investment adviser regulation · 2019-04-19 · zila reyes acosta-grimes (chapter 26) is a member...

INVESTMENT ADVISERREGULATION

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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 FinancingConsumer Financial Services Answer BookEquipment Leasing–Leveraged LeasingFinancial Institutions Answer Book: Law, Governance, ComplianceHillman on Commercial Loan DocumentationHillman on Documenting Secured Transactions: Effective Drafting and LitigationMaritime 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 OfferingCorporate 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 Product Fundamentals: Law, Business, ComplianceFinancial Services Mediation Answer BookFinancial 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 LawLegal Guide to the Business of MarijuanaLife 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 Criminal

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Securities Law and Practice DeskbookThe 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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LITIGATIONArbitrating Commercial Disputes in the United StatesClass Actions and Mass Torts Answer BookDepositions 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 #14October 2018

#239489

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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Legal Editor: Carol Benedicto

Copyright © 1996, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006,2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018by Practising 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.

LCCN: 2011941370

ISBN: 978-1-4024-1690-3

To Emma—

Thanks for completing our family with your beauty, joy,

and happiness. We love you so much.

Love,

Daddy, Mommy, Julia, and Abby

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, 9–14, 16, 18, 19, 22, 25, 27,32–34, 43, and 49B, and coauthored chapters 2, 2A, 3, 8A, 36, 41, 42,44, and 52.

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About the Contributors

Zila Reyes Acosta-Grimes (Chapter 26) is a member of Debevoise &Plimpton LLP ’s Financial Institutions Group based in the New Yorkoffice. Her practice focuses on banking regulatory, transactional andcompliance matters. Prior to joining the Financial Institutions Group,Ms. Acosta-Grimes was a member of the firm’s Investment Manage-ment Group.

Ms. Acosta-Grimes joined Debevoise in 2015. She received a J.D.from Columbia Law School in 2015, where she was a Harlan FiskeStone Scholar and an Articles Editor for the Columbia Law Review.She received a B.A. from Columbia College at Columbia University in2011. She is fluent in Spanish.

Matthew J. Alexander (Chapter 31A) is a partner in Mayer BrownLLP ’s Washington, D.C. office. He focuses his practice on the counsel-ing and defense of corporations and individuals in a variety ofenforcement 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 experi-ence in designing, managing, executing, and presenting global inves-tigations before numerous enforcement authorities, including theDOJ, SEC, and the World Bank’s Integrity Vice Presidency. He receivedhis J.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.

Scott R. Anderson (Chapter 24A) is a partner at Chapman and CutlerLLP in the firm’s investment management practice. Mr. Anderson hasbeen practicing law since 1993, when he joined the firm. Mr. Andersonconcentrates his practice in investment management matters, with

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particular emphasis on investment companies, including unit invest-ment trusts, open-end funds, closed-end funds, exchange-tradedfunds, and private investment funds. His experience also includesmatters involving the representation of investment advisers, broker-dealers, municipal securities dealers, and municipal advisors.Mr. Anderson received his B.A. in Finance from Augustana Collegeand his J.D. from Loyola University Chicago School of Law.

Andrew L. Bab (Chapter 17) is a partner with Debevoise & PlimptonLLP and a member of the firm’s Healthcare and Life Sciences, Mergers& Acquisitions, Private Equity and Securities Groups. His practicefocuses on mergers and acquisitions involving both public and pri-vate companies, including financial services companies, and on cor-porate and securities law matters. From 1992 to 1993, Mr. Bab servedas a law clerk to the Hon. Thomas J. Meskill, Second Circuit. Hereceived his J.D. in 1992 from Columbia Law School, where he was aStone Scholar and Book Review Editor of the Law Review. From 1986to 1989, Mr. Bab was an investment banker at Lazard Frères & Co. inNew York. Mr. Bab received his B.A., magna cum laude, from YaleUniversity in 1986.

