately .............. 34B-17[C] Earning Credit Through Cooperation ................. 34B-18[C][1] Seaboard Report—A Blueprint for

Cooperation..................................................... 34B-18[C][2] Post-Seaboard Cases: Examples of “Credit” .... 34B-24[C][3] Determining Cooperation Credit .................... 34B-27

§ 34B:2.3 Document Production Issues .............................. 34B-31[A] Understanding the Stakes.................................... 34B-31[B] Developing and Implementing a Plan to

Identify and Produce Responsive Documents...... 34B-32[B][1] Analyzing and Narrowing the Scope of

the Document Request.................................... 34B-32[B][2] Identifying and Preserving Responsive

Documents...................................................... 34B-35[B][3] The Peculiar Challenge of Electronic

Communications ............................................ 34B-38[B][3][a] Reviewing Responsive Documents for

Privilege and Preparing Documents forProduction .................................................... 34B-41

[B][3][a][i] Legal Limitations on DocumentDiscovery .................................................. 34B-42

[B][3][a][ii] Producing Responsive Documents ............ 34B-43[B][3][a][iii] Requesting Confidential Treatment .......... 34B-44


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§ 34B:2.4 Testimony ............................................................ 34B-46[A] The Initial Meeting and Document

Collection ............................................................ 34B-47[B] Attorney/Witness Preparation .............................. 34B-48[C] Counsel’s Role During Testimony ....................... 34B-55

§ 34B:2.5 The Wells Process ............................................... 34B-57[A] When to Make a Wells Submission..................... 34B-59[B] When Not to Make a Wells Submission ............. 34B-60[C] Purpose of Wells Submissions ............................. 34B-61[D] Implications for Other Actions............................ 34B-62

§ 34B:2.6 Disclosures in Connection with a RegulatoryInvestigation ........................................................ 34B-63

§ 34B:2.7 Settlement Considerations .................................. 34B-66

Appendix 34B-A Privilege Log.......................................App. 34B-A-1

Appendix 34B-B FOIA Letter........................................ App. 34B-B-1

Appendix 34B-C Conflicts Letter ................................. App. 34B-C-1

Appendix 34B-D Wells Submission Outline ................ App. 34B-D-1

PART IX: State Adviser Regulations

Chapter 35 State Regulation of Investment Advisers

G. Philip Rutledge

§ 35:1 Introduction ................................................................... 35-5§ 35:2 State Securities Regulators.............................................. 35-6§ 35:3 Uniform Securities Acts ................................................. 35-7§ 35:4 State Jurisdiction Over Investment Advisers .................. 35-9

§ 35:4.1 NSMIA Establishes Mutually ExclusiveRegistration.............................................................. 35-9

§ 35:4.2 States Permitted to Require Notice Filings bySEC-Registered Investment Advisers..................... 35-10

§ 35:4.3 De Minimis Preemption and Enforcement ofHome State Rules.................................................. 35-11

§ 35:4.4 State Regulation Issues Under theDodd-Frank Act..................................................... 35-12

§ 35:4.5 No Self-Regulatory Organization........................... 35-14§ 35:4.6 Fiduciary Standard................................................. 35-15§ 35:4.7 Specific Anti-Fraud Provisions Relating to

Provision of Investment Advice ............................ 35-15§ 35:4.8 Transitioning Between Regulatory Regimes .......... 35-17§ 35:4.9 Specific Anti-Fraud Rules Under Advisers Act ..... 35-18

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 35:5 State Jurisdiction Over Investment AdviserRepresentatives ............................................................. 35-19

§ 35:5.1 Investment Adviser Representatives ofSEC-Registered Investment Adviser ...................... 35-19

[A] Federal Definition of Investment AdviserRepresentative........................................................ 35-19

[B] Definition of Place of Business for Purposes ofState Registration................................................... 35-20

§ 35:5.2 Investment Adviser Representatives of StateRegistered Investment Advisers............................. 35-21

§ 35:6 Definition of “Investment Adviser” Under StateSecurities Laws ............................................................. 35-21

§ 35:6.1 USA 1956.............................................................. 35-21§ 35:6.2 USA 2002.............................................................. 35-21§ 35:6.3 SEC/NASAA Joint Investment Adviser

Release 1092 (“IA 1092”)...................................... 35-22§ 35:6.4 State Regulatory Perspective on Financial

Planners................................................................. 35-23§ 35:7 Definition of “Investment Adviser Representative”

Under State Securities Laws......................................... 35-24§ 35:8 Exclusions from the Definition of Investment

Adviser Under State Securities Laws ............................ 35-25§ 35:8.1 USA 1956.............................................................. 35-25§ 35:8.2 USA 2002.............................................................. 35-26§ 35:8.3 IA 1092 ................................................................. 35-27

§ 35:9 Exclusions from the Definition of InvestmentAdviser Representative Under State Securities Laws .... 35-27

§ 35:10 State Investment Adviser RegistrationRequirements................................................................ 35-27

§ 35:10.1 Successor Registration ........................................... 35-28§ 35:10.2 Limitation on Association..................................... 35-28

§ 35:11 Exemptions from Investment Adviser Registration ...... 35-29§ 35:12 State Registration Requirements for

Investment Adviser Representatives ............................. 35-29§ 35:13 Exemptions from Registration for Investment

Adviser Representatives ................................................ 35-30§ 35:14 Dual Registration of Investment Adviser

Representatives ............................................................. 35-30§ 35:15 State Registration Process............................................. 35-30

§ 35:15.1 Central Registration Depository (CRD) ................ 35-31§ 35:15.2 Investment Adviser Registration Depository

(IARD) ................................................................... 35-31§ 35:15.3 Uniform Forms ..................................................... 35-31§ 35:15.4 Consent to Service of Process ............................... 35-32§ 35:15.5 Examination Requirements ................................... 35-33


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§ 35:15.6 Use of Senior-Specific Certifications andProfessional Designations...................................... 35-35

§ 35:15.7 Time Period for Action on an Application ........... 35-36§ 35:16 Substantive Requirements Relating to Investment

Adviser Applications..................................................... 35-37§ 35:16.1 Net Worth and Bonding........................................ 35-37§ 35:16.2 Brochure ................................................................ 35-40§ 35:16.3 Solicitor ’s Disclosure............................................. 35-41§ 35:16.4 Investment Advisory Contracts............................. 35-41

§ 35:17 Renewal, Termination, Withdrawal and Transferof Registration .............................................................. 35-42

§ 35:17.1 Renewal of Investment Adviser and InvestmentAdviser Representative Registration ...................... 35-42

§ 35:17.2 Termination of Registration .................................. 35-42§ 35:17.3 Withdrawal of Registration ................................... 35-43§ 35:17.4 Transfer of Investment Adviser Representative

Registration............................................................ 35-44§ 35:17.5 Form U-5 and Defamation Actions...................... 35-45

§ 35:18 Investment Adviser Public Disclosure Regime ............. 35-46§ 35:19 Post-Registration Compliance ...................................... 35-46

§ 35:19.1 Books, Records and Net Worth............................. 35-46[A] Books and Records................................................. 35-47[B] Net Worth and Filing of Financial Reports............ 35-47

§ 35:19.2 Amendments to Form ADV and Form U-4.......... 35-48[A] Material Amendments to Be Filed Promptly ......... 35-48[B] Annual Updating Amendment to Form ADV ....... 35-49

§ 35:19.3 Annual Custody Audit .......................................... 35-49§ 35:19.4 Advertising............................................................. 35-50§ 35:19.5 Annual Delivery of Summary of Material

Changes to Part 2A of Form ADV andOffer to Deliver Part 2A........................................ 35-50

§ 35:19.6 Compliance Audits and Inspections ..................... 35-50[A] Regulatory Audits and Inspections ........................ 35-50[A][1] Routine Audits and Inspections ........................ 35-52[A][2] “For Cause” Inspections.................................... 35-52[B] The Dodd-Frank Act Examination Requirement.....35-52

§ 35:19.7 Continuing Education ........................................... 35-53§ 35:20 Denial, Suspension, Revocation or Conditioning......... 35-53

§ 35:20.1 Meeting Any of the Statutory Criteria ShouldNot Be Characterized As a Violation.................... 35-53

§ 35:20.2 Statutory Criteria for Administrative Action........ 35-54[A] USA 1956.............................................................. 35-54[A][1] Criteria .............................................................. 35-55[A][2] Constraints on Administrative Action.............. 35-57[B] USA 2002.............................................................. 35-57[B][1] Applicants ......................................................... 35-57

(Inv. Adv. Reg., Rel. #11, 6/17)

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[B][2] Registrants......................................................... 35-57[B][3] Criteria .............................................................. 35-58[B][4] Limitation on Investigation or Proceeding ........ 35-60[B][5] Conditioning or Limiting a License .................. 35-61[C] FINRA Actions ...................................................... 35-61[D] Additional Criteria................................................. 35-62[E] Discretionary Versus Mandatory Action................ 35-62

§ 35:20.3 Summary Licensing Orders................................... 35-63§ 35:21 Agents of Broker-Dealers Who Also Are Investment

Advisers ........................................................................ 35-63§ 35:22 Administrative Enforcement......................................... 35-67

§ 35:22.1 Investigations......................................................... 35-67[A] Investigative Authority and Powers ....................... 35-67[B] Confidentiality of Investigative Files ..................... 35-67[C] Sharing of Investigative Information ..................... 35-68[D] State “Right to Know” Laws.................................. 35-68[E] Discovery Requests for Investigative Files in

Civil Litigation ...................................................... 35-68§ 35:22.2 Control Person Discipline Imposed by the

Administrator ........................................................ 35-69§ 35:22.3 Administrative Subpoena Authority ...................... 35-70

[A] Scope, Privilege and Enforcement.......................... 35-70[B] Compulsion and Immunity................................... 35-71[C] Reciprocal Subpoena Authority.............................. 35-72

§ 35:22.4 Civil Injunctions ................................................... 35-72§ 35:22.5 Administrative Orders ........................................... 35-73

[A] Cease and Desist Orders ....................................... 35-73[A][1] Basis for Cease and Desist Order...................... 35-74[A][2] Contents of a Cease and Desist Order.............. 35-74[A][3] Summary Process .............................................. 35-75[A][4] Hearings and Final Orders ................................ 35-75[A][5] Judicial Enforcement ......................................... 35-76[B] Orders to Show Cause........................................... 35-76[C] Notices and Procedures ......................................... 35-76[D] Judicial Review ...................................................... 35-77[D][1] USA 1956 ......................................................... 35-77[D][2] USA 2002 ......................................................... 35-77[D][3] Judicial Review and Request for Re-Hearings.... 35-77[E] Judicial Stay........................................................... 35-78[F] Administrative Enforcement of General

Anti-Fraud Provision ............................................. 35-78[G] Administrative Enforcement of Anti-Fraud

Provision Relating to Provision of InvestmentAdvice .................................................................... 35-80


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§ 35:22.6 Hearings to Be Public............................................ 35-81§ 35:22.7 Burden of Going Forward, Burden of Proof.......... 35-81§ 35:22.8 Statute of Limitations on Administrative

Actions................................................................... 35-81§ 35:22.9 State Actions Giving Rise to a Federal

Statutory Disqualification ..................................... 35-81§ 35:23 Civil Liability................................................................ 35-83

§ 35:23.1 USA 1956.............................................................. 35-83[A] Registration Liability.............................................. 35-83[B] Anti-Fraud Liability ............................................... 35-83[C] Joint and Several Liability...................................... 35-84[D] Rescission Offers ................................................... 35-84[E] Damages ................................................................ 35-85[F] Statute of Limitations, Survival, Non-Exclusive

Remedy, Arbitration............................................... 35-85§ 35:23.2 USA 2002.............................................................. 35-85

[A] Securities Litigation Uniform StandardsAct of 1998............................................................ 35-86

[B] Liability for Non-Registration................................ 35-86[C] Liability for Providing Fraudulent Investment

Advice .................................................................... 35-86[D] Anti-Fraud Liability of Seller to Purchaser and

Damages ................................................................ 35-87[E] Anti-Fraud Liability of Purchaser to Seller and

Damages ................................................................ 35-87[F] Joint and Several Liability...................................... 35-88[G] Statute of Limitations, Survival, Non-Exclusive

Remedy .................................................................. 35-88[H] Rescission Offers ................................................... 35-89

§ 35:23.3 Who Is a Seller? .................................................... 35-91§ 35:23.4 No Civil Liability for Meeting Criteria for

Denial, Suspension or Revocation of License ....... 35-92§ 35:23.5 Arbitration Clauses in Client Investment

Advisory Agreements............................................. 35-92§ 35:23.6 State Common Law Claims.................................. 35-93

§ 35:24 Criminal Liability......................................................... 35-94§ 35:24.1 USA 1956.............................................................. 35-94§ 35:24.2 USA 2002.............................................................. 35-94§ 35:24.3 Affirmative Defenses ............................................. 35-95§ 35:24.4 Willfulness ............................................................. 35-95

(Inv. Adv. Reg., Rel. #11, 6/17)

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Chapter 36 State Law Issues Relevant to SEC-RegisteredAdvisers


§ 36:1 Introduction ................................................................... 36-2§ 36:2 State Law Definition of Investment Adviser .................. 36-3§ 36:3 Notice Filing Obligation ................................................. 36-3

§ 36:3.1 Text of Relevant Provision ...................................... 36-5§ 36:4 Applicability of State Law to SEC-Registered Advisers .....36-5

§ 36:4.1 Text of Relevant Provision ...................................... 36-7§ 36:5 Investment Adviser Representatives ............................... 36-8

§ 36:5.1 Text of Relevant Provisions ................................... 36-10§ 36:5.2 State Registration Flowchart ................................. 36-12

§ 36:6 Solicitors....................................................................... 36-12

Chapter 37 State Investment Adviser Examinations andEnforcement

Jeffrey O. Himstreet

§ 37:1 Overview of State Adviser Regulation............................. 37-2§ 37:1.1 State Model Rules ................................................... 37-3§ 37:1.2 Limitations on State Authority ............................... 37-3

[A] Examinations of SEC-Registered InvestmentAdvisers ................................................................... 37-6

[B] Examinations of Investment AdviserRepresentatives of SEC-RegisteredInvestment Advisers ................................................ 37-7

§ 37:1.3 Scope of State Authority Over State-RegisteredInvestment Advisers ................................................ 37-7

§ 37:2 Preparing for and Responding to State SecuritiesRegulatory Examinations................................................ 37-8

§ 37:3 NASAA 2015 Investment Adviser Sweep ....................... 37-9§ 37:4 State Enforcement Authority over

Investment Advisers ..................................................... 37-12§ 37:4.1 General Remedies Available .................................. 37-12§ 37:4.2 General Principal Considerations for

Regulatory Actions ................................................ 37-13§ 37:4.3 Application and Limitations on

State-Registered Advisers ....................................... 37-15§ 37:4.4 Application and Limitations on

SEC-Registered Advisers ........................................ 37-16

Appendix 37A NASAA Statement of Policy ..................... App. 37A-1


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VOLUME 2Table of Chapters...........................................................................vii

PART X: Retail Advisory Services

Chapter 38 Status of Financial Planning Under theAdvisers Act

Susan Krawczyk

§ 38:1 Introduction ................................................................... 38-2§ 38:2 Origins of Financial Planning Services........................... 38-3

§ 38:2.1 Financial Planning by Broker-Dealers ..................... 38-3§ 38:2.2 Financial Planning by Insurance Producers ............ 38-5§ 38:2.3 Legal, Accounting and Banking Services................. 38-7§ 38:2.4 Emergence of Financial Planning As a

Stand-Alone Profession............................................ 38-8§ 38:2.5 Technological Considerations.................................. 38-9

§ 38:3 Evolution of the SEC Regulatory Approach.................. 38-10§ 38:3.1 Relevant Investment Advisers Act Provisions....... 38-10

[A] Investment Adviser Definition .............................. 38-10[B] Exclusions from the Investment Adviser

Definition .............................................................. 38-11[C] Fiduciary Duty....................................................... 38-12

§ 38:3.2 Evolution of SEC Views on Financial Planning ... 38-12[A] Early No-Action Letters Addressing

Financial Planning................................................. 38-12[B] Interpretive Releases Issued in the 1980s.............. 38-13[B][1] SEC Release 770 ............................................... 38-13[B][1][a] In the Business ............................................... 38-14[B][1][b] Advice Given .................................................. 38-15[B][1][c] For Compensation .......................................... 38-15[B][1][d] Conflicts and Disclosure Considerations ....... 38-15[B][2] SEC Release 1092 ............................................. 38-16[B][2][a] In the Business Clarified ................................ 38-16[B][2][b] Advice Given Clarified.................................... 38-17[B][2][c] Conflicts and Disclosure Considerations

Expanded ........................................................ 38-17[C] Scope of Broker-Dealer Exclusion .......................... 38-18[C][1] Solely Incidental Services .................................. 38-18[C][2] Applicability to Associated Persons................... 38-19[C][3] Designations ..................................................... 38-20[C][4] Associated Person Registered

As Investment Adviser ...................................... 38-21

(Inv. Adv. Reg., Rel. #11, 6/17)

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[C][5] Insurance Advice ............................................... 38-21[C][6] Changing Hats .................................................. 38-21

§ 38:3.3 Exclusions for Other Professionals........................ 38-23§ 38:3.4 1996 Amendments to the Investment

Advisers Act........................................................... 38-23§ 38:3.5 Fee-Based Brokerage Account Rule........................ 38-24