Andrew D. Beresin (Chapter 56A) is a partner at Murphy &McGonigle PC. Mr. Beresin’s practice focuses on client counselingwith respect to trading practices and fund management. In addition,Mr. Beresin focuses on providing legal representation to broker-dealers,investment advisers and security industry professionals in regulatoryinquiries. His extensive trading and legal experience includes twelveyears as an equity trader and trading desk analyst as well as nearly adecade as a litigator representing prominent Wall Street entitiesand their senior executives in high-stakes enforcement matters.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 Pennsylvania andhis J.D., cum laude, from Harvard Law School.

Kenneth J. Berman (Chapters 17 & 62) is a partner in Debevoise &Plimpton LLP and a member of the firm’s Investment ManagementGroup. Mr. Berman focuses his practice on providing regulatory andcompliance advice to financial services firms, particularly investmentadvisers and sponsors of mutual funds, private equity funds and other

INVESTMENT ADVISER REGULATION

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pooled investment vehicles. Mr. Berman also counsels mutual fundindependent directors and advises operating companies concerningstatus issues they may face under the Investment Company Act of1940. 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 UtilityHolding 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 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.

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 College ofLaw. She has an M.A. from Indiana University Bloomington and aB.A., magna cum laude, from Brown University.

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 investmentmanagers, 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 founding

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member of the New York Private Investment Fund Forum, and hasserved on the New York City Bar Association’s Corporate Law Com-mittee and Committee on the Revised Uniform Partnership Act aschair of the Association’s Subcommittee on Business Trusts. Sheis listed in The International Who’s Who of Business Lawyers, Cham-bers Global—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 alsoassists 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 has

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represented the Securities Industry Financial Markets Associationwith respect to comment letters submitted to the SEC, and in obtain-ing a variety of no-action letters from the SEC Staff relating toRegulation SHO and Rule 10a-1, including working with the SIFMAPrime 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.registered funds, funds organized under the European Union directiveon Undertakings for Collective Investment in Transferable Securities(UCITS), and funds organized in other jurisdictions offered on aprivate basis. Mr. Christian’s practice has a significant internationalcomponent. He advises offshore funds on compliance with U.S.regulatory requirements and routinely counsels European retail and

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institutional funds on organization, registration, corporate gover-nance, and global distribution issues. He has assisted clients incoordinating offering advisory services and various types of investmentfunds in compliance with local law in jurisdictions in Europe, Asia, theMiddle East, and Latin and South America.

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.

Ezra D. Church (Chapter 63) is a partner at Morgan Lewis inPhiladephia. Mr. Church focuses his practice on class action lawsuitsand complex commercial and product-related litigation, with particu-lar emphasis on the unique issues facing retail, ecommerce, and otherconsumer-facing companies. He also focuses on privacy and datasecurity matters, and regularly advises and represents clients inconnection with these issues.

Mr. Church has extensive experience handling complex and unu-sual class action litigation, and has handled all aspects of such casesfrom inception through trial and appeal. His work in this area includesdefeat of class certification in a rare copyright class action against oneof the world’s leading publishers, successful opposition of class certi-fication in an unusual defendant class action against many largefinancial institutions, and a successful defense verdict in a consumerclass action trial against an international retailer, including affirmanceon appeal. He is an active member of the firm’s Class Action WorkingGroup and regularly writes and speaks on class action issues. He is acontributor to the firm’s chapter on class action litigation in theleading treatise Business and Commercial Litigation in Federal Courtsand co-author of a chapter in A Practitioner’s Guide to Class Actions,among others.

With respect to privacy and data security laws and related require-ments, Mr. Church’s work includes representation of companies facedwith class actions, government investigations, and he has advisedhundreds of companies in connection with data breaches and privacyand cybersecurity compliance issues such as data transfer, privacypolicies and notice, information security policies, and online andmobile data collection. His experience includes the requirements ofthe Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, includingReg. S-P, Controlling the Assault of Non-Solicited Pornography andMarketing Act laws, the Telephone Consumer Protection Act, the

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Federal Trade Commission Red Flags Rule, Financial Crimes Enforce-ment Network regulations and other anti-money laundering rules,data transfer requirements and mechanisms such as the Privacy Shieldand model clause agreements, the Children’s Online Privacy Protec-tion Act, and the Family Educational Rights and Privacy Act. He writesand speaks frequently on these topics, and has lectured on privacy lawat Rutgers University Law School. Mr. Church has been designated aCertified Information Privacy Professional with the InternationalAssociation of Privacy Professionals.