[A] Rulemaking History of the FBA Rule .................... 38-25[B] Implications for Financial Planning Services......... 38-27[C] Subsequent Guidance ............................................ 38-29[D] Vacating of FBA Rule ............................................. 38-30[E] New Proposed Rule 202(a)(11)-1 ........................... 38-30[F] Financial Planning After Vacating of Rule ............. 38-31[F][1] Implications for Broker-Dealers ........................ 38-31[F][2] Implications for Insurance Agents .................... 38-31[F][3] Implications for Other Planning Services ......... 38-32

§ 38:4 Dodd-Frank Act Implications for FinancialPlanning ....................................................................... 38-32

Chapter 39 Regulation and Supervision of FinancialPlanning Business


§ 39:1 Overview......................................................................... 39-3§ 39:2 Sources of Regulation ..................................................... 39-4

§ 39:2.1 Fiduciary Obligations of Investment Advisers ........ 39-4§ 39:2.2 The Dodd-Frank Act and Fiduciary Issues ............. 39-6§ 39:2.3 Evolution of Federal and State Regulation of

Financial Planners ................................................... 39-8[A] Generally ................................................................. 39-8[B] Investment Advisers Act Release No. 1092............. 39-8[C] State Law ................................................................. 39-9[D] NASAA Model Rules and Amendment to the

Uniform Securities Act of 1956............................. 39-10§ 39:2.4 State Investment Adviser Representative

Licensing and Qualification .................................. 39-12§ 39:2.5 Reallocation of Federal and State Investment

Adviser Authority Under NSMIA ......................... 39-14§ 39:3 Advisers Act Rule 202(a)(11)-1, Subsequent

Litigation Overturning It, and Financial Planning ....... 39-15§ 39:3.1 Generally ............................................................... 39-15§ 39:3.2 2005 SIFMA (then SIA) No-Action Letter............ 39-16

[A] Generally ............................................................... 39-16[B] Dual Registrants “Holding Out” Investment

Advisory Services ................................................... 39-17


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[C] “Financial Plans” Offered by Advisers and“Financial Tools” Offered by Broker-Dealers ......... 39-17

[D] Is “Hat Switching” by Dual RegistrantsBetween Advisory and Broker-Dealer ActivityStill Permitted? ...................................................... 39-18

[E] Is Listing a CFP Designation on a BusinessCard “Holding Out”?............................................. 39-19

§ 39:3.3 Effect of FPA Litigation on Financial PlanningRegulation.............................................................. 39-19

[A] Generally ............................................................... 39-19[B] Transfer to Traditional, Commission-Based

Brokerage Accounts ............................................... 39-20[C] Transfer to Non-Discretionary

Wrap-Fee Accounts ................................................ 39-22§ 39:3.4 SEC Guidance Regarding the Limitations of the

Broker-Dealer Exclusion ofSection 202(a)(11)(C)............................................. 39-22

[A] Generally ............................................................... 39-22[B] Separate Contract or Fee for Investment

Advisory Services ................................................... 39-22[C] Exercise of Investment Discretion ......................... 39-23[D] Price Differential.................................................... 39-23

§ 39:4 Financial Planning—What Is It? .................................. 39-24§ 39:4.1 Generally ............................................................... 39-24§ 39:4.2 Establishing and Defining the Client-Planner

Relationship........................................................... 39-25§ 39:4.3 Gathering Client Data, Including Goals .............. 39-25§ 39:4.4 Analyzing and Evaluating Clients’ Financial

Status..................................................................... 39-26§ 39:4.5 Developing and Presenting Financial Planning

Recommendations and/or Alternatives ................. 39-26§ 39:4.6 Implementing the Financial Planning

Recommendations ................................................. 39-26§ 39:4.7 Monitoring the Financial Planning

Recommendations ................................................. 39-27§ 39:5 Compliance Issues........................................................ 39-27

§ 39:5.1 The Financial Planning Agreement ...................... 39-27§ 39:5.2 Financial Planning Fees ........................................ 39-29

[A] Generally ............................................................... 39-29[B] What Is a Reasonable Fee? .................................... 39-29[C] Supervising the Reasonableness of Financial

Planning Fees......................................................... 39-30[D] Relationship of Financial Planning Fees to

Other Fees Charged by the Adviser ....................... 39-30§ 39:5.3 Supervisory Issues Unique to Planning ................ 39-32

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 39:5.4 Supervision of “Robo-Adviser” FinancialPlanning Services................................................... 39-32

[A] Robo-Advice Generally .......................................... 39-33[B] Supervision and Compliance Obligations for

Robo-Planning ....................................................... 39-36§ 39:6 Obligations Imposed by the Certified Financial

Planners Board of Standards on CFPs .......................... 39-38§ 39:6.1 A Brief History of the CFP Board of Standards ... 39-38§ 39:6.2 CFP Certification Process...................................... 39-39

[A] Generally ............................................................... 39-39[B] Education Requirements........................................ 39-40[C] Examination Requirements ................................... 39-40[D] Candidate Fitness Standards ................................. 39-41[E] Experience.............................................................. 39-42[F] Ethics..................................................................... 39-42

§ 39:6.3 Code of Ethics and Professional Responsibility .... 39-43§ 39:6.4 Rules of Conduct................................................... 39-44§ 39:6.5 Financial Planning Practice Standards .................. 39-45§ 39:6.6 Disciplinary Rules and Procedures........................ 39-47

§ 39:7 Conclusion ................................................................... 39-48

Chapter 40 Broker-Dealer Advisory Services

Mari-Anne Pisarri

§ 40:1 Introduction ................................................................... 40-2§ 40:2 Coverage Under the Investment Advisers Act................ 40-3

§ 40:2.1 The Twists and Turns of the Broker-DealerException Rule......................................................... 40-3

§ 40:3 Trading Restrictions on Dual-Registered Firms.............. 40-4§ 40:3.1 Section 206(3) of the Investment Advisers Act ...... 40-4

[A] No-Action Relief Given Under Section 206(3) ........ 40-5[A][1] Investments in Affiliated Mutual Funds ............. 40-5[A][2] Extension of Margin Credit and Facilitating

Short Sales As Part of Providing PrimeBrokerage............................................................. 40-6

[A][3] Plan Sponsor of a Wrap-Fee Program .................. 40-6[A][4] Trades Effected As Part of a Quantitative,

Model-Driven Management Program.................. 40-7[B] Temporary Rule Regarding Principal Trades ............ 40-7

§ 40:3.2 Investment Advisers Act Antifraud Provisions ..... 40-10§ 40:3.3 ERISA .................................................................... 40-10§ 40:3.4 Investment Company Act ..................................... 40-11§ 40:3.5 Securities Exchange Act ........................................ 40-11

§ 40:4 Advertising Restrictions Applying to Dual-RegisteredFirms...............................................................................40-12


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(Inv. Adv. Reg., Rel. #11, 6/17)

§ 40:4.1 The Investment Advisers Act................................ 40-12§ 40:4.2 FINRA Rule Governing Broker-Dealer

Advertising............................................................. 40-13§ 40:4.3 Comparing the Two Rules .................................... 40-13

§ 40:5 Referral Fees ................................................................. 40-14§ 40:5.1 FINRA Rule 3220.................................................. 40-14§ 40:5.2 FINRA Rule 3270 (Formerly NASD Rule 3030) ......40-15§ 40:5.3 State Registration .................................................. 40-15

§ 40:6 Supervision................................................................... 40-15§ 40:6.1 General Supervisory Requirements ....................... 40-15§ 40:6.2 Special Supervisory Requirements Applying to

Registered Representative Advisory ActivityConducted Through an Independent Adviser....... 40-16

[A] FINRA Rule 3270 and FINRA/NASDRule 3040 .............................................................. 40-17

[B] FINRA/NASD Rule 3050....................................... 40-18§ 40:7 Regulation of Research Analysts................................... 40-19

§ 40:7.1 The SRO Analyst Rules ........................................ 40-19§ 40:7.2 Regulation AC ....................................................... 40-20

§ 40:8 Disclosure Issues—Form ADV ..................................... 40-21§ 40:9 Record-Keeping Requirements ...................................... 40-22

§ 40:9.1 General Requirements ........................................... 40-22§ 40:9.2 Living with Two Sets of Rules .............................. 40-23

§ 40:10 Custody Issues ............................................................. 40-23§ 40:11 The Dodd-Frank Act Weighs In ................................... 40-25

Chapter 41 Insurance Company Agent Advisory Activity

Clifford E. Kirsch & Robert Rosenthal

§ 41:1 Introduction ................................................................... 41-2§ 41:1.1 Types of Investment Advisory Services

Conducted by Insurance Agents ............................. 41-2[A] Financial Planning................................................... 41-2[B] Managing Investment Portfolios.............................. 41-3

§ 41:1.2 Structural Models for Conducting AgentAdvisory Activity ..................................................... 41-3

§ 41:2 The Advisers Act ............................................................ 41-4§ 41:2.1 What Activity Is Covered by the Advisers Act? ..... 41-4

[A] Availability of the Broker-Dealer Exclusion ............. 41-4[A][1] Insurance Services/Needs Analysis Provided

in Connection with Traditional Products(i.e., Outside of the Broker-Dealer Capacity)....... 41-5

[A][2] Insurance Services/Needs Analysis Providedin Connection with Variable InsuranceProducts (i.e., Within the Broker-DealerCapacity) ............................................................. 41-6

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[A][3] Holding Out As a Financial Planner/Use ofProfessional Designations ................................... 41-6

[A][4] Fee-Based Financial Planning .............................. 41-7[A][5] Wrap-Fee Products............................................... 41-7

§ 41:2.2 Practical Application of the Advisers Act toInsurance Company Agent Advisory Services......... 41-7

§ 41:3 State Securities Laws .................................................... 41-10§ 41:4 State Insurance Law ..................................................... 41-10

§ 41:4.1 Agent Title Regulation .......................................... 41-10§ 41:4.2 Disclosures Related to Dual Role As Financial

Planner/Insurance Agent ....................................... 41-10§ 41:4.3 Insurance Consulting Laws................................... 41-11§ 41:4.4 Anti-Rebate Statutes.............................................. 41-11

§ 41:5 FINRA .......................................................................... 41-11

PART XI: Advisory Products

Chapter 42 Mutual Funds

Clifford E. Kirsch & Bibb L. Strench

§ 42:1 A Brief History of the Mutual Fund Industry ................ 42-2§ 42:2 The Players................................................................... 42-11

§ 42:2.1 Mutual Funds........................................................ 42-11§ 42:2.2 Investment Adviser................................................ 42-12§ 42:2.3 Board of Directors ................................................. 42-12§ 42:2.4 Administrator ........................................................ 42-13§ 42:2.5 Underwriter or Distributor.................................... 42-13§ 42:2.6 Custodian .............................................................. 42-14§ 42:2.7 Transfer Agent ....................................................... 42-14§ 42:2.8 Independent Auditors ............................................ 42-14§ 42:2.9 Legal Counsel ........................................................ 42-14§ 42:2.10 Chief Compliance Officer ..................................... 42-14§ 42:2.11 Shareholders .......................................................... 42-15

§ 42:3 Organizational Structure .............................................. 42-15§ 42:3.1 The Mutual Fund Complex .................................. 42-15§ 42:3.2 The Adviser and the Board ................................... 42-16§ 42:3.3 The Fund’s Distribution Structure ....................... 42-17§ 42:3.4 Portfolio Management Structure ........................... 42-18§ 42:3.5 Marketing Structures............................................. 42-19

§ 42:4 Regulatory Framework.................................................. 42-21§ 42:4.1 Overview of the Investment Company Act .......... 42-21§ 42:4.2 Restrictions on Advisory Services ......................... 42-22

[A] Prospectus Disclosure ............................................ 42-22[B] Controls Over the Advisory Contract.................... 42-23


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[C] Corporate Structure ............................................... 42-23[D] Private Right of Action .......................................... 42-24[E] Affiliated Transactions........................................... 42-24[F] Restrictions on Investments .................................. 42-25

§ 42:4.3 Restrictions on Capital Structure.......................... 42-26[A] Prohibition on Debt Issuance ................................ 42-26[B] Issuance of Redeemable Shares.............................. 42-26[C] Pricing of Shares .................................................... 42-26

§ 42:4.4 Restrictions on Sales of Fund Shares.................... 42-27[A] Limits on Sales Load ............................................. 42-27[B] Financing Distribution Through Fund Assets ....... 42-27[C] Advertising Regulations ......................................... 42-27

§ 42:4.5 Administration of the Investment CompanyAct: The Role of the SEC ..................................... 42-29

[A] SEC Inspections..................................................... 42-29[B] Enforcement .......................................................... 42-30

§ 42:5 Application of the Advisers Act.................................... 42-30

Chapter 43 Wrap Fee Programs

Clifford E. Kirsch

§ 43:1 Introduction ................................................................... 43-2§ 43:1.1 The Players.............................................................. 43-2

[A] The Sponsor ............................................................ 43-2[B] The Role of the Manager......................................... 43-4[C] Investment Adviser Representative.......................... 43-5[D] Platform Provider..................................................... 43-5

§ 43:1.2 The Various Types of Programs .............................. 43-5§ 43:1.3 Overview of Legal Issues ......................................... 43-6

§ 43:2 Disclosure....................................................................... 43-6§ 43:3 Client Account Issues .................................................... 43-7§ 43:4 Status Questions ............................................................ 43-7

§ 43:4.1 Status of the Sponsor and Any RegisteredRepresentatives Under the Advisers Act ................. 43-8

[A] Sponsor Registration................................................ 43-8[B] Registered Representative Registration .................... 43-8

§ 43:4.2 Status of the Manager and Its Implications........... 43-8§ 43:4.3 Status of the Wrap Fee Program Under the

Investment Company Act and theSecurities Act........................................................... 43-9

§ 43:5 Issues Related to Trading.............................................. 43-10§ 43:5.1 Trade Confirmations ............................................. 43-12

§ 43:6 Suitability ..................................................................... 43-13§ 43:7 Compensation Arrangements....................................... 43-14

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 43:8 Marketing Issues .......................................................... 43-15§ 43:8.1 Generally ............................................................... 43-15§ 43:8.2 Performance Presentation...................................... 43-15

§ 43:9 Bank Sponsored Programs............................................ 43-16§ 43:10 ERISA Considerations .................................................. 43-18§ 43:11 Conclusion ................................................................... 43-18

Chapter 44 Mutual Fund Asset Allocation Programs

Jeffrey O. Himstreet & Clifford E. Kirsch

§ 44:1 Background..................................................................... 44-2§ 44:2 Mutual Fund Wrap Programs Versus Investment

Advisory Wrap Fee Programs Generally.......................... 44-2§ 44:2.1 Wrap Fee Programs Generally ................................. 44-2§ 44:2.2 Mutual Fund Wrap Programs.................................. 44-3§ 44:2.3 Target Date Asset Allocation Programs .................. 44-5

§ 44:3 An Adviser ’s Obligations When SponsoringWrap Fee Programs......................................................... 44-5

§ 44:3.1 Background .............................................................. 44-5§ 44:3.2 Potential Conflicts................................................... 44-7

§ 44:4 Special Disclosure Considerations—Use ofthe Form ADV Part 2A Appendix 1 ..................................44-9

§ 44:5 Relevant Enforcement Activity ..................................... 44-10§ 44:5.1 Undisclosed Favoring of an Adviser ’s

Proprietary Funds .................................................. 44-10[A] Bank of America Investment Services, Inc. ........... 44-10[B] J.P. Morgan Securities and

JPMorgan Chase Bank, N.A. ................................. 44-12§ 44:5.2 New England Securities Corp. .............................. 44-14

§ 44:6 SEC Guidance Regarding Target Date Products ........... 44-14§ 44:7 Conclusion ................................................................... 44-16

Chapter 45 Model-Based Wrap Fee Programs

Alexandra Poe & George F. Magera

§ 45:1 Introduction ................................................................... 45-1§ 45:2 Exemption from the Company Act ................................ 45-3§ 45:3 Relationships and General Duties to Clients ................. 45-3§ 45:4 Disclosures ..................................................................... 45-5§ 45:5 Best Execution ................................................................ 45-7§ 45:6 Aggregation and Allocation of Trades............................. 45-7§ 45:7 Principal Trading ............................................................ 45-8§ 45:8 Suitability ....................................................................... 45-8§ 45:9 Performance Presentation............................................... 45-9


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PART XII: Private Funds

Chapter 45A Ability of an Investment Adviser toRely on Common Registration

Jesse P. Kanach & Nathan J. Greene

§ 45A:1 Introduction .................................................................45A-2§ 45A:2 Events of 2005 and 2006 .............................................45A-2

§ 45A:2.1 The 2005 ABA Letter Generally ...........................45A-2§ 45A:2.2 The “2005 Conditions” ........................................45A-3§ 45A:2.3 The 2006 ABA Letter............................................45A-3

§ 45A:3 The 2012 ABA Letter and “Relying Adviser”Guidance ......................................................................45A-4

§ 45A:3.1 The 2012 ABA Letter ’s Guidance Concerningthe 2005 ABA Letter .............................................45A-4

[A] Continued Applicability of the 2005 ABA Letter.... 45A-4[B] Multiple SPVs Under the 2005 ABA Letter...........45A-4[C] SPVs Having Independent Directors .....................45A-4

§ 45A:3.2 “Relying Advisers” .................................................45A-5[A] Eligibility to Be a Relying Adviser..........................45A-5[B] Form ADV Disclosure About Relying Advisers .....45A-6[C] Regulatory Status of Relying Advisers ...................45A-6

§ 45A:4 2015 Proposed “Umbrella” Registration.......................45A-7§ 45A:5 Conclusion ...................................................................45A-7