Mr. Church has particular experience representing retail ande-commerce companies and has helped lead the firm’s retail practiceover the past eight years. In his work with retail and e-commercecompanies, he regularly counsels clients on a host of operational andother legal issues, which are often peculiar to the industry. Areaswithin Mr. Church’s counseling practice include data collection,privacy, data security, online contracting and website terms, intellec-tual property, gift cards, loyalty programs, layaway programs, un-claimed property/abandoned property and escheat laws, employeebackground checks, anti-money laundering plans, payment mechan-isms, price comparison and other forms of advertising, and marketingprograms.

Mr. Church received his B.A. from Northwestern University andhis J.D., cum laude, from the University of Texas School of Law.

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. His areasof expertise include broker-dealer financial responsibility, broker-dealer liquidations, securities credit regulation, compliance withself-regulatory organization rules, short selling, regulations governingmarket manipulation, securities lending, soft dollars, prime broker-age, and market structure. He has particular experience and expertisedealing with the provisions of the Dodd-Frank Act applicable tobroker-dealers, including provisions relating to securities-based swapdealers. Mr. Comstock’s recent significant matters include represent-ing major financial services firms in matters relating to cross-borderbroker-dealer registration and operations issues, and in developingnovel and complex investment products and services. Mr. Comstockwas an attorney in the SEC ’s Division of Trading and Markets, wherehe held the positions of Branch Chief, Special Counsel and Staff

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Attorney in the Office of Financial Responsibility. He had responsi-bility for a variety of matters relating to broker-dealer net capitalrequirements, customer protection, broker-dealer books and recordsrequirements, margin, and broker-dealer liquidations. Mr. Comstockearned his B.A. from the University of Pittsburgh, his M.B.A. fromthe University of Pittsburgh, Joseph M. Katz School of Business, hisJ.D. from the University of Pittsburgh School of Law, and his LL.M.from Universität Augsburg, Germany.

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. Heis a member of the Hedge Fund Association, Managed Funds Associa-tion, and the Mid-Atlantic Hedge Fund Association. Mr. Deringer is afrequent speaker at securities law conferences and a widely publishedauthor. He has written many articles on investment managementindustry topics, and regularly comments on developments in financialservices and investment management for industry and businesspublications.

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 represented clientsthroughout the United States and abroad involving claims broughtunder the Securities Exchange Acts, the California Unfair Competi-tion Law, the Sherman and Clayton Acts, and the Foreign CorruptPractices Act. Mr. Dick also has extensive experience in the prosecu-tion and defense of commercial contracts and business tort claims.Mr. Dick was recently a member of a trial team that obtained a

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complete defense verdict following a bench trial in a nationwide classaction. His other recent matters include: defending an unsolicitedtender offer and related proxy contest launched by an internationaltechnology company; defending a major credit card company in a civilantitrust action; and defending a large, multi-national corporation in aFCPA investigation including conducting an internal investigation incooperation with the Department of Justice.

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 productformation and general corporate matters. She graduated cum laudefrom Williams College with a B.A. in history. She earned her M.A. inhistory from the University of Wisconsin and her J.D. with honorsfrom the University of Wisconsin Law School. She served as seniorarticles editor of the Wisconsin Law Review and was selected for Orderof the Coif.

Brian C. Edstrom (Chapter 15) is a shareholder of Avisen Legal, PA.Mr. Edstrom is a seasoned attorney who benefits his clients with overseven years of experience working for federal and state regulatoryagencies in Washington, D.C. and Minnesota. In Minnesota,Mr. Edstrom served as the Director of Securities at the MinnesotaDepartment of Commerce. He was responsible for overseeing registra-tion of securities offerings; and registration, enforcement, and exam-ination activities involving investment advisers and broker-dealersdoing business in Minnesota. In Washington, Mr. Edstrom investi-gated civil rights and civil fraud claims with the U.S. Department ofJustice Civil Rights Division and Civil Division, Consumer ProtectionBranch. Mr. Edstrom received his education from Colorado College,the University of Minnesota’s Humphrey School of Public AffairsPolicy Fellows Program, and the University of Wisconsin Law School.