Chapter 45B Private Fund Reporting by Investment Advisers

Jesse P. Kanach & Nathan J. Greene

§ 45B:1 Introduction ................................................................ 45B-2§ 45B:2 Private Fund Reporting on Form ADV ........................ 45B-3

§ 45B:2.1 Investment Advisers That Must Report onPrivate Funds on Form ADV ................................ 45B-3

§ 45B:2.2 “Private Funds”...................................................... 45B-3[A] Definition of “Private Funds” ................................ 45B-3[B] Special Situations and

Certain Interpretive Issues .................................... 45B-3§ 45B:2.3 Content of Private Fund Reports on Form ADV..... 45B-5

[A] Item 7.B. of Part 1 of Form ADV .......................... 45B-5[B] Item 7.B.(1) of Schedule D of Form ADV.............. 45B-5[C] Item 7.B.(2) of Schedule D of Form ADV.............. 45B-7

§ 45B:3 Private Fund Reporting on Form PF............................ 45B-7§ 45B:3.1 Form PF Generally ................................................ 45B-7§ 45B:3.2 Dodd-Frank Act’s Requirements for the Content of

Private Fund Reports ............................................... 45B-8

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 45B:3.3 Investment Advisers That Must Report onForm PF................................................................. 45B-9

[A] Registered with the SEC ........................................ 45B-9[B] $150 Million in Regulatory AUM ......................... 45B-9[B][1] Aggregation ....................................................... 45B-9[B][1][a] Parallel Managed Accounts........................... 45B-10[B][1][b] Related Persons That Advise Private Funds .... 45B-10[B][2] Calculation of Regulatory AUM...................... 45B-11

§ 45B:3.4 Funds to Which Form PF Applies ...................... 45B-11[A] Hedge Funds ........................................................ 45B-12[B] Liquidity Funds.................................................... 45B-12[C] Private Equity Funds............................................ 45B-12[D] Real Estate Funds ................................................ 45B-12[E] Securitized Asset Funds ....................................... 45B-13[F] Venture Capital Funds......................................... 45B-13[F][1] “Grandfathering” ............................................. 45B-13[F][2] “Venture Capital Funds” ................................. 45B-13[G] Other Funds......................................................... 45B-14

§ 45B:3.5 Categories of Form PF Filers .............................. 45B-14[A] Large Private Fund Advisers................................. 45B-14[B] Smaller Private Fund Advisers ............................. 45B-15

§ 45B:3.6 Content of Form PF Reports............................... 45B-15[A] Section 1 of Form PF: Identifying Information..... 45B-15[B] Section 2 of Form PF: Hedge Funds .................... 45B-17[C] Section 3 of Form PF: Liquidity Funds ................ 45B-18[D] Section 4 of Form PF: Private Equity Funds ........ 45B-19

§ 45B:3.7 Special Situations and Certain InterpretiveIssues .................................................................. 45B-20

§ 45B:3.8 Form PF Reporting Deadlines ............................ 45B-21§ 45B:3.9 Recordkeeping..................................................... 45B-21

[A] Recordkeeping Rules to Come ............................ 45B-21[B] Maintaining Special Client Designations in

Adviser ’s Records................................................ 45B-22§ 45B:3.10 Filing Details ...................................................... 45B-22

[A] Private Fund Reporting Depository (PFRD) ........ 45B-22[B] Filing Fees........................................................... 45B-22

§ 45B:3.11 Confidentiality.................................................... 45B-22

Chapter 46 Hedge Funds

Scott J. Lederman

§ 46:1 Introduction ................................................................... 46-4§ 46:2 What Exactly Is a Hedge Fund?...................................... 46-6

§ 46:2.1 Diverse Strategies .................................................... 46-6§ 46:2.2 Common Characteristics ........................................ 46-8


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§ 46:3 Raising Capital ............................................................... 46-9§ 46:3.1 Private Placement .................................................... 46-9

[A] Regulation D............................................................ 46-9[B] Accredited Investors............................................... 46-10[B][1] Adjustments and Review of the Accredited

Investor Standard .............................................. 46-10[B][2] Proposed Amendments: “Accredited Natural

Person” ................................................................46-12[B][3] Proposed Amendments: Alternative

“Investments-Owned” Standard andExemption for “Large Accredited Investors”........46-15

[C] Non-Accredited Investors ...................................... 46-16[D] Disclosure Requirements ....................................... 46-17[E] Manner of the Offering.......................................... 46-19[F] Limits on Resales .................................................. 46-21[G] Disqualified Offerings............................................ 46-22[H] Post-Sale Filing ...................................................... 46-22

§ 46:3.2 State Law Preemption ........................................... 46-27§ 46:3.3 Related Considerations Affecting the Size and

Scope of the Private Placement............................. 46-29§ 46:3.4 FINRA Considerations .......................................... 46-34§ 46:3.5 Commodity Pools.................................................. 46-36

[A] Disclosure Document............................................ 46-37[B] Reporting and Record-Keeping............................... 46-42[C] Exemptions from Disclosure, Reporting, and

Record-Keeping Requirements ............................... 46-43[C][1] Rule 4.12(b) ....................................................... 46-43[C][2] Rule 4.7............................................................. 46-44[C][3] Offshore Commodity Pools............................... 46-49[C][4] Electronic Filing ................................................ 46-51

§ 46:4 Private Investment Company Exception ...................... 46-51§ 46:4.1 Hybrid Funds......................................................... 46-57

§ 46:5 Hedge Fund Manager ................................................... 46-58§ 46:5.1 Bifurcated Regulation ............................................ 46-59

[A] Federal Registration ............................................... 46-64[B] Implications of Federal Registration ...................... 46-73

§ 46:5.2 Exemption from Registration ................................ 46-80[A] Private Adviser Exemption..................................... 46-80[B] Private Fund Exemptions....................................... 46-81[B][1] The Private Fund............................................... 46-81[B][2] Private Fund Adviser Exemption ....................... 46-81[B][3] Venture Capital Funds ...................................... 46-83[B][4] Exempt Reporting Advisers ............................... 46-85[B][5] Foreign Private Advisers .................................... 46-89[B][6] Other Exemptions from Registration ................ 46-91

(Inv. Adv. Reg., Rel. #11, 6/17)

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[B][6][a] Intra-State Exemption .................................... 46-91[B][6][b] CTA Exemption.............................................. 46-92[B][6][c] Family Office .................................................. 46-92[C] Jurisdictional Reach of Advisory Regulators .......... 46-92[C][1] State Oversight.................................................. 46-92[C][2] Federal Anti-Fraud Rule .................................... 46-93

§ 46:5.3 Performance-Based Compensation ........................ 46-95§ 46:5.4 Privacy Regulations ............................................... 46-97§ 46:5.5 Anti-Money Laundering Regulations .................. 46-100§ 46:5.6 Commodity Pool Operator .................................. 46-102§ 46:5.7 Commodity Trading Adviser ............................... 46-103§ 46:5.8 Registration of CPOs and CTAs ......................... 46-103§ 46:5.9 Exclusions and Exemptions from Registration

of CPOs and CTAs ............................................. 46-104[A] Section 4.5 Exclusion from the Definition of

Commodity Pool Operator .................................. 46-104[B] Section 4.13 Exemptions from Registration

As a Commodity Pool Operator .......................... 46-106[B][1] Section 4.13(a)(1) No Compensation

Exemption ....................................................... 46-106[B][2] Section 4.13(a)(2) Small Operator

Exemption ....................................................... 46-107[B][3] Section 4.13(a)(3) Limited Futures

Trading Exemption.......................................... 46-107[B][4] Section 4.13(a)(4) Sophisticated Investor

Exemption ....................................................... 46-108[C] Exemptions from Registration As a Commodity

Trading Adviser.................................................... 46-110[C][1] Section 4.14(a)(4) and (a)(5) CPO

Exemptions ..................................................... 46-110[C][2] Section 4.14(a)(8) Registered Investment

Adviser Exemption .......................................... 46-110[C][3] Section 4.14(a)(10) Private CTA

Exemption...................................................... 46-111[D] Electronic Filing................................................... 46-112

§ 46:6 Market Participation................................................... 46-112§ 46:6.1 Broker-Dealer Status............................................ 46-113§ 46:6.2 New Issues .......................................................... 46-114

[A] Rule 5130 ............................................................ 46-114[B] Rule 5131 ............................................................ 46-119

§ 46:6.3 Soft Dollars ......................................................... 46-121[A] Goods or Services Provided by the Broker ........... 46-123[B] Investment Discretion ......................................... 46-124[C] Good-Faith Determination .................................. 46-125[D] Brokerage and Research Services ......................... 46-125[D][1] Research .......................................................... 46-126


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[D][2] Brokerage......................................................... 46-127[D][3] Mixed-Use Items............................................. 46-128[D][4] Lawful and Appropriate Assistance ................. 46-129[E] Operating Outside the Safe Harbor ..................... 46-130

§ 46:6.4 Sections 13(d) and 13(g) ..................................... 46-130§ 46:6.5 Section 13(f) ........................................................ 46-133§ 46:6.6 Section 13(h) ....................................................... 46-133§ 46:6.7 Section 16............................................................ 46-138§ 46:6.8 Additional Reporting Considerations .................. 46-140

§ 46:7 Systemic Risk Regulation ........................................... 46-142§ 46:7.1 Financial Stability Oversight Council ................. 46-142§ 46:7.2 Nonbank Financial Company ............................. 46-143

[A] Supervision and Regulation of CertainNonbank Financial Companies ........................... 46-144

[B] Prudential Regulation .......................................... 46-145[C] Reporting ............................................................. 46-148[D] Orderly Liquidation ............................................. 46-150[E] Systemic Risk Information .................................. 46-152

§ 46:8 Derivatives Markets Participants................................ 46-159§ 46:8.1 Regulatory Jurisdiction Over Swaps .................... 46-160§ 46:8.2 Clearing and Exchange Trading .......................... 46-162§ 46:8.3 Swap Dealers and Major Swap Participants ....... 46-162

[A] Definition of “Swap Dealer” and“Security-Based Swap Dealer” ............................. 46-162

[B] Definition of “Major Swap Participant” and“Major Security-Based Swap Participant” ............ 46-167

[C] Registration.......................................................... 46-172[D] Regulatory Capital and Margin ........................... 46-173[E] Reporting and Record-Keeping............................. 46-174[F] Compliance Duties.............................................. 46-176[F][1] Risk Management ........................................... 46-177[F][2] Monitoring of Position Limits......................... 46-178[F][3] Diligent Supervision........................................ 46-179[F][4] Business Continuity and Disaster

Recovery .......................................................... 46-179[F][5] Disclosure and Ability to Obtain

Information ..................................................... 46-179[F][6] Antitrust Considerations................................. 46-179[F][7] Chief Compliance Officer ............................... 46-179[G] Business Conduct Standards ............................... 46-182[G][1] Anti-Fraud and Anti-Manipulation

Regulations...................................................... 46-183[G][1][a] Swaps............................................................ 46-183[G][1][b] Security-Based Swaps.................................... 46-185[G][2] Verification of Counterparty Eligibility ........... 46-187

(Inv. Adv. Reg., Rel. #11, 6/17)

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[G][3] Disclosure of Material Risks, Characteristics,Material Incentives and Conflicts of InterestRegarding a Swap ............................................ 46-188

[G][4] Daily Mark...................................................... 46-189[G][5] Clearing........................................................... 46-190[G][6] Communications—Fair Dealing ..................... 46-190[G][7] Recommendations to Counterparties—

Institutional Suitability ................................... 46-190[G][8] Execution Standards........................................ 46-191[G][9] Swap Documentation Standards ..................... 46-192[G][10] Portfolio Confirmation, Reconciliation

and Compression ............................................ 46-193[G][10][a] Portfolio Confirmation ................................. 46-193[G][10][b] Portfolio Reconciliation ................................ 46-195[G][10][c] Portfolio Compression .................................. 46-196[G][11] Conflicts of Interest ........................................ 46-196[H] Special Obligations Regarding Special Entity....... 46-198

§ 46:9 Rationale for Regulation............................................. 46-198

Chapter 46A The Hedge Fund Manager—Practical Compliance Considerations

Scott J. Lederman

§ 46A:1 Introduction ................................................................ 46A-4§ 46A:2 Bifurcated Regulation .................................................. 46A-4

§ 46A:2.1 Eligibility for Federal Registration......................... 46A-6[A] Assets Under Management ................................... 46A-7[B] Mid-Sized Advisers ................................................ 46A-9[C] Switching Between Federal and

State Registration................................................. 46A-10§ 46A:2.2 Eligibility for State Registration .......................... 46A-11§ 46A:2.3 Exemption from Federal Registration.................. 46A-12

[A] Private Adviser Exemption................................... 46A-12[B] Private Fund Exemptions..................................... 46A-13[B][1] The Private Fund............................................. 46A-13[B][2] Private Fund Adviser Exemption ..................... 46A-13[B][2][a] U.S. Advisers ................................................ 46A-14[B][2][b] Non-U.S. Advisers ........................................ 46A-15[B][2][c] Private Fund Assets ...................................... 46A-15[B][3] Venture Capital Funds .................................... 46A-16[B][3][a] Qualifying Investments ................................ 46A-17[B][3][b] Limitation on Leverage................................. 46A-19[B][3][c] Redemption Rights ....................................... 46A-19[B][3][d] Venture Capital Strategy Representation ...... 46A-19[B][3][e] Private Fund Status ...................................... 46A-20[B][3][f] Grandfathered Funds .................................... 46A-20


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[B][4] Exempt Reporting Advisers .............................46A-21[C] Other Exemptions ...............................................46A-25[C][1] Intra-State Exemption .....................................46A-25[C][2] CTA Exemption ..............................................46A-25[C][3] Family Office...................................................46A-25[C][3][a] Family Clients ..............................................46A-27[C][3][b] Family Member ............................................46A-27[C][3][c] Key Employees..............................................46A-28[C][3][d] Ownership and Control................................46A-29[C][3][e] Grandfather Provision ..................................46A-29

§ 46A:2.4 Exemption from State Registration.....................46A-29§ 46A:2.5 Jurisdictional Reach of Advisory Regulations .....46A-30

[A] State Oversight ....................................................46A-30[B] Federal Anti-Fraud Rule.......................................46A-31

§ 46A:3 Offshore Managers ....................................................46A-34§ 46A:3.1 Foreign Private Advisers ......................................46A-34

[A] Clients .................................................................46A-35[B] Private Fund Investors .........................................46A-37[C] In the United States ............................................46A-37[D] Assets Under Management .................................46A-38[E] Holding Out ........................................................46A-38[F] Adviser Lite..........................................................46A-39

§ 46A:3.2 Affiliation with Domestic Managers...................46A-40§ 46A:4 Registration Process...................................................46A-44§ 46A:5 Compliance Manuals and Codes of Ethics................46A-53

§ 46A:5.1 Compliance Policies ............................................46A-53§ 46A:5.2 Chief Compliance Officer ...................................46A-54§ 46A:5.3 Code of Ethics .....................................................46A-57§ 46A:5.4 Whistleblowers ....................................................46A-62

[A] Definition of Whistleblower ................................46A-63[B] Payment of Award ...............................................46A-63[B][1] Voluntary Provision of Information ................46A-64[B][2] Original Information.......................................46A-65[B][3] Information That Leads to a Successful

Enforcement ....................................................46A-67[B][4] SEC Action......................................................46A-68[C] Interplay Between Whistleblower Regime and

Compliance Policies and Procedures ...................46A-68§ 46A:6 Books and Records ....................................................46A-69

§ 46A:6.1 General Requirements .........................................46A-69§ 46A:6.2 Systemic Risk Information..................................46A-74

[A] Records and Reports ............................................46A-74[B] Form PF...............................................................46A-75[B][1] Form PF Filers.................................................46A-76[B][1][a] Hedge Funds.................................................46A-77

(Inv. Adv. Reg., Rel. #11, 6/17)

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[B][1][b] Large Private Fund Advisers .........................46A-78[B][1][c] Exempt Reporting Advisers...........................46A-78[B][1][d] Aggregation of Assets Under Management.... 46A-79[B][2] Frequency of Reporting....................................46A-79[B][3] Information Required on Form PF..................46A-80[B][3][a] Section 1.......................................................46A-80[B][3][b] Section 2.......................................................46A-81[B][4] Forms CPO-PQR and CTA-PR .......................46A-82[B][4][a] Form CPO-PQR............................................46A-82[B][4][a][i] Form CPO-PQR Schedule A .....................46A-84[B][4][a][ii] Form CPO-PQR Schedule B......................46A-84[B][4][a][iii] Form CPO-PQR Schedule C .....................46A-85[B][4][b] Form CTA-PR...............................................46A-86[C] Confidentiality of Records and Reports ...............46A-86

§ 46A:7 Custody .....................................................................46A-88§ 46A:7.1 Custody Defined..................................................46A-88§ 46A:7.2 Qualified Custodian ............................................46A-89§ 46A:7.3 Notices and Account Statements........................46A-89§ 46A:7.4 Surprise Examinations and Annual Audit

Exception .............................................................46A-91§ 46A:7.5 Internal Control Report ......................................46A-93§ 46A:7.6 Privately Offered Securities .................................46A-94§ 46A:7.7 Special Purpose Vehicles......................................46A-95§ 46A:7.8 Custody-Related Compliance Policies and

Procedures............................................................46A-95§ 46A:7.9 Section 223..........................................................46A-96

§ 46A:8 Proxy Voting ..............................................................46A-96§ 46A:9 Privacy Regulations ...................................................46A-99§ 46A:10 Business Continuity ................................................46A-107§ 46A:11 Performance Fees.....................................................46A-110

§ 46A:11.1 Securities Law Considerations ..........................46A-110§ 46A:11.2 Tax Considerations............................................46A-112

§ 46A:12 State Advisory Regulation........................................46A-119§ 46A:13 Commodity Pool Operators and Commodity

Trading Advisers ......................................................46A-119§ 46A:13.1 Commodity Pool Operator ................................46A-119§ 46A:13.2 Commodity Trading Adviser .............................46A-120§ 46A:13.3 Registration........................................................46A-120§ 46A:13.4 Exclusions and Exemptions from

Registration ......................................................... 46A-123[A] Section 4.5 Exclusion from the Definition of

Commodity Pool Operator ................................46A-123[B] Section 4.13 Exemptions from Registration

As a Commodity Pool Operator ........................46A-126


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[B][1] Section 4.13(a)(1) No CompensationExemption .....................................................46A-126

[B][2] Section 4.13(a)(2) Small OperatorExemption .....................................................46A-127

[B][3] Section 4.13(a)(3) Limited Futures TradingExemption .....................................................46A-127

[B][4] Section 4.13(a)(4) Sophisticated InvestorExemption .....................................................46A-128

[C] Exemptions from RegistrationAs a Commodity Trading Adviser .....................46A-130

[C][1] Section 4.14(a)(4) and (a)(5) CPOExemptions ...................................................46A-130

[C][2] Section 4.14(a)(8) Registered InvestmentAdviser Exemption ........................................46A-130

[C][3] Section 4.14(a)(10) Private CTAExemption .....................................................46A-132

[D] Electronic Filing.................................................46A-133

Chapter 47 Private Equity Funds: Legal Analysis ofStructural, ERISA, Securities and OtherRegulatory Issues

Amanda N. Persaud & Adrienne Atkinson

§ 47:1 Introduction ................................................................... 47-3§ 47:1.1 What Is a Private Equity Fund?.............................. 47-3

§ 47:2 A Typical Private Equity Fund ........................................ 47-4§ 47:2.1 Fund Structure......................................................... 47-4§ 47:2.2 Management of the Fund........................................ 47-5§ 47:2.3 Allocation of Profits ................................................ 47-7§ 47:2.4 Other Common Provisions ..................................... 47-8

§ 47:3 Form of the Private Equity Fund(Tax and Liability Issues) .............................................. 47-10

§ 47:3.1 Partnership............................................................. 47-10[A] Tax Considerations of the Partnership Form......... 47-10[A][1] No Federal Income Tax at the Fund Level ........ 47-10[A][2] Tax Considerations for Tax-Exempt

Organizations .................................................... 47-11[A][3] Tax Considerations for Foreign Persons ............ 47-14[A][4] Special Tax Issues for Sovereign Wealth

Investors............................................................ 47-15[A][5] Pass-Through of Losses to Equity Owners ........ 47-16[A][6] Tax-Free Distribution of Property to Equity

Owners.............................................................. 47-16[A][6][a] Cash ............................................................... 47-16[A][6][b] Property .......................................................... 47-17

(Inv. Adv. Reg., Rel. #11, 6/17)

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[A][6][c] Marketable Securities ..................................... 47-17[A][7] Tax-Favored Treatment for Fund Sponsors........ 47-18[A][7][a] Tax-Favored Treatment of General Partner ’s

Carry .............................................................. 47-18[A][7][b] Management Fee Waivers ............................... 47-18[A][8] Utility of Foreign-Situs Partnerships in

Foreign Investments .......................................... 47-19[B] Other Advantages of the Partnership Form ........... 47-19[B][1] Limited Liability................................................ 47-19

§ 47:3.2 Limited Liability Company (LLC)......................... 47-21[A] Tax Issues .............................................................. 47-21[B] Liability Issues ....................................................... 47-22[C] Partnerships Still Predominate .............................. 47-22

§ 47:4 ERISA Issues ................................................................ 47-23§ 47:5 Securities Law Issues.................................................... 47-28

§ 47:5.1 Statutory Exemption: Section 4(a)(2) .................... 47-29§ 47:5.2 Regulation D ......................................................... 47-30

[A] Rule 506 ................................................................ 47-30[B] Look-Through........................................................ 47-35[C] Integration ............................................................. 47-36

§ 47:5.3 Other Exemptions ................................................. 47-37§ 47:6 Investment Company Act of 1940 ............................... 47-38

§ 47:6.1 Private Investment Fund Exemption .................... 47-40[A] One Hundred Beneficial Owners Limitation ......... 47-40[B] Look-Through Provisions ...................................... 47-41[B][1] Automatic Statutory Look-Through .................. 47-41[B][2] Secondary Look-Through Rules......................... 47-41[C] Knowledgeable Employees ..................................... 47-42

§ 47:6.2 Qualified Purchaser Fund Exemption ................... 47-43§ 47:7 Investment Advisers Act of 1940 ................................. 47-46

§ 47:7.1 Jurisdictional Provisions andExemptions Under Dodd-Frank ............................ 47-47

[A] Jurisdictional Provisions ........................................ 47-47[B] Exemptions from Registration ............................... 47-48[B][1] Venture Capital Fund Exemption...................... 47-48[B][2] Private Fund Exemption.................................... 47-50[B][3] Foreign Private Adviser Exemption ................... 47-50[B][4] Exempt Reporting Advisers ............................... 47-51

§ 47:7.2 Consequences of Registration ............................... 47-51§ 47:7.3 Carried Interest Exemptions ................................. 47-58

[A] Qualified Purchaser Funds..................................... 47-58[B] Rule 205-3: “Qualified Client” Exemption ............ 47-58

§ 47:8 Additional Regulations ................................................. 47-59§ 47:8.1 Gramm-Leach-Bliley Act Privacy Rule .................. 47-60§ 47:8.2 Gramm-Leach-Bliley Act Safeguards Rule............. 47-61


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§ 47:8.3 PATRIOT Act Anti-Money LaunderingPrograms................................................................ 47-62

§ 47:8.4 “Pay-to-Play,” Placement Agent Regulations andLobbying Laws..........................................................47-65

§ 47:8.5 EU AIFM Directive ............................................... 47-68§ 47:8.6 Foreign Corrupt Practices Act ............................... 47-69§ 47:8.7 Registration As a Broker-Dealer ............................ 47-70

§ 47:9 SEC Enforcement Focus on the PrivateEquity Industry............................................................. 47-71

Chapter 48 Advisers to Private Equity Funds—Practical Compliance Considerations

Stephanie R. Breslow & Phyllis A. Schwartz

§ 48:1 Overview......................................................................... 48-3§ 48:2 Advisers Act Registration ............................................... 48-4

§ 48:2.1 In General (Investment Adviser RegistrationRequirements).......................................................... 48-4

§ 48:2.2 Registration of Investment Advisory Affiliates ....... 48-5[A] Fund General Partners, Managing Members, and

Similar SPVs ..............................................................48-6[B] Investment Advisory Affiliates—Single

Registration.............................................................. 48-6§ 48:2.3 Registration Process—Form ADV............................ 48-7§ 48:2.4 Consequences of Investment Advisers Act

Registration.............................................................. 48-9[A] Required Policies and Procedures........................... 48-10[B] SEC Examinations and Enforcement..................... 48-10[C] Performance-Based Compensation ........................ 48-12[D] Section 207 of the Advisers Act............................. 48-16[E] Section 208 of the Advisers Act............................. 48-16[F] Form PF................................................................. 48-16

§ 48:3 Exemptions from Investment Advisers ActRegistration .................................................................. 48-19

§ 48:3.1 Exemption for Investment Advisers withLess Than $150 Million Regulatory AUM inthe United States .................................................. 48-20

[A] Determination of Regulatory AUMin the United States .............................................. 48-21

[B] Frequency of Calculation of Private Fund Assets .....48-23§ 48:3.2 Exemption for Advisers to Venture

Capital Funds ........................................................ 48-23[A] “Grandfather” Provision ........................................ 48-26[B] Application to Non-U.S. Advisers ......................... 48-26

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 48:3.3 Exemption for Foreign Private Advisers................ 48-27[A] Counting Clients ................................................... 48-27[B] Counting Investors ................................................ 48-28[C] Meaning of “in the United States”........................ 48-29[D] Meaning of “Place of Business”............................. 48-30

§ 48:4 Exempt Reporting Advisers........................................... 48-31§ 48:4.1 Reporting Requirements ........................................ 48-31

§ 48:5 Substantive Provisions of the Advisers Act .................. 48-32§ 48:5.1 Section 206: Anti-Fraud Provisions ...................... 48-32

[A] Generally ............................................................... 48-32[B] Potential Conflicts of Interest................................ 48-36

§ 48:5.2 Code of Ethics ....................................................... 48-38[A] Rule 204A-1........................................................... 48-38[B] Personal Trading .................................................... 48-40[C] Gifts and Entertainment ....................................... 48-42[D] Outside Business Activities ................................... 48-42

§ 48:5.3 Insider Trading ...................................................... 48-43[A] General Overview .................................................. 48-43[B] Adopting Insider Trading Policies .......................... 48-46

§ 48:5.4 Principal Transactions ........................................... 48-47[A] Cross Trading ........................................................ 48-48

§ 48:5.5 Advertising Practices ............................................. 48-49[A] Testimonials .......................................................... 48-50[B] Past Specific Recommendations............................. 48-51

§ 48:5.6 Performance Advertising........................................ 48-53[A] Clover Capital No-Action Letter ........................... 48-54[B] Model Performance................................................ 48-55[C] Performance “Net of Fees” Requirement ............... 48-56[D] Performance Advertising Record-Keeping

Requirement .......................................................... 48-58[E] Performance Presentation Considerations for

Private Equity Firms .............................................. 48-58[F] FINRA Rules Concerning Performance

Advertising............................................................. 48-60[F][1] Related Performance.......................................... 48-60[F][2] Target Returns ................................................... 48-61[F][3] Projected Returns .............................................. 48-62[F][4] Hypothetical and Backtested Performance ........ 48-62[F][5] Risk Factors....................................................... 48-63[G] Track Record Portability......................................... 48-63[G][1] Employee Track Record Portability.................... 48-63[G][2] Adviser Track Record Portability ....................... 48-65

§ 48:5.7 Proxy Voting Procedures........................................ 48-65§ 48:5.8 Custody Rule ......................................................... 48-67§ 48:5.9 Fees and Expenses ................................................. 48-68


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§ 48:5.10 Adviser Compliance Policies and Procedures........ 48-69§ 48:5.11 Business Continuity Planning............................... 48-70

§ 48:6 Offshore Advisers ......................................................... 48-71

Chapter 48A Private Fund Managers’ Duties to Investors:Rule 206(4)-8 and Reducing the Risk ofRegulatory Action

David W. Porteous, Kurt M. Lebakken,James G. Martignon & Sofia E. Biller

§ 48A:1 Introduction ................................................................48A-2§ 48A:2 Creating a Vibrant Culture of Compliance .................48A-4

§ 48A:2.1 Requirement to Adopt and Implement DetailedWritten Policies and Procedures, Controls, andSupervisory Systems to Prevent andDetect Potential Violations ofthe Securities Laws................................................48A-4

§ 48A:2.2 Documenting Policies and Procedures,and Annual Review Thereof .................................48A-7

§ 48A:2.3 Requirement That Written Policies andProcedures Are Integrated into Operations...........48A-7

§ 48A:3 Investment Advisers’ Fiduciary Duties to“Clients” Extends to Investors in Private Funds .........48A-9

§ 48A:3.1 Federal Fiduciary Standards Applicable toInvestment Advisers ..............................................48A-9

§ 48A:3.2 Rule 206(4)-8: Promulgated UnderInvestment Advisers Act Section 206(4).............48A-11

§ 48A:3.3 Violation of Rule 206(4)-8: Scienter IsNot Required .......................................................48A-12

§ 48A:3.4 Important Baseline for Making NegligenceDeterminations: Internal Policies andProcedures............................................................48A-12

§ 48A:3.5 Specific Applications of Investment AdvisersAct Rule 206(4)-8 ................................................48A-13

[A] Accuracy of Disclosures.......................................48A-14[B] Valuation and Improper Fees ...............................48A-17[C] Misuse of Client or Investor Assets, Ponzi and

Other Schemes ....................................................48A-21§ 48A:3.6 Rule 206(4)-8 and the Adviser ’s Standards of

Care Under State Common Law andBlue Sky Laws .....................................................48A-22

§ 48A:4 Remediation ..............................................................48A-24§ 48A:4.1 Basis of Remediation Requirement .....................48A-24§ 48A:4.2 SEC’s Power to Sanction: Enforcement of

Remediation by Advisers .....................................48A-25

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 48A:4.3 Investment Advisers Act Rule 206(4)-7:Requirement to Remediate to Cure HarmResulting from Rule Violations and/orFiduciary Breaches...............................................48A-25

§ 48A:4.4 Remediation Once a Breach Has Occurred ........48A-26§ 48A:5 Conclusion/Additional Advice ...................................48A-28

Chapter 48B Private Funds and Custody Rule Compliance

Joshua B. Deringer & Andrew C. Raby

§ 48B:1 Introduction ................................................................. 48B-2§ 48B:2 What Is Custody?......................................................... 48B-2§ 48B:3 Compliance Options for Private Fund Managers ......... 48B-4

§ 48B:3.1 Option A: Compliance with Each CustodyRule Requirement.................................................. 48B-5

§ 48B:3.2 Option B: The Audit Provision............................. 48B-8[A] Generally ............................................................... 48B-8[B] Organizational Costs Considerations .................. 48B-10

§ 48B:4 Exceptions for Certain Types of Securities ................. 48B-10§ 48B:4.1 Mutual Fund Shares............................................ 48B-10§ 48B:4.2 Privately Offered Securities ................................. 48B-10§ 48B:4.3 ISDA Master Agreements ................................... 48B-12

§ 48B:5 Custody Rule Compliance Policies and Proceduresfor Private Funds ........................................................ 48B-12

§ 48B:6 Custody Rule Recordkeeping Obligationsfor Private Funds ........................................................ 48B-13

PART XIII: Advisory Services in the RetirementMarketplace

Chapter 49 Investment Advice for Employee BenefitPlans and IRAs

W. Mark Smith & Carol T. McClarnon

§ 49:1 ERISA and Investment Advice ....................................... 49-3§ 49:2 ERISA Regulatory Structure ........................................... 49-3

§ 49:2.1 Scope of ERISA........................................................ 49-3§ 49:2.2 General Fiduciary Standards ................................... 49-5

[A] Definition of a “Fiduciary” ...................................... 49-6[B] Investment Advisers As Fiduciaries ......................... 49-8

§ 49:2.3 Prohibited Transaction Rules ................................ 49-14§ 49:3 ERISA Objectives of Retaining an

Investment Adviser .........................................................49-19


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§ 49:3.1 Satisfying the Plan Fiduciary ’s Own Duty ........... 49-19§ 49:3.2 Delegating Investment Accountability to

an Investment Manager ........................................ 49-20§ 49:3.3 Obtaining Broad Section 406(a) Relief for

Investment Transactions ....................................... 49-21§ 49:3.4 Obtaining Relief for Default Investments............. 49-22§ 49:3.5 Obtaining Relief for Investment

Advice Programs.......................................................49-22§ 49:4 Acting As an Investment Fiduciary .............................. 49-22

§ 49:4.1 Fiduciary Accountability........................................ 49-22§ 49:4.2 Necessary Services Exemption .............................. 49-24§ 49:4.3 Exclusive Benefit Rule ........................................... 49-27§ 49:4.4 Prudence Rule........................................................ 49-28§ 49:4.5 Diversification ....................................................... 49-29§ 49:4.6 Compliance with Plan Documents....................... 49-29§ 49:4.7 Trust Requirement................................................. 49-29§ 49:4.8 Indicia of Ownership............................................. 49-30§ 49:4.9 Bonding ................................................................. 49-31§ 49:4.10 Reporting and Disclosure ...................................... 49-31§ 49:4.11 Disqualification for Criminal Convictions ........... 49-32§ 49:4.12 Best Execution ....................................................... 49-32§ 49:4.13 Fee Sharing and Indirect Compensation .............. 49-33§ 49:4.14 Gifts to and Entertainment of Plan Fiduciaries .......49-41

§ 49:5 Specific Transactions .................................................... 49-42§ 49:5.1 Affiliated Brokerage ............................................... 49-43§ 49:5.2 Affiliated Investment Options............................... 49-46§ 49:5.3 Alternative Execution Systems.............................. 49-47§ 49:5.4 Automatic Rollovers .............................................. 49-48§ 49:5.5 Bank Products and Services .................................. 49-49§ 49:5.6 Blackout Periods and Mapping ............................. 49-50§ 49:5.7 Block Trades .......................................................... 49-50§ 49:5.8 Co-Investing .......................................................... 49-51§ 49:5.9 Cross-Collateralization Agreements ...................... 49-51§ 49:5.10 Cross-Trades .......................................................... 49-52§ 49:5.11 Customer Notes of Employer ............................... 49-54§ 49:5.12 Default Investment Options ................................. 49-54§ 49:5.13 Dual-Registered Firms ........................................... 49-58§ 49:5.14 Economically Targeted Investments ...................... 49-58§ 49:5.15 Foreign Exchange Transactions ............................. 49-59§ 49:5.16 Inadvertent Securities Purchase or Sale with