Ruth S. Epstein (Chapter 58) is a partner in the Washington, D.C.office of Stradley, Ronon, Stevens & Young, LLP and has more than

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thirty years of corporate, securities, and financial services experience,including five years with the SEC in the Division of Enforcement andthe Office of General Counsel. Ms. Epstein concentrates on complexissues faced by participants in the investment management andvariable insurance products industries, and counsels financial servicesclients on a broad range of regulatory, governance, product develop-ment, and enforcement issues. She assists clients in responding to andadapting to expanded regulation of their industry by the CommodityFutures Trading Commission (CFTC) and the National Futures Asso-ciation (NFA).

Ms. Epstein is a frequent author and lecturer on topics affecting herclients. In recent years, she has co-authored four “friend of the Courtbriefs” in matters of critical importance to the industry, including twoin the U.S. Supreme Court: Jones v. Harris Assocs. LP (standard forreview of advisory fees) and Janus Capital Group, Inc., et al. v. FirstDerivative Traders (responsibility for statements in mutual fundprospectuses). As co-chair of the American Bar Association’s Sub-Committee on Securities Activities of Insurance Companies,Ms. Epstein took an active role in the debate surrounding a numberof important regulatory initiatives affecting funds and variable prod-ucts, including the SEC ’s summary prospectus and XBRL proposals.She is actively involved with clients and industry groups in dialoguewith the CFTC regarding the CFTC ’s regulation of funds and advisers,in connection with related rulemaking proposals and issuance ofinterpretative guidance. Ms. Epstein received her B.A., with distinc-tion, from Cornell University, and her J.D., cum laude, from HarvardLaw School.

Robert A. Fippinger (Chapters 54 & 55) served as Chief Legal Officerto the Municipal Securities Rulemaking Board (MSRB) from March2015 through July 2017. Previously, he had been a partner and seniorcounsel in the New York office of Orrick, Herrington & Sutcliffe andhad specialized 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.

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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 appointmentas Chief Legal Officer in 2015. Any information in this book related torulemaking activity of the MSRB since October 1, 2010, is carefullyrestricted to information provided by the MSRB in its public noticesand interpretations that are available on the MSRB website at www.msrb.org.

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 (2014–2017), where he is lauded by clients for being “extremely responsive,diligent and business savvy.” Mr. Gooding is also ranked as a leadingM&A lawyer in Latin America by Chambers Global (2014–2017) andby Chambers USA (2013–2017).

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 opening

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in 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 compliancetesting, negotiation with service providers, business partners andinvestors, and reorganizations, purchases, sales, joint venture struc-turing and other corporate transactions involving asset managementbusinesses.

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 regulatoryissues. Before joining the firm as an associate, Mr. Hanna participatedin Sutherland’s Summer Associate Program in 2008. He also served asan extern in the Alachua County Attorney ’s Office and as a law clerkin the Civil Division of the Office of the U.S. Attorney for the MiddleDistrict of Florida. As an extern, Mr. Hanna gained experience inenactment and enforcement of ordinances and zoning regulations,vested rights law, and federal voting rights statutes. During his time asa law clerk, he performed legal research in areas including federalremoval statutes, administrative law, employment law and medicalmalpractice. Mr. Hanna received his B.A. from Duke University, wherehe served as Senior Editor and Staff Writer of The Duke Chronicle. He

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received his J.D., cum laude, from the University of Florida LevinCollege of Law, where he was a Board Member of the Florida LawReview.

Dr. Andrew J.H. Henderson (Chapter 49D) is a partner in EvershedsSutherland LLP ’s financial institutions group. Dr. Henderson special-izes in financial services regulation with over fifteen years of experi-ence as a financial services lawyer. He co-leads Eversheds SutherlandLLP ’s non-contentious financial services regulation practice and worksclosely with the firm’s Financial Services Consulting business. Inaddition to the legal directories referred to below, he is recommendedin the IFLR 1000.