Party in Interest .................................................... 49-60§ 49:5.17 Insurance and Annuity Products .......................... 49-60§ 49:5.18 Interest-Free Loans ................................................ 49-63§ 49:5.19 IPOs....................................................................... 49-63§ 49:5.20 Margin Accounts ................................................... 49-63

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 49:5.21 Mortgage Pool Investment Trusts and OtherAsset-Backed Securities ......................................... 49-64

§ 49:5.22 Mutual Funds........................................................ 49-65§ 49:5.23 Participant Investment Advice .............................. 49-66§ 49:5.24 Performance Fees................................................... 49-70§ 49:5.25 Proxy Voting .......................................................... 49-72§ 49:5.26 Record-Keeping ...................................................... 49-73§ 49:5.27 Relationship Brokerage .......................................... 49-74§ 49:5.28 Securities Lending ................................................. 49-74§ 49:5.29 Service Provider Transactions................................ 49-74§ 49:5.30 Short-Term Investments ........................................ 49-75§ 49:5.31 Soft Dollars and Directed Brokerage..................... 49-75§ 49:5.32 Trade Processing Errors ......................................... 49-76§ 49:5.33 Trading Conflicts ................................................... 49-76§ 49:5.34 Wrap-Fee Programs................................................ 49-78

Chapter 49A ERISA Compliance: Practical Considerations &Best Practices for Broker-Dealers and Advisersand Their Representatives That Sell or ServiceRetirement Plans

Jason C. Roberts & Bonnie Treichel

§ 49A:1 Introduction .................................................................49A-2§ 49A:2 New Rules Impacting Broker-Dealers ...........................49A-2

§ 49A:2.1 Plan-Level Disclosures Under 408(b)(2)—FinalRule........................................................................49A-2

§ 49A:2.2 Plan-Level Disclosures Under 408(b)(2)—2014Proposed Rule ........................................................49A-5

§ 49A:2.3 Participant-Level Disclosures Under ERISA404(a)—Final Rule.................................................49A-7

§ 49A:3 ERISA Enforcement and Litigation ..............................49A-8§ 49A:4 Fiduciary Status..........................................................49A-10

§ 49A:4.1 Investment Advice...............................................49A-11§ 49A:4.2 Investment Education .........................................49A-11§ 49A:4.3 Proposal to Redefine “Fiduciary” (“Conflict of

Interests Rule”) ....................................................49A-12§ 49A:4.4 Prohibited Transactions and IRA Rollovers ........49A-13§ 49A:4.5 Co-Fiduciary Liability..........................................49A-15

§ 49A:5 Action Items...............................................................49A-16§ 49A:6 Conclusion .................................................................49A-22

Appendix 49A-A Disclosure Flow Chart .......................App. 49A-A-1

Appendix 49A-B Cross-Selling Risk Grid ......................App. 49A-B-1


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Chapter 49B Advisers to Collective Trust Funds

Clifford E. Kirsch

§ 49B:1 Introduction ................................................................ 49B-2§ 49B:2 Regulatory Framework Applying to Collective Trusts... 49B-4

§ 49B:2.1 Overview................................................................ 49B-4§ 49B:2.2 Federal and State Banking Laws ........................... 49B-4

[A] OCC ...................................................................... 49B-4[A][1] Overview ........................................................... 49B-4[A][2] OCC Bulletins and Banking Circulars .............. 49B-5[A][3] Interpretive Letters (IL) ..................................... 49B-5[A][4] Collective Investment Funds Handbook ........... 49B-5

§ 49B:2.3 DOL....................................................................... 49B-6§ 49B:2.4 IRS......................................................................... 49B-6§ 49B:2.5 Securities Laws ...................................................... 49B-6§ 49B:2.6 FINRA ................................................................... 49B-7§ 49B:2.7 CFTC..................................................................... 49B-7

§ 49B:3 Collective Trust Funds—An Overview of TheirEssential Features ........................................................ 49B-7

§ 49B:3.1 Organizational Issues ............................................ 49B-7[A] Sponsor.................................................................. 49B-7[B] Form of Organization ............................................ 49B-7[C] Governing Documents/Declaration of Trust ......... 49B-7[D] Other Documents.................................................. 49B-8

§ 49B:3.2 Investment Management....................................... 49B-8[A] Structuring the Advisory Relationship................... 49B-8[B] Permissible Investment Objectives ........................ 49B-8[C] Valuation................................................................ 49B-8[D] Management Fees .................................................. 49B-9

§ 49B:3.3 Distribution ........................................................... 49B-9[A] NSCC Trading Platform ........................................ 49B-9[B] Purchases into the Fund........................................ 49B-9[C] Investor Eligibility Restrictions.............................. 49B-9[D] Pricing Flexibility and Share Classes ..................... 49B-9[E] Sales through Broker-Dealers................................. 49B-9[F] Performance Information .................................... 49B-10[G] Controls Over Frequent Trading.......................... 49B-10

§ 49B:3.4 Marketing Material.............................................. 49B-10§ 49B:3.5 Compliance Programs and Regulatory

Examinations....................................................... 49B-11[A] Compliance Programs ......................................... 49B-11[B] Regulatory Examinations..................................... 49B-11

§ 49B:4 Externally-Managed CTFs ......................................... 49B-11§ 49B:5 Practical Compliance Considerations........................ 49B-15§ 49B:6 Conclusion ................................................................ 49B-16

(Inv. Adv. Reg., Rel. #11, 6/17)

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PART XIV: Offshore Advisory Services

Chapter 49C Offering Cross-Border Advisory andBroker-Dealer Services to Non-U.S. Clients

Christopher D. Christian

§ 49C:1 Introduction ................................................................ 49C-3§ 49C:2 Key Considerations for Advisers Dealing with

Non-U.S. Clients......................................................... 49C-3§ 49C:2.1 Scope of the Investment Advisers Act................ 49C-3§ 49C:2.2 Statutory Reach to Non-U.S. Clients ................. 49C-5

[A] Overview ............................................................. 49C-5[B] Regulation of Registered Non-U.S. Advisers ....... 49C-5[C] Regulation of Registered U.S. Advisers................ 49C-6

§ 49C:2.3 General Client Relations and Anti-FraudConsiderations .................................................... 49C-7

[A] Overview ............................................................. 49C-7[B] Direct Advisory Services...................................... 49C-7[C] Considerations for Pooled Vehicles ..................... 49C-8

§ 49C:2.4 Fiduciary Duty Owed to All Clients .................. 49C-9§ 49C:2.5 Disclosure Obligations...................................... 49C-10§ 49C:2.6 Brochure Rule.................................................... 49C-11

[A] Overview ........................................................... 49C-11[B] Form ADV Filing Requirements........................ 49C-12[C] Annual Delivery Requirements ......................... 49C-13

§ 49C:2.7 Fees ................................................................... 49C-13§ 49C:2.8 Cash Solicitation Rule ...................................... 49C-14§ 49C:2.9 Advertising ........................................................ 49C-15§ 49C:2.10 Suitability .......................................................... 49C-17§ 49C:2.11 Custody ............................................................. 49C-17

[A] Overview ........................................................... 49C-17[B] Definition of Custody ....................................... 49C-18[C] Attribution to Adviser of Custody of a Related

Person..................................................................49C-19[D] Implications for Having Custody ...................... 49C-20[E] Special Provision for Pooled Investment

Vehicles ............................................................. 49C-20[F] Operationally Independent Advisers ................. 49C-21

§ 49C:2.12 Books and Records............................................ 49C-21§ 49C:2.13 Wrap Fee Programs ........................................... 49C-22§ 49C:2.14 Use of Adviser Performance Record ................. 49C-23§ 49C:2.15 Contract Issues ................................................. 49C-23

§ 49C:3 Key Considerations for U.S. Broker-DealersDealing with Non-U.S. Clients ................................. 49C-24


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§ 49C:3.1 Scope of the Exchange Act RegistrationProvisions.......................................................... 49C-24

[A] Overview ........................................................... 49C-24[B] Application to U.S. Entities Selling to

Non-U.S. Clients .............................................. 49C-25[C] Wholesaling Non-U.S. Funds to U.S.

Intermediaries with NRA Clients fromwithin the United States................................... 49C-26

[D] Application to Foreign Intermediaries............... 49C-26§ 49C:3.2 Application of FINRA Licensing Provisions ..... 49C-27§ 49C:3.3 Applicability of FINRA Communication Rules

to Sales of Non-U.S. Funds ............................... 49C-29§ 49C:3.4 Applicability of Securities Act to the Sale of

Securities to Non-U.S. Persons .......................... 49C-30[A] Overview............................................................. 49C-30[B] Scope of Regulation S ......................................... 49C-31[B][1] “Offshore Transactions” ................................. 49C-33[B][2] “Directed Selling Efforts” ............................... 49C-34[C] Regulation S Compliance Considerations .......... 49C-35

§ 49C:3.5 Application of the Investment Company Act.... 49C-36§ 49C:3.6 Compliance with Local Law .............................. 49C-37§ 49C:3.7 Other Material Considerations .......................... 49C-37

[A] Anti-Fraud Provisions ......................................... 49C-38[B] Duty of Fair Dealing........................................... 49C-38[C] Suitability Requirements .................................... 49C-38[D] Anti-Money Laundering Considerations ............ 49C-39[E] Data Protection/Regulation S-P .......................... 49C-39

§ 49C:4 Navigating Global Regulatory Requirements............. 49C-39§ 49C:4.1 Non-U.S. Considerations in Offering

Advisory Services................................................ 49C-40[A] Overview............................................................. 49C-40[B] Licensing Considerations.................................... 49C-41[B][1] Managed Accounts ......................................... 49C-41[B][2] Commingled Funds........................................ 49C-42[C] Marketing Considerations .................................. 49C-42[D] Client Servicing Considerations ......................... 49C-44[E] Other Considerations ......................................... 49C-44

§ 49C:4.2 Non-U.S. Considerations in OfferingBroker-Dealer Services to Non-U.S. Persons...... 49C-45

[A] Brokerage Services .............................................. 49C-45[B] Offering Shares of Pooled Products..................... 49C-46

§ 49C:5 Other Material Considerations.................................. 49C-47§ 49C:5.1 Know-Your-Customer Obligations ...................... 49C-47

[A] Application of U.S. Bank Secrecy Laws .............. 49C-47[B] Application of Foreign Law................................. 49C-48

§ 49C:5.2 Shareholder Reporting Obligations..................... 49C-49

(Inv. Adv. Reg., Rel. #11, 6/17)

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[A] U.S. Reporting Obligations................................. 49C-49[A][1] Sections 13(d) and 13(g) of the

Exchange Act.................................................. 49C-49[A][2] Section 13(f) of the Exchange Act .................. 49C-50[A][3] Section 13(h) of the Exchange Act ................. 49C-51[A][4] Section 16 of the Exchange Act...................... 49C-51

§ 49C:5.3 Anti-Bribery Legislation...................................... 49C-52[A] The Foreign Corrupt Practices Act ..................... 49C-52[B] UK Bribery Act of 2010 ...................................... 49C-54

§ 49C:5.4 Use of Affiliates.................................................. 49C-55[A] Taxation Considerations..................................... 49C-56[B] Non-U.S. Regulatory Considerations ................. 49C-56

§ 49C:6 Foreign Account Tax Compliance Act (FATCA)........ 49C-58

Chapter 49D Investment Adviser Regulation in theUnited Kingdom: An Overview

Dr. Andrew J.H. Henderson

§ 49D:1 Introduction ............................................................... 49D-3§ 49D:1.1 European Dimension............................................ 49D-5§ 49D:1.2 Financial Services and Markets Act and

Other UK Laws .................................................... 49D-8§ 49D:1.3 Measures Made by Regulators, Exchanges and

Clearing Houses, and Industry Bodies................. 49D-9§ 49D:2 Financial Conduct Authority.................................... 49D-10

§ 49D:2.1 Establishment, Objectives and Powers............... 49D-10§ 49D:2.2 FCA Handbook................................................... 49D-11

§ 49D:3 General Prohibition and the Requirement to BeAuthorized ................................................................ 49D-13

§ 49D:3.1 Authorization and Exemption............................ 49D-13§ 49D:3.2 Consequences of Breaching the

General Prohibition............................................ 49D-14§ 49D:3.3 Determining Whether Activities

Breach the General Prohibition.......................... 49D-14§ 49D:4 Regulated Activities and Specified Investments........ 49D-16

§ 49D:4.1 European Directives and the RAO..................... 49D-16§ 49D:4.2 Regulated Activities and Exclusions................... 49D-17

[A] Dealing in Investments As Agent ...................... 49D-18[B] Arranging Deals in Investments ........................ 49D-18[C] Managing Investments....................................... 49D-20[D] Safeguarding and Administering Investments.... 49D-20[E] Managing a UCITS............................................ 49D-20[F] Managing an Alternative Investment Fund

(AIF) ................................................................... 49D-20

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[G] Advising on Investments.................................... 49D-21[H] Agreeing to Carry On Activities......................... 49D-21

§ 49D:4.3 General Exemptions ........................................... 49D-21[A] Activities Carried On in the Course of a

Profession or Non-Investment Business............. 49D-21[B] Groups and Joint Enterprises ............................. 49D-22[C] Activities Carried On in Connection with

the Sale of a Body Corporate.............................. 49D-22[D] Overseas Person Exemption ............................... 49D-23

§ 49D:4.4 Specified Investments......................................... 49D-23§ 49D:5 Financial Promotion and Marketing ........................ 49D-25§ 49D:6 Authorization Process............................................... 49D-27

§ 49D:6.1 FCA Application Pack ........................................ 49D-27§ 49D:6.2 Application Complexity and Fees ...................... 49D-28§ 49D:6.3 Timeframe for Granting Authorization ............. 49D-28

§ 49D:7 Threshold Conditions for Authorization.................. 49D-29§ 49D:7.1 Requirements on Permission ............................. 49D-29§ 49D:7.2 Threshold Conditions ........................................ 49D-30

§ 49D:8 Approved Persons and Controlled Functions ........... 49D-32§ 49D:8.1 Fitness and Properness....................................... 49D-32

[A] Honesty, Integrity, and Reputation .................... 49D-33[B] Competence and Capability ............................... 49D-33[C] Financial Soundness........................................... 49D-34

§ 49D:8.2 Key Categories of Controlled Functions ............ 49D-34[A] Significant Influence Functions.......................... 49D-34

§ 49D:9 Appointed Representatives and Tied Agents ............ 49D-35§ 49D:10 Providing Cross-Border Services and

Branch Arrangements in Other EEA States.............. 49D-37§ 49D:11 Principles for Business As the Primary Source of a

Regulated Firm’s Obligations ................................... 49D-39§ 49D:12 Senior Management Arrangements, Systems, and

Controls ................................................................... 49D-41§ 49D:13 Financial Resources and Prudential Obligations ...... 49D-44

§ 49D:13.1 MiFID Firms ................................................... 49D-44§ 49D:13.2 AIFMD and UCITS Firms: Collective

Portfolio Management Firms and CollectivePortfolio Management Investment Firms ....... 49D-46

§ 49D:14 Market Conduct Obligations.................................... 49D-48§ 49D:14.1 Market Abuse .................................................. 49D-48

[A] Generally ............................................................ 49D-48[B] Future Developments ......................................... 49D-51

§ 49D:14.2 Insider Dealing ................................................ 49D-51§ 49D:14.3 Misleading Statements and Practices.............. 49D-52§ 49D:14.4 Transparency Obligations ................................ 49D-53§ 49D:14.5 Short Selling Restrictions and

Disclosure Requirements................................. 49D-54

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§ 49D:15 Conduct of Business and Other Obligations toClients ...................................................................... 49D-55

§ 49D:15.1 General Conduct of Business Obligations ...... 49D-55§ 49D:15.2 Conflicts of Interest ........................................ 49D-55§ 49D:15.3 Treating Customers Fairly............................... 49D-57§ 49D:15.4 Categorizing Clients........................................ 49D-57

[A] Retail Clients ..................................................... 49D-58[B] Professional Clients............................................ 49D-58[C] Eligible Counterparties ....................................... 49D-59

§ 49D:15.5 Communicating with Clients ......................... 49D-60§ 49D:15.6 Client Agreements, Appropriateness, and

Suitability ........................................................ 49D-62§ 49D:15.7 Dealing and Managing .................................... 49D-63

[A] Best Execution.................................................... 49D-64[B] Other Requirements on Dealing and

Managing ........................................................... 49D-64§ 49D:15.8 Investment Research ....................................... 49D-64§ 49D:15.9 Reporting to the Client ................................... 49D-66§ 49D:15.10 Protection of Client Assets and

Client Money .................................................. 49D-67§ 49D:16 Reporting Obligations to the FCA............................ 49D-69

§ 49D:16.1 Notifications to the FCA ................................ 49D-69§ 49D:16.2 Transaction Reporting ..................................... 49D-71

Chapter 49E Offering Cross-Border Investment Productsand Advisory Services to Clients inLatin America

Christopher D. Christian

§ 49E:1 Introduction ................................................................. 49E-2§ 49E:2 Application of U.S. Regulation..................................... 49E-3§ 49E:3 Offering Mutual Funds to Latin American Clients........ 49E-4

§ 49E:3.1 Tax Considerations................................................ 49E-4[A] U.S. Mutual Funds ................................................ 49E-5[B] Foreign Mutual Funds ........................................... 49E-5

§ 49E:3.2 Application of the Exchange Act........................... 49E-6[A] Direct Sales............................................................ 49E-6[B] Wholesaling ........................................................... 49E-8

§ 49E:3.3 Application of FINRA Licensing Provisions ......... 49E-9§ 49E:3.4 Applicability of FINRA Sales Literature Rules ...... 49E-11

[A] Institutional Sales Material ................................. 49E-11[B] Interpretive Guidance .......................................... 49E-12

§ 49E:3.5 Application of the Securities Act ........................ 49E-13[A] Scope of Regulation S .......................................... 49E-14[A][1] “Offshore Transactions” .................................. 49E-16

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[A][2] “Directed Selling Efforts” ................................ 49E-16[B] Regulation S Compliance Considerations ........... 49E-18

§ 49E:3.6 Application of the Investment Company Act ....... 49E-19§ 49E:3.7 Compliance with Local Law ............................... 49E-20§ 49E:3.8 Other Material Considerations ........................... 49E-20

[A] Anti-Fraud Provisions .......................................... 49E-20[B] Duty of Fair Dealing............................................ 49E-21[C] Suitability Requirements ..................................... 49E-21[D] Anti-Money Laundering Considerations ............. 49E-22[E] Data Protection/Regulation S-P ........................... 49E-22

§ 49E:4 Offering Advisory Services toLatin American Clients .............................................. 49E-22

§ 49E:4.1 Application of the Investment Advisers Act....... 49E-22§ 49E:4.2 Investment Advisers Act Client

Relationship Rules............................................... 49E-25[A] General Anti-Fraud Considerations..................... 49E-25[B] Fiduciary Duty Owed to All Clients.................... 49E-26[C] Disclosure Obligations......................................... 49E-27[D] Fees...................................................................... 49E-29[E] Cash Solicitation Rule ......................................... 49E-31[F] Advertising........................................................... 49E-32[G] Suitability ............................................................ 49E-33[H] Wrap Fee Programs .............................................. 49E-34[I] Contract Issues.................................................... 49E-34[J] Know-Your-Customer Obligations ....................... 49E-34

§ 49E:5 Navigating Local Latin AmericanRegulatory Requirements............................................ 49E-36

§ 49E:5.1 Brokerage Services ............................................... 49E-36§ 49E:5.2 Offering Advisory Services................................... 49E-37

[A] Licensing Considerations..................................... 49E-38[B] Marketing Considerations ................................... 49E-39[C] Client Servicing Considerations .......................... 49E-40[D] Other Considerations .......................................... 49E-41

§ 49E:5.3 Offering Pooled Products Directly....................... 49E-42§ 49E:6 Foreign Corrupt Practices Act .................................... 49E-42§ 49E:7 Foreign Account Tax Compliance Act (FATCA)......... 49E-44

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Chapter 49F Canada: Securities Regulatory RequirementsApplicable to Non-Resident Broker-Dealers,Investment Advisers, and Investment FundManagers

Michael C. Nicholas & Sean D. Sadler

§ 49F:1 Purpose........................................................................ 49F-3§ 49F:2 The Canadian Securities Regulatory Framework ........ 49F-3

§ 49F:2.1 Jurisdictional Scope and Authority ....................... 49F-3§ 49F:2.2 Investment Industry Regulatory Organization of

Canada .................................................................. 49F-5§ 49F:2.3 Mutual Fund Dealers Association of Canada....... 49F-7

§ 49F:3 Trading in Securities by Non-ResidentBroker-Dealers ............................................................. 49F-7

§ 49F:3.1 Exempt Market Dealer Registration...................... 49F-8§ 49F:3.2 Investment Dealer Registration............................. 49F-9§ 49F:3.3 Restricted Dealer Registration ............................. 49F-10§ 49F:3.4 International Dealer Exemption.......................... 49F-11§ 49F:3.5 Registered Dealer Exemption .............................. 49F-13§ 49F:3.6 Specified Debt Exemption ................................... 49F-13

§ 49F:4 Advising in Securities by Non-Resident InvestmentAdvisers........................................................................49F-15

§ 49F:4.1 Portfolio Manager Registration............................ 49F-16§ 49F:4.2 Restricted Adviser Registration............................ 49F-17§ 49F:4.3 Sub-Adviser Exemption ....................................... 49F-17§ 49F:4.4 International Adviser Exemption ........................ 49F-18

§ 49F:5 Acting As an Investment Fund Manager................... 49F-19§ 49F:5.1 A Bifurcated Regulatory Framework ................... 49F-19

[A] MI 32-102—The Instrument Jurisdictions ......... 49F-20[B] MP 31-202—The Policy Jurisdictions ................. 49F-23

§ 49F:5.2 Unregistered Investment Fund ManagerAnnual Fee—Ontario Only....................................49F-23

§ 49F:5.3 Registration As an Investment FundManager............................................................... 49F-24

§ 49F:6 Registration Requirements Applicable to OffshorePrivate Equity Fund Offerings into Canada............... 49F-25

§ 49F:7 Annual Registration Exemption FilingRequirements............................................................. 49F-26

§ 49F:7.1 Annual Notice of Continued Reliance................ 49F-26§ 49F:7.2 Ontario Annual Capital Markets Participation

Fee ....................................................................... 49F-27§ 49F:8 Prospectus Requirements........................................... 49F-27

§ 49F:8.1 Accredited Investor Exemption ........................... 49F-28§ 49F:8.2 Minimum Investment Exemption ...................... 49F-28

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§ 49F:8.3 Offering Memorandum Requirement.................. 49F-28§ 49F:8.4 Exempt Trade Reporting and Filing Fee

Requirements....................................................... 49F-29§ 49F:9 Limited Partnership Securities Offerings ................... 49F-29

§ 49F:9.1 Other Canadian Jurisdictions ............................. 49F-30§ 49F:10 Terrorist Financing Reporting Obligations ................ 49F-30

Appendix 49F Canada: Securities Regulatory RequirementsApplicable to Non-Resident Broker-Dealers,Investment Advisers, and InvestmentFund Managers—SUMMARY ....................App. 49F-1

Appendix 49F-A Persons or Companies Consideredto Be Accredited Investors.................. App. 49F-A-1

Appendix 49F-B General Requirements forAll Applicants for Registration............App. 49F-B-1

Appendix 49F-C Requirements for RegistrationAs an Exempt Market Dealer.............App. 49F-C-1

Appendix 49F-D Requirements for RegistrationAs an Investment Dealer andMembership in IIROC.......................App. 49F-D-1

Appendix 49F-E NI-31-103, Registration Requirements,Exemptions and Ongoing Obligations:Permitted Clients .................................App. 49F-E-1

Appendix 49F-F Requirements for RegistrationAs a Portfolio Manager .......................App. 49F-F-1

Appendix 49F-G Requirements for RegistrationAs an Investment Fund Manager...... App. 49F-G-1

VOLUME 3Table of Chapters...........................................................................vii

PART XV: Foreign Advisers Offering Advisory Servicesin the United States

Chapter 50 Overview of Institutional andOffshore/Foreign Advisory Activity

Peter M. Rosenblum

§ 50:1 Changes in Investment Management and Regulation......50-1§ 50:2 Hedge Funds................................................................... 50-3

§ 50:2.1 Diversity Among Hedge Funds ............................... 50-3

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§ 50:2.2 Hedge Funds Versus Private Equity Funds ............. 50-4§ 50:2.3 “Convergence” or “Cross-Over” of Hedge Funds

and Private Equity Funds............................................50-5§ 50:3 Offshore Investment Advisers ........................................ 50-6§ 50:4 ERISA ............................................................................. 50-7§ 50:5 2003 Staff Report to the Securities and

Exchange Commission ................................................... 50-8§ 50:6 Private Fund Act............................................................. 50-9

Chapter 51 Offshore/Non-U.S. Advisers

Peter M. Rosenblum

§ 51:1 Extraterritorial Application of the InvestmentAdvisers Act.................................................................... 51-2

§ 51:2 Offshore Advisers/Non-U.S. Advisers ............................. 51-4§ 51:2.1 U.S. and Non-U.S. Clients ..................................... 51-5

§ 51:3 Conduct and Effects Analysis Supplants an EntityApproach ........................................................................ 51-8

§ 51:3.1 The Unibanco No-Action Letter:Implementing the Conduct and Effects Test ........ 51-14

§ 51:3.2 The Aftermath of the Unibanco Letter ................ 51-17§ 51:3.3 SEC Revisits the Unibanco Line of No-Action

Letters with Apparent Approval ............................ 51-20§ 51:4 Regulation of Non-U.S. Advisers.................................. 51-21

§ 51:4.1 Basic Investment Advisers Act Prohibitions fromRegistration Generally Inapplicable to Non-U.S.Advisers ................................................................. 51-22

§ 51:4.2 Exemptions from Registration That May BeAvailable to the Non-U.S. Adviser........................ 51-24

[A] Private Fund Adviser Exemption ........................... 51-25[B] Venture Capital Fund Adviser Exemption ............. 51-26[B][1] Venture Capital Fund ........................................ 51-26[B][2] Qualifying Investment ...................................... 51-27[B][3] Qualifying Portfolio Company .......................... 51-27[C] Exemption for Foreign Private Advisers................. 51-29[D] Exempt Reporting Advisers.................................... 51-31

§ 51:4.3 Registered Non-U.S. Advisers with U.S. Clients .....51-32§ 51:4.4 Registered Non-U.S. Advisers with Non-U.S.

Clients ................................................................... 51-32§ 51:4.5 Unregistered Non-U.S. Advisers with Non-U.S.

Clients ................................................................... 51-34§ 51:4.6 Non-U.S. Advisers to Offshore Funds .................. 51-35

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(Inv. Adv. Reg., Rel. #11, 6/17)

PART XVI: The Municipal Marketplace

Chapter 52 Pay to Play

John Munch & Clifford E. Kirsch

§ 52:1 Overview......................................................................... 52-2§ 52:2 Pay to Play Rule Provisions—An Overview .................... 52-4

§ 52:2.1 Generally ................................................................. 52-4§ 52:2.2 Two-Year Compensation “Time Out” ..................... 52-4§ 52:2.3 Solicitor Ban ............................................................ 52-5§ 52:2.4 Restriction on Coordinating Contributions ............ 52-5§ 52:2.5 Covered Investment Pools and Indirect

Violations................................................................. 52-5§ 52:3 Advisers Subject to the Rule ........................................... 52-5§ 52:4 Pay to Play Rule—Specifics............................................. 52-6

§ 52:4.1 Two-Year Time Out (Rule 206(4)-5(a)(1))................ 52-6[A] Generally ................................................................. 52-6[B] Contribution, Official, and Government Entity ...... 52-6[B][1] Government Entity ............................................. 52-7[B][2] Official ................................................................ 52-7[B][3] Contribution ....................................................... 52-7[C] Covered Associate.................................................... 52-8[C][1] Generally ............................................................. 52-8[C][2] Owners................................................................ 52-9[C][3] Executive Officers................................................ 52-9[C][4] Solicit .................................................................. 52-9

§ 52:4.2 Look Back Provision: Rule 206(4)-(5)(a)(1) ........... 52-10§ 52:4.3 De Minimis Contribution Exception:

Rule 206(4)-(5)(b)(1) .............................................. 52-10§ 52:4.4 Returned Contribution Exception:

Rule 206(4)-(5)(b)(3) .............................................. 52-11§ 52:4.5 Ban on the Use of Solicitors:

Rule 206(4)-(5)(a)(2)(i) ........................................... 52-11[A] Generally ............................................................... 52-11[B] Regulated Persons .................................................. 52-11[B][1] Generally ........................................................... 52-11[B][2] Review of Regulated Persons ............................. 52-12[B][3] No Time Out on Compensation....................... 52-12[B][4] Permissible Regulated Person Solicitors ............ 52-12[B][4][a] Generally ........................................................ 52-12[B][4][b] Investment Adviser Solicitors ......................... 52-12[B][4][c] Broker-Dealer Solicitors .................................. 52-13[B][4][d] Municipal Advisor Solicitors .......................... 52-13[B][4][e] Dual Registrants ............................................. 52-13[B][5] Payments to Solicitors....................................... 52-13[C] Effective Date of Solicitor Ban............................... 52-14

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§ 52:4.6 Restrictions on Coordinating Contributions:Rule 206(4)-(5)(a)(2)(ii) .......................................... 52-14

[A] Generally ............................................................... 52-14[B] Solicit..................................................................... 52-14[C] Solicitation ............................................................ 52-15[D] Payment................................................................. 52-15

§ 52:4.7 Covered Investment Pools (Rule 206(4)-(5)(c)) ..... 52-15[A] Generally ............................................................... 52-15[B] Covered Investment Pool....................................... 52-15[C] Advisers to Pooled Vehicles ................................... 52-16[D] Sub-Advisers; Fund of Funds; Bank Collective

Investment Trusts.................................................. 52-17[E] Broker-Dealers Selling Fund Shares—Sharing of

Information ........................................................... 52-17§ 52:4.8 Indirect Violations of the Rule:

Rule 206(4)-(5)(d)................................................... 52-17§ 52:4.9 Exemption Requests: Rule 206(4)-(5)(e) ................ 52-17

§ 52:5 Recordkeeping............................................................... 52-18

Chapter 53 Designing a Political Law ComplianceProgram for Broker-Dealers and Advisers

Steven S. Lucas

§ 53:1 Introduction to Political Law Compliance ..................... 53-2§ 53:1.1 Political Law and Why Broker-Dealers

Should Care............................................................. 53-2§ 53:1.2 Political Law and Its Implications for

Broker-Dealers ......................................................... 53-4§ 53:2 Lobby Laws and How They May Apply to

Broker-Dealers and Advisers........................................... 53-5§ 53:2.1 Is Your Employee a Lobbyist Under the Law?........ 53-5

§ 53:3 Gift and Ethics Laws and How They May Apply toBroker-Dealers and Advisers........................................... 53-6

§ 53:3.1 Be Careful When Providing Anything ofValue to a Public Official ........................................ 53-6

§ 53:3.2 Ethics Regulations Also Include VariousConflict of Interest Rules ........................................ 53-6

§ 53:4 Campaign Laws and How They May Apply toBroker-Dealers and Advisers........................................... 53-7

§ 53:4.1 Campaign Finance: No Two Laws Are the Same... 53-7§ 53:4.2 Monitor Employee Reimbursement Requests ......... 53-8

§ 53:5 The Special Case of “Pay-To-Play” ................................. 53-8§ 53:5.1 Who Do Pay-to-Play Laws Affect? .......................... 53-9§ 53:5.2 Where Do Pay-to-Play Laws Exist? ....................... 53-10§ 53:5.3 Why Do Pay-to-Play Laws Exist? .......................... 53-10


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(Inv. Adv. Reg., Rel. #11, 6/17)

§ 53:5.4 Types of Pay-to-Play Rules .................................... 53-10§ 53:5.5 Scope of Pay-to-Play Laws..................................... 53-11

§ 53:6 Developing a Political Law Compliance Program:Tips and Recommendations ......................................... 53-12

§ 53:6.1 Adopt a Company-Wide Political LawCompliance Policy................................................. 53-12

§ 53:6.2 Identifying the Stakeholders.................................. 53-12§ 53:6.3 Creating Systems for Compliance......................... 53-13§ 53:6.4 Education and Training......................................... 53-13§ 53:6.5 Designate Internal Management and

Responsibility ........................................................ 53-13

Chapter 54 Municipal Advisor Regulation

Robert A. Fippinger

§ 54:1 Dodd-Frank Act Jurisdiction over Municipal Advisors .....54-4§ 54:1.1 Regulatory Framework............................................. 54-4

[A] SEC and MSRB Rulemaking Authority ................... 54-8[B] Application of the Tower Amendment to

Municipal Advisors................................................ 54-11§ 54:1.2 The Importance of the Term “Advice”; the

Advice Standard..................................................... 54-11[A] The General-Information Exclusion...................... 54-13[B] The Tension Between Giving Particularized

Information and Avoiding a RecommendationUnder the General-Information Exclusion ............ 54-15

[B][1] Disclaimers ....................................................... 54-16[B][2] Effect of Overall Course of Conduct ................. 54-17[C] Business Promotional Materials Provided by

Potential Underwriters .......................................... 54-18[C][1] Disclaimers in the Context of Potential

Underwriter Promotional Material.................... 54-20[C][2] Effect of Overall Course of Conduct in

the Context of Potential UnderwriterPromotional Materials ...................................... 54-21

§ 54:1.3 Municipal Advisory Activity.................................. 54-22§ 54:2 Key Definitions and SEC Interpretive Guidance .......... 54-22

§ 54:2.1 Municipal Entity and Obligated Person................ 54-22§ 54:2.2 Treatment of Officials, Board Members, and

Employees of a Municipal Entity or ObligatedPerson As Possible Municipal Advisors ................ 54-26

§ 54:2.3 Issuance of Municipal Securities........................... 54-27§ 54:2.4 Municipal Financial Products ............................... 54-28

[A] Municipal Derivatives ........................................... 54-29[B] Guaranteed Investment Contracts ........................ 54-31[C] Investment Strategies ............................................ 54-32

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§ 54:2.5 Solicitation of a Municipal Entity or ObligatedPerson .................................................................... 54-34

§ 54:3 The Underwriter Exclusion .......................................... 54-35§ 54:3.1 Broker-Dealer Activities Within or Not

Within the Underwriter Exclusion........................ 54-36§ 54:3.2 The Relationship of the Underwriter

Exclusion to MSRB Rule G-17 andMSRB Rule G-23................................................... 54-39

§ 54:3.3 Persons Engaged in Activities Similar to theUnderwriting of Municipal Securities................... 54-44

[A] Placement Agents .................................................. 54-44[B] Dealers or Agents in Tender Offers or Exchange

Transactions .......................................................... 54-44[C] Remarketing Agents............................................... 54-45[D] Commercial Paper Dealers .................................... 54-46[E] Brokerage Services ................................................. 54-47

§ 54:3.4 Time and Method of the Engagement of anUnderwriter ........................................................... 54-48

§ 54:3.5 Post-Issuance Advice ............................................. 54-50[A] Official Statement Corrections .............................. 54-50[B] Continuing Disclosure Filings............................... 54-51[C] Due Diligence on Rule 15c2-12 Compliance ........ 54-52

§ 54:4 The Registered Investment Adviser Exclusion ............ 54-53§ 54:5 The Registered Commodity Trading Advisor

Exclusion; Exemption for Swap Dealers....................... 54-56§ 54:6 The Exclusion for an Attorney Providing Legal

Advice........................................................................... 54-58§ 54:6.1 General Information.............................................. 54-58§ 54:6.2 The Type of Advice ............................................... 54-59§ 54:6.3 The Recipient of the Advice ................................. 54-59

§ 54:7 The Exclusion for an Engineer ProvidingEngineering Advice ....................................................... 54-60

§ 54:8 The Exemptions ........................................................... 54-61§ 54:8.1 Accountants........................................................... 54-61§ 54:8.2 Banks ..................................................................... 54-62§ 54:8.3 Responses to Requests for Proposals or

Qualifications ........................................................ 54-64§ 54:8.4 Participation by an Independent Registered

Municipal Advisor ................................................. 54-65§ 54:9 Registration of Municipal Advisors .............................. 54-67

§ 54:9.1 Registration with the SEC..................................... 54-67[A] Form MA............................................................... 54-67[B] Form MA-I ............................................................ 54-69

§ 54:9.2 Registration with MSRB........................................ 54-70[A] Form A-12 ............................................................. 54-70[B] Fees........................................................................ 54-70


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§ 54:10 Professional Qualifications ........................................... 54-71§ 54:10.1 Municipal Advisor Representative Examination......54-71§ 54:10.2 Municipal Advisor Principal Examination ............ 54-71§ 54:10.3 Municipal Advisor Continuing Education

Requirements......................................................... 54-72§ 54:11 Rule G-44: Municipal Advisor Supervisory and

Compliance Obligations............................................... 54-73§ 54:11.1 Purpose of In-House Supervisors and

Compliance Personnel........................................... 54-73§ 54:11.2 Supervisory System and Procedures...................... 54-74§ 54:11.3 Compliance Processes and Chief Compliance

Officer.................................................................... 54-76§ 54:12 The Fiduciary Duty of Municipal Advisors to Their

Municipal Entity Clients.............................................. 54-79§ 54:12.1 The Dodd-Frank Act Standard.............................. 54-79§ 54:12.2 Reconciling the Interests of Municipal Entities

and the Interests of Investors ............................... 54-81§ 54:12.3 The Dodd-Frank Act Delegation of

Authority to the MSRB ......................................... 54-82§ 54:13 The Fair Dealing Obligation of Municipal Advisors .......54-83

§ 54:13.1 MSRB Rule G-17................................................... 54-83§ 54:13.2 First Southwest Cease-and-Desist Order .............. 54-83

§ 54:14 Rule G-42: Core Standards of Conduct forNonsolicitor Municipal Advisors.................................. 54-84

§ 54:14.1 General Standards of Conduct.............................. 54-85[A] Duty of Care.......................................................... 54-86[B] Duty of Loyalty Owed a Municipal Entity ............ 54-87

§ 54:14.2 Disclosures at Commencement of MunicipalAdvisory Activity ................................................... 54-89

[A] Inadvertent Advice................................................. 54-91[B] Consequences of Rendering Inadvertent Advice ......54-92

§ 54:14.3 Documentation of Municipal AdvisoryRelationship........................................................... 54-93

§ 54:14.4 Recommendations ................................................. 54-94§ 54:14.5 Specific Prohibitions .............................................. 54-97§ 54:14.6 Ban on Principal Transactions .............................. 54-98§ 54:14.7 The Fixed-Income Transaction Exception to

the Ban on Principal Transactions...................... 54-100§ 54:15 Rule G-20: Gifts, Gratuities, and Expenses of

Issuance...................................................................... 54-102§ 54:15.1 General Limitation.............................................. 54-103§ 54:15.2 Exclusions from the $100 Limit......................... 54-104§ 54:15.3 Prohibition on Use of Offering Proceeds ............ 54-105

§ 54:16 Rule G-37: Political Contributions............................. 54-106

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 54:16.1 The Two-Year Ban ............................................... 54-107[A] Municipal Advisors Excluding Third-Party

Solicitors.............................................................. 54-107[B] Municipal Advisor Third-Party Solicitors ............ 54-109[C] The Effect on Regulated Entity Clients of a

Municipal Advisor Third-Party SolicitorTwo-Year Ban ....................................................... 54-110

[D] Cross-Bans for Dealer–Municipal Advisors ......... 54-110§ 54:16.2 Prohibition on Soliciting and Coordinating

Contributions ...................................................... 54-111§ 54:17 Municipal Advisors Subject to Registration As

Broker-Dealers; Placement Agent Activity.................. 54-112

Appendix 54A Section 15B of the 1934 Act Marked toShow Dodd-Frank Act Amendments ...... App. 54A-1

Appendix 54B Municipal Advisor Registration/SECFinal Rules............................................... App. 54B-1

Appendix 54C SEC Glossary of Terms in MunicipalAdvisor Adopting Release ........................App. 54C-1

Chapter 55 Investment Adviser Regulation ofPublic Finance Activity

Robert A. Fippinger

§ 55:1 The Intersection of Broker-Dealer, Investment Adviser,and Municipal Advisor Regulation ...................................55-3

§ 55:2 Overview of the Dodd-Frank Act Changes tothe Advisers Act ............................................................. 55-8

§ 55:2.1 Repeal of Exemption for Private Advisers............... 55-8§ 55:2.2 New Exemptions ................................................... 55-10

[A] Private Fund Advisers ............................................ 55-10[B] Venture Capital Funds........................................... 55-11

§ 55:2.3 Reallocation of SEC-State Authority ..................... 55-12§ 55:3 Jurisdictional Treatment of Investment Advisers and

Municipal Advisors Under the 1934 Act andthe Advisers Act ........................................................... 55-14

§ 55:3.1 Conceptual and Definitional Overlapof Investment Advisers and Municipal Advisors .....55-14

§ 55:3.2 Investment Advisers Who Are NotMunicipal Advisors; the Investment AdviserExclusion ............................................................... 55-18

§ 55:3.3 Financial Advisors Who Are MunicipalAdvisors but Not Investment Advisers ................. 55-21

§ 55:4 The SEC’s Investment Adviser Pay-to-Play Rule.......... 55-27§ 55:4.1 Investment Advisers Subject to Rule 206(4)-5...... 55-29


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§ 55:4.2 The Two-Year Ban ................................................. 55-30§ 55:4.3 Conditional Ban on Use of Third-Party

Solicitors or Placement Agents to SolicitInvestment Advisory Business .............................. 55-31

[A] Incorporation of FINRA and MSRB Rules onSolicitors ................................................................ 55-33

[A][1] FINRA............................................................... 55-33[A][2] MSRB ................................................................ 55-34[B] State Law Bans: The Nationwide Reform

Code Initiated by New York .................................. 55-35§ 55:4.4 Covered Investment Pools..................................... 55-38§ 55:4.5 In re TL Ventures Inc. ........................................... 55-40

§ 55:5 Restrictions on Cash Payments by InvestmentAdvisers to Solicitors.......................................................55-42

§ 55:5.1 Status of the Solicitor Under the Advisers Act .... 55-42§ 55:5.2 Status of Solicitor As a Municipal Advisor

Under the 1934 Act .............................................. 55-43§ 55:6 Sorting Out the Differences Among Solicitors,

Placement Agents, and Pension Consultants ............... 55-43§ 55:7 Investment Advisers in Public Finance ........................ 55-45

§ 55:7.1 Advisers to Investment Vehicles for MunicipalSecurities .................................................................. 55-46

[A] Municipal Bond Funds .......................................... 55-46[B] SEC v. Heartland Advisors ..................................... 55-47

§ 55:7.2 Advisers to Government Entities .......................... 55-50[A] Public Pension Funds ............................................ 55-50[A][1] SEC v. Henry Morris ......................................... 55-52[A][2] SEC v. MayfieldGentry Realty Advisors, LLC .... 55-55[B] Local Government Investment Pools..................... 55-56[C] Is the Pool Itself an Investment Adviser? .............. 55-60[D] Section 529 College Savings Plans ........................ 55-64

§ 55:8 Registration Requirements and Exemptions................. 55-67§ 55:8.1 SEC or State Registration...................................... 55-67§ 55:8.2 Form ADV............................................................. 55-69

[A] Form ADV, Part I ................................................... 55-69[B] Form ADV, Part 2 .................................................. 55-70[C] Updates.................................................................. 55-71

§ 55:8.3 Exclusions and Exemptions .................................. 55-71[A] Lawyers.................................................................. 55-72[B] Broker-Dealers ....................................................... 55-73[C] Vendors of Information on Municipal

Securities ............................................................... 55-74[D] Advisers of Investment in Government

Securities ............................................................... 55-76

(Inv. Adv. Reg., Rel. #11, 6/17)

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§ 55:9 Fiduciary Duties of Investment Advisers...................... 55-77§ 55:9.1 Duty of Loyalty: Disclosing Conflicts of Interest.....55-80

[A] Adviser Fees: Performance, Fulcrum,and Wrap Account Fees ......................................... 55-80

[B] In re O’Brien Partners ............................................ 55-83[C] Trading Practices: Allocation, Principal

Transactions, Agency Cross Transactions,Personal Trading .................................................... 55-84

[D] Reciprocal Arrangements: Soft DollarTransactions .......................................................... 55-89

§ 55:9.2 Duty of Care ......................................................... 55-93

PART XVII: Regulatory Reporting

Chapter 56 SEC Reporting Requirements UnderSection 13 of the Exchange Act

Kevin J. Campion & Katie Klaben

§ 56:1 Introduction ................................................................... 56-2§ 56:2 Section 13(d)—Beneficial Ownership Reporting

Requirements.................................................................. 56-3§ 56:2.1 Overview of Beneficial Ownership Reporting

Pursuant to Section 13(d) ....................................... 56-3[A] Equity Securities ...................................................... 56-3[B] Definition of “Beneficial Owner” ............................ 56-4[C] Aggregation and Disaggregation of Beneficial

Ownership ............................................................... 56-5[C][1] Parent-Subsidiary................................................. 56-5[C][2] Adviser-Fund ....................................................... 56-6[D] Calculation of Beneficial Ownership ....................... 56-7[E] Group Status ........................................................... 56-8

§ 56:2.2 Section 13(d) Reporting Obligations ..................... 56-10[A] Schedule 13D ........................................................ 56-10[A][1] Overview ........................................................... 56-10[A][2] Filing Deadlines ................................................ 56-11[B] Schedule 13G ........................................................ 56-13[B][1] Qualified Institutional Investors ....................... 56-13[B][1][a] Overview......................................................... 56-13[B][1][b] Filing Deadlines.............................................. 56-15[B][1][c] Loss of Eligibility to File on Schedule 13G..... 56-15[B][2] Passive Investors That Own Less Than

20% of the Security ........................................... 56-16[B][2][a] Overview......................................................... 56-16[B][2][b] Filing Deadlines.............................................. 56-16


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[B][2][c] Loss of Eligibility to File on Schedule 13G..... 56-16[B][3] Exempt Investors............................................... 56-17[B][3][a] Overview......................................................... 56-17[B][3][b] Filing Deadlines.............................................. 56-17[B][3][c] Loss of Eligibility to File on Schedule 13G..... 56-18[C] Control Purpose or Effect ...................................... 56-18

§ 56:3 Section 13(f)—Reports by InstitutionalInvestment Managers ................................................... 56-20

§ 56:3.1 Overview of Section 13(f) ReportingRequirements......................................................... 56-20

[A] Overview................................................................ 56-20[B] Institutional Investment Managers ....................... 56-21[C] Section 13(f) Securities .......................................... 56-21[D] Possession of Investment Discretion ..................... 56-22[E] Filing Deadlines..................................................... 56-23

§ 56:4 Section 13(h)—Large Trader Reporting......................... 56-23§ 56:4.1 Overview of Section 13(f) Reporting

Requirements......................................................... 56-23§ 56:4.2 Large Traders ......................................................... 56-24

[A] Focus on Parent/Control Entities........................... 56-25[B] Identifying Activity Level....................................... 56-26[C] Voluntary Registration ........................................... 56-27

§ 56:4.3 Form 13H.............................................................. 56-27[A] Form 13H Filing Types.......................................... 56-28[B] What Information Is Required on Form 13H? ...... 56-29

§ 56:4.4 Confidentiality....................................................... 56-30

Chapter 56A Investment Adviser Treasury andRelated Reporting Requirements

Matthew B. Comstock & Andrew D. Beresin

§ 56A:1 Introduction ................................................................56A-4§ 56A:2 TIC Forms...................................................................56A-5

§ 56A:2.1 Form SLT...............................................................56A-5[A] Reporting Entities ..................................................56A-6[B] Reporting Threshold and Types of

Instruments Reported ............................................56A-7[C] Exclusions..............................................................56A-8[C][1] Direct Investment .............................................56A-8[C][2] Custodians ........................................................56A-9[D] Additional Filing Considerations.........................56A-10[E] Disclosures ..........................................................56A-11[F] Examples .............................................................56A-11[F][1] Example 1 .......................................................56A-11

(Inv. Adv. Reg., Rel. #11, 6/17)

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[F][2] Example 2 .......................................................56A-12[F][3] Example 3 .......................................................56A-12

§ 56A:2.2 Form S.................................................................56A-13[A] Reporting Entities ................................................56A-13[B] Reporting Threshold and Types of

Instruments Reported ..........................................56A-13[C] Exclusions............................................................56A-14[C][1] Direct Investment ...........................................56A-14[C][2] Instruments.....................................................56A-15[D] Broker-dealers ......................................................56A-15[E] Additional Filing Considerations.........................56A-15[F] Disclosures ..........................................................56A-15[G] Examples .............................................................56A-16[G][1] Example 1 .......................................................56A-16[G][2] Example 2 .......................................................56A-16

§ 56A:2.3 Forms CQ-1 and CQ-2.......................................56A-17[A] Form CQ-1 ..........................................................56A-17[A][1] Reporting Entities............................................56A-18[A][2] Reporting Threshold, and Reportable

Liabilities and Claims .....................................56A-18[A][3] Exclusions .......................................................56A-18[B] Form CQ-2 ..........................................................56A-19[B][1] Reporting Entities............................................56A-19[B][2] Reporting Threshold and Reportable

Liabilities and Claims .....................................56A-19[B][3] Exclusions .......................................................56A-19

§ 56A:2.4 TIC Form B Reports ...........................................56A-20[A] Form BC ..............................................................56A-20[A][1] Reportable Claims ...........................................56A-21[A][2] Exclusions .......................................................56A-21[B] Form BL-1............................................................56A-22[B][1] Reportable Liabilities .......................................56A-22[B][2] Examples .........................................................56A-22[B][3] Exclusions .......................................................56A-23[C] Form BL-2............................................................56A-23[C][1] Reportable Liabilities .......................................56A-23[C][2] Specific Exclusions ..........................................56A-24[D] Form BQ-1...........................................................56A-24[D][1] Reportable Claims ...........................................56A-25[D][2] Specific Exclusions ..........................................56A-25[E] Form BQ-2...........................................................56A-25[F] Form BQ-3...........................................................56A-26

§ 56A:2.5 Form D................................................................56A-27[A] Reporting Entities ................................................56A-27[B] Reporting Threshold and Types of

Instruments Reported ..........................................56A-27


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[C] Exclusions............................................................56A-29[D] Disclosures ..........................................................56A-29[E] Examples .............................................................56A-31[E][1] Example 1 .......................................................56A-31[E][2] Example 2 .......................................................56A-31

§ 56A:2.6 Forms SHL and SHLA ........................................56A-31[A] Form SHL ............................................................56A-31[A][1] Reporting Entities............................................56A-32[A][2] Reporting Threshold and Types of

Instruments Reported......................................56A-33[A][3] Exclusions .......................................................56A-33[A][4] Disclosures ......................................................56A-34[B] Form SHLA .........................................................56A-34

§ 56A:2.7 Forms SHC and SHCA.......................................56A-35[A] Form SHC ...........................................................56A-35[A][1] Reporting Entities............................................56A-35[A][2] Reporting Thresholds and Types of

Instruments Reported......................................56A-36[A][3] Exclusions .......................................................56A-36[A][3][a] Direct Investment.........................................56A-36[A][3][b] Instruments ..................................................56A-36[A][4] Disclosures ......................................................56A-37[B] Form SHCA.........................................................56A-37

§ 56A:3 Treasury Foreign Currency (TFC) Forms...................56A-38§ 56A:3.1 Form FC-1...........................................................56A-38§ 56A:3.2 Form FC-2...........................................................56A-40§ 56A:3.3 Form FC-3...........................................................56A-40

§ 56A:4 BEA Forms ................................................................56A-41§ 56A:4.1 U.S. Direct Investment Abroad ..........................56A-41

[A] Form BE-577 .......................................................56A-41[B] Form BE-11 .........................................................56A-42[B][1] BE-11A ............................................................56A-43[B][2] BE-11B ............................................................56A-44[B][3] BE-11C............................................................56A-44[B][4] BE-11D............................................................56A-44[B][5] BE-11E.............................................................56A-44[B][6] BE-11 Claim for Not Filing.............................56A-44[C] Form BE-10 .........................................................56A-45

§ 56A:4.2 Foreign Direct Investment in theUnited States.......................................................56A-46

[A] Form BE-605 .......................................................56A-46[B] Form BE-15 .........................................................56A-47[B][1] BE-15 Forms....................................................56A-48[B][1][a] BE-15A .........................................................56A-48[B][1][b] BE-15B..........................................................56A-48[B][1][c] BE-15(EZ) .....................................................56A-48

(Inv. Adv. Reg., Rel. #11, 6/17)

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[B][1][d] BE-15 Claim for Exemption .........................56A-49[C] Form BE-12 .........................................................56A-49[C][1] BE-12 Forms....................................................56A-49[C][1][a] BE-12A .........................................................56A-49[C][1][b] BE-12B..........................................................56A-49[C][1][c] BE-12C .........................................................56A-50[C][1][d] BE-12 Claim for Not Filing ..........................56A-50

§ 56A:4.3 U.S. International Services Transactions ............56A-50[A] Form BE-185 .......................................................56A-50[B] Form BE-180 .......................................................56A-52

PART XVIII: Special Topics

Chapter 57 Exempt Reporting Advisers: SubstantiveProvisions of the Advisers Act


§ 57:1 Introduction ................................................................... 57-2§ 57:2 Background..................................................................... 57-3

§ 57:2.1 Private Fund Adviser ............................................... 57-4§ 57:2.2 Venture Capital Fund .............................................. 57-5§ 57:2.3 Foreign Private Advisers .......................................... 57-5

§ 57:3 Obligations of Exempt Reporting Advisers ..................... 57-5§ 57:3.1 Reporting Obligations.............................................. 57-5

Table 57-1 Exempt Reporting Advisers (Including Non-U.S.Advisers)—Required Limited Information ............... 57-6

§ 57:3.2 Recordkeeping Requirements................................... 57-7§ 57:4 Recent Changes Affecting Advisers to SBICs ................. 57-7§ 57:5 Substantive Provisions of the Investment Advisers

Act That Apply to All “Investment Advisers” ................ 57-9§ 57:5.1 Fiduciary Duty......................................................... 57-9

[A] Overview.................................................................. 57-9[B] Full Disclosure of Conflicts of Interest.................. 57-11[C] Suitable Advice ...................................................... 57-11[D] Reasonable Basis for Recommendations................ 57-11[E] Best Execution ....................................................... 57-12[F] Soft Dollars............................................................ 57-12

§ 57:5.2 Substantive Statutory Requirements ..................... 57-13[A] Principal Transactions ........................................... 57-13[B] Agency Cross-Transactions .................................... 57-14[C] Cross-Trades .......................................................... 57-14[D] Aggregation of Client Orders................................. 57-15[E] Supervision ............................................................ 57-15[F] Political Contributions by Investment Advisers .... 57-15[G] Advisers to Pooled Investment Vehicles ................ 57-16


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[H] SEC Rules Applying to Advisers Registered orRequired to Register Do Not Apply toExempt Reporting Advisers.................................... 57-17

[H][1] Overview ........................................................... 57-17[H][2] Advertising ........................................................ 57-17[H][3] Custody of Client Assets................................... 57-17[H][4] Disclosure Requiring the Use of Solicitors........ 57-18[H][5] Proxy Voting...................................................... 57-18[H][6] Compliance Program......................................... 57-18[H][7] Code of Ethics/Insider Trading .......................... 57-18

Table 57-2 Investment Advisers Act Requirements—Application to Exempt Reporting Advisers ............ 57-19

§ 57:6 Conclusion ................................................................... 57-21

Chapter 58 Commodity Trading Advisor Statusand Regulation

Susan I. Gault-Brown

§ 58:1 Introduction ................................................................... 58-3§ 58:2 Bifurcated Regulatory System ......................................... 58-4

§ 58:2.1 Overview.................................................................. 58-4§ 58:2.2 Exclusive CFTC Jurisdiction ................................... 58-4§ 58:2.3 Shared CFTC/SEC Jurisdiction ............................... 58-5§ 58:2.4 Exclusive SEC Jurisdiction ...................................... 58-6

§ 58:3 Commodity Trading Advisor Definition......................... 58-7§ 58:3.1 Overview.................................................................. 58-7§ 58:3.2 Commodity Interests............................................... 58-8

[A] Futures..................................................................... 58-8[B] Commodity Options................................................ 58-9[C] Swaps....................................................................... 58-9[C][1] Overview ............................................................. 58-9[C][2] Foreign Exchange Swaps and Forwards ............. 58-11[D] Retail Forex............................................................ 58-12[E] Leverage Contracts ................................................ 58-13[F] Commodity Pools .................................................. 58-13

§ 58:3.3 Engages in the Business of Advising Others ........ 58-14§ 58:3.4 For Compensation or Profit .................................. 58-14§ 58:3.5 Referrals to Other CTAs ....................................... 58-15§ 58:3.6 Extraterritoriality ................................................... 58-15

§ 58:4 Exclusions and Exemptions.......................................... 58-16§ 58:4.1 Overview................................................................ 58-16§ 58:4.2 Statutory Exclusions from the CTA Definition

for Certain Entities ............................................... 58-16[A] Overview................................................................ 58-16[B] Solely Incidental .................................................... 58-16

(Inv. Adv. Reg., Rel. #11, 6/17)

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[B][1] Banks and Trust Companies ............................. 58-17[B][2] Publishers and Producers .................................. 58-18

§ 58:4.3 Statutory Exemptions from CTA Registration...... 58-19[A] Overview................................................................ 58-19[B] Section 4m(1)—No More Than Fifteen Clients .... 58-19[B][1] Holding Out ...................................................... 58-20[C] Section 4m(3)—SEC-Registered Advisers Not

Primarily Engaged in CTA Activities ..................... 58-21[C][1] Holding Out ...................................................... 58-21[C][2] Broader Commodity Interest Definition ........... 58-22

§ 58:4.4 CFTC Exclusions and Exemptions from CTARegulation.............................................................. 58-22

[A] Overview................................................................ 58-22[B] Rule 4.14(a)(8)—Investment Advisers Not

Primarily Engaged in CTA Activities ..................... 58-23[B][1] Advisers Eligible for Rule 4.14(a)(8) .................. 58-23[B][2] Eligible Clients .................................................. 58-23[B][3] Solely Incidental................................................ 58-25[B][4] Holding Out ...................................................... 58-26[B][5] Notice Filings .................................................... 58-27[B][6] Combining Rule 4.14(a)(8) with Other CTA

Exemptions ....................................................... 58-28[B][7] Combining CTA Registration with

Reliance on Rule 4.14(a)(8) ............................... 58-28[C] Other CFTC Exclusions and Exemptions from

CTA Regulation ..................................................... 58-29[C][1] Rule 4.6 Exclusions ........................................... 58-29[C][1][a] Insurance Companies ..................................... 58-29[C][1][b] Swap Dealers .................................................. 58-30[C][1][c] CPOs Excluded Under Rule 4.5 ..................... 58-30[C][2] Rules 4.14(a)(4) and 4.14(a)(5) for

Registered and Exempt CPOs............................ 58-31§ 58:5 CTA Regulation............................................................ 58-31

§ 58:5.1 Overview................................................................ 58-31§ 58:5.2 CFTC Requirements ............................................. 58-31

[A] Disclosure Document............................................ 58-32[A][1] Filings and Amendments .................................. 58-32[A][2] Delivery and Acknowledgment ......................... 58-32[A][3] Substantive Disclosure ...................................... 58-33[B] Performance Information Disclosure..................... 58-34[C] Advertising............................................................. 58-35[D] Recordkeeping........................................................ 58-35[E] Custody ................................................................. 58-35[F] Reporting (Form CTA-PR and NFA Form PR)....... 58-36

§ 58:5.3 Rule 4.7—Limited Regulation for CTAs to“Qualified Eligible Persons”................................... 58-36


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[A] QEP Definition ...................................................... 58-36[B] Disclosure.............................................................. 58-38[C] Recordkeeping........................................................ 58-39[D] Notice Filing .......................................................... 58-40

§ 58:5.4 NFA Regulation ..................................................... 58-40[A] Overview................................................................ 58-40[B] CTA Registration ................................................... 58-40[B][1] Firm Application ............................................... 58-40[B][2] Principal and Associated Person Applications.....58-41[B][3] Identifying Principals ........................................ 58-41[B][4] Identifying Associated Persons .......................... 58-42[C] CTA Compliance Policies and Procedures............. 58-44[D] Prohibition from Doing Business with

Non-NFA Members ............................................... 58-46[E] Annual Compliance Review .................................. 58-46

Chapter 59 Family Offices

Martin E. Lybecker

§ 59:1 Description of a Typical Family Office ........................... 59-2§ 59:2 Pre-Dodd-Frank Act Analysis ......................................... 59-2§ 59:3 Dodd-Frank Act Section 409 .......................................... 59-5§ 59:4 Rule 202(a)(11)(G)-1....................................................... 59-7

§ 59:4.1 Proposed Rule .......................................................... 59-7§ 59:4.2 Final Rule ................................................................ 59-8

[A] Definition of “Family Office” .................................. 59-8[B] Definition of “Family Client”................................ 59-10[B][1] Family Member ................................................. 59-11[B][2] Former Family Member .................................... 59-12[B][3] Key Employee .................................................... 59-13[B][4] Former Key Employee ....................................... 59-15[B][5] Non-Profit Organizations.................................. 59-16[B][6] Any Company Wholly Owned by

Family Clients................................................... 59-17[C] Wholly Owned and Controlled Requirement;

Definition of “Family Entity”................................ 59-18§ 59:5 Other Issues ................................................................. 59-19

§ 59:5.1 Statutory Grandfather Provision ........................... 59-19§ 59:5.2 Transition Period ................................................... 59-19§ 59:5.3 Treatment of Pension Plans and

Deferred Compensation Plans .............................. 59-19§ 59:5.4 Multi-Family Offices ............................................. 59-22§ 59:5.5 Previously Issued Exemptive Orders ..................... 59-22

§ 59:6 Opportunity for Individual Exemptive Applications .......59-23

(Inv. Adv. Reg., Rel. #11, 6/17)

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Chapter 60 Investment Adviser Use of Social Mediaand Related Regulations

Lawrence P. Stadulis & Peter M. Hong

§ 60:1 Overview......................................................................... 60-2§ 60:2 What Is Social Media?.................................................... 60-3

§ 60:2.1 Types of Content ..................................................... 60-3§ 60:2.2 Examples of Social Media ....................................... 60-4§ 60:2.3 Industry Social Media Uses .................................... 60-5

[A] Promotion of Advisory Services ............................... 60-5[B] Internal Use............................................................. 60-6[C] Personal Use ............................................................ 60-6

§ 60:3 Regulatory Framework for Investment Advisers’ Use ofSocial Media ................................................................... 60-6

§ 60:3.1 Advertising............................................................... 60-7[A] Testimonials ............................................................ 60-8[B] Past Specific Recommendations............................... 60-8

§ 60:3.2 Fiduciary Duty—Recommendations andDisclosure ................................................................ 60-8

§ 60:3.3 Compliance Rule ..................................................... 60-9§ 60:3.4 Recordkeeping.......................................................... 60-9§ 60:3.5 Supervision ............................................................ 60-10

§ 60:4 SEC Guidance on the Use of Social Media byInvestment Advisers ..................................................... 60-11

§ 60:4.1 Social Media Sweep............................................... 60-11§ 60:4.2 Risk Alert .............................................................. 60-12

[A] Advertising and Third-Party Content .................... 60-12[B] Fiduciary Duty....................................................... 60-12[C] Compliance Policies and Procedures ..................... 60-12[D] Recordkeeping........................................................ 60-14

§ 60:4.3 Interactive Content ............................................... 60-14§ 60:4.4 Testimonials .......................................................... 60-16

[A] Third-Party Commentary ...................................... 60-16[B] Inclusion of Investment Adviser Advertisements

on Independent Social Media Site ......................... 60-17[C] Reference to Independent Social Media Site

Commentary on Investment Adviser Non-SocialMedia Advertisements ........................................... 60-18

[D] Client Lists ............................................................ 60-18[E] Fan/Community Pages........................................... 60-18

§ 60:5 FINRA Guidance .......................................................... 60-18§ 60:6 Enforcement Actions .................................................... 60-19§ 60:7 Conclusion ................................................................... 60-20

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(Inv. Adv. Reg., Rel. #11, 6/17)

Chapter 61 Valuation Issues Under the InvestmentAdvisers Act


§ 61:1 Introduction ................................................................... 61-2§ 61:2 Historical Primer on the Application of the

Investment Advisers Act to Valuation Issues ................. 61-3§ 61:3 Financial Accounting Standards and Related

Guidance for Fair-Valuing Assets That AreHard to Value ................................................................. 61-6

§ 61:3.1 Level One Assets—Market Approach...................... 61-6§ 61:3.2 Level Two Assets—Income Approach ..................... 61-8§ 61:3.3 Level Three Assets—Fair Value Approach .............. 61-9

§ 61:4 SEC Enforcement Actions Regarding InvestmentAdviser Valuation Cases ............................................... 61-10

§ 61:4.1 Misvaluation by Fraud .......................................... 61-10[A] SEC v. Yorkville Advisors, LLC ............................... 61-11[B] In re David Mark Bunzel ....................................... 61-11[C] In re Alpha Bridge Partners et al.—Broker

Quotes As a Valuation Source Must BeIndependently Derived........................................... 61-12

§ 61:4.2 Valuation Issues with Assets Held inSide Pockets........................................................... 61-13

§ 61:4.3 Enforcement Actions Specifically Related toFAS 157................................................................. 61-14

§ 61:4.4 Issues with Changing the Valuation Methodologyand the Challenges of Valuing Assets Held inPE Funds ..................................................................61-15

§ 61:4.5 Cherry-Picking Available Quotes to IncreaseAsset Values........................................................... 61-17

§ 61:4.6 Procedures Failures................................................ 61-19§ 61:4.7 Valuation Issues in the CLO Market.................... 61-20§ 61:4.8 Odd-Lot Discounts and Pricing Services............... 61-23

[A] PIMCO’s Odd-Lot Strategy ................................... 61-23[B] The Role of the Valuation Committee .................. 61-24

§ 61:4.9 Remediating Valuation Errors ............................... 61-25§ 61:5 Best Practices for Compliance and Legal

Professionals with Advisers That Fair ValueIlliquid Securities.......................................................... 61-26

§ 61:6 Conclusion ................................................................... 61-29

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Chapter 62 Investment Management M&A

Kenneth J. Berman, Gregory V. Gooding,David Innes, William D. Regner, Seth L. Rosen,Lee A. Schneider, Gregory T. Larkin &Benjamin Lyon

§ 62:1 Introduction ................................................................... 62-3§ 62:2 Deal Structuring ............................................................. 62-3

§ 62:2.1 Retaining Key Employees ........................................ 62-3§ 62:2.2 Client Retention...................................................... 62-8§ 62:2.3 Form of Transaction................................................ 62-9

[A] Asset Purchase......................................................... 62-9[B] Stock Purchase....................................................... 62-10[C] Joint Venture or Majority Investment ................... 62-10[D] Merger ................................................................... 62-11[E] Hostile Acquisitions .............................................. 62-11

§ 62:2.4 The Acquisition Agreement .................................. 62-11[A] Purchase Price........................................................ 62-11[B] Representations and Warranties ............................ 62-13[C] Covenants.............................................................. 62-17[D] Indemnification ..................................................... 62-17[E] Termination........................................................... 62-18

§ 62:2.5 Other Transaction Agreements ............................. 62-18[A] Confidentiality Agreement .................................... 62-18[B] Letter of Intent/Term Sheet ................................... 62-18

§ 62:2.6 Financing the Acquisition ..................................... 62-19[A] Theory of Financing .............................................. 62-19[B] Security.................................................................. 62-19[C] Financing Commitments ...................................... 62-20

§ 62:2.7 International Issues: The U.K. ............................. 62-20§ 62:3 Investment Company Act, Investment Advisers

Act and Other Regulatory Issues .................................. 62-22§ 62:3.1 Client Consents .................................................... 62-22

[A] Registered Fund Clients......................................... 62-23[B] Non-Fund Clients.................................................. 62-25[C] Private Fund Clients .............................................. 62-26

§ 62:3.2 Broker-Dealer Regulatory Approvals...................... 62-26§ 62:3.3 Underwriting Arrangements.................................. 62-27§ 62:3.4 Profits from the Sale of an Investment

Company Adviser .................................................. 62-27§ 62:3.5 Dealing with Fund Directors ................................ 62-29§ 62:3.6 Acquisitions by Broker-Dealers ............................. 62-31§ 62:3.7 Other Regulatory Matters ..................................... 62-32

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§ 62:4 Special Tax Planning Issues.......................................... 62-34§ 62:4.1 Form of the Transaction ....................................... 62-34§ 62:4.2 Competing Goals of the Acquiror and the

Selling Shareholders of the Adviser ...................... 62-35§ 62:4.3 Asset Allocations................................................... 62-36§ 62:4.4 U.S. Holding Company for Foreign Purchaser ..... 62-36§ 62:4.5 FIRPTA Certificates............................................... 62-37§ 62:4.6 Allocation of Adviser Taxes................................... 62-37

§ 62:5 Regulatory Due Diligence............................................. 62-37

Table of Authorities .....................................................................T-1

Index ................................................................................................ I-1

(Inv. Adv. Reg., Rel. #11, 6/17) clxi

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