Dr. Henderson advises international asset managers, investmentadvisers, depositaries and custodians, investment banks, broker-deal-ers, and banks on all aspects of EU and UK financial services regula-tion. This includes advisory, project, and transactional work inconnection with the Markets in Financial Instruments Directive, theCapital Requirements Directive and Regulation, the Alternative In-vestment Fund Managers Directive, the UCITS Directive, the MarketAbuse Directive and Regulation, governance and the Senior ManagersRegime, the Retail Distribution Review, and issues relating to theprotection of client assets and client money, particularly those arisingfrom 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 ’sclient money 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.

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and counsel with Bingham McCutchen LLP. Mr. Himstreet’s practiceconcentrates on regulatory counseling concerning securities marketand regulatory 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.

Peter M. Hong (Chapters 58 & 60) is a partner at Stradley, Ronon,Stevens & Young, LLP. Mr. Hong advises clients in matters pertainingto the registration and regulation of registered and private investmentcompanies, investment advisers, broker-dealers, commodity tradingadvisors, and commodity pool operators under federal and state laws.His practice includes providing advice regarding compliance withregulations 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;preparation 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

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Act and its related rules as a trial attorney for the U.S. CommodityFutures Trading Commission, Division of Enforcement inWashington, 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(2017).

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. Smith onthe 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.

Nicole M. Kalajian (Chapter 58) is counsel in the Chicago office ofStradley, Ronon, Stevens & Young, LLP. Ms. Kalajian representssecurities, commodities, and cryptocurrency professionals in a varietyof regulatory, compliance, and corporate matters. She has extensiveexperience with respect to hedge funds, commodity pools, private

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equity funds, cryptocurrency funds, venture capital funds, real estatefunds, fund of funds, and socially responsible investment vehicles.Ms. Kalajian provides legal and compliance guidance to registered andexempt investment advisers, commodity pool operators (CPOs), com-modity trading advisors (CTAs), introducing brokers (IBs), forex (FX)firms, proprietary trading firms, futures commission merchants(FCMs), and broker-dealers (BDs). Ms. Kalajian provides legal andcompliance guidance concerning the launch of securities token offer-ings (STOs), that is, compliant initial coin offerings (ICOs). She alsoserves as counsel to boards, mutual funds, and exchange-traded funds(ETFs). Ms. Kalajian drafts and develops offering documents, compli-ance manuals, policies and procedures, corporate materials, businesscontracts, investment agreements, and advertising materials. She alsoprovides legal and structuring guidance concerning master-feederstructures, domestic and foreign funds, international offerings, sepa-rately managed accounts, and robo-adviser platforms.

Ms. Kalajian is a Founder of the Investment Network and theDigital Assets Working Group, and is the Director of the Washington,D.C. Compliance Roundtable of the Chicago Region. Ms. Kalajian wasselected as a Super Lawyers Rising Star in 2016, 2017, and 2018. Shereceived her B.S. from DePaul University, and her J.D. and LL.M. fromChicago-Kent School of Law. She is an Investment Adviser CertifiedCompliance Professional® (IACCP®).

Jesse P. Kanach (Chapters 45A & 45B) is a partner in Perkins CoieLLP’s Business practice. He regularly represents a wide range of financialinstitutions, including registered and private funds and investmentadvisers, on a variety of regulatory, corporate and transactional matters.His practice ranges from the formation and offering of hedge funds andregistered open- and closed-end investment companies, to the repre-sentation of independent directors and trustees, to acquisitions ofinvestment 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 has

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included tracking developments in the changing legislative and reg-ulatory 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 securitiesregulatory 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 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. from St.John’s College. Ms. Kelly is a member of the Maryland and District ofColumbia 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 Markets

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Approach 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 Uni-versity Washington College of Law, where she served as a fellow forboth the Legal Rhetoric Program and the Marshall-Brennan Constitu-tional Literacy Project. She earned her B.S. in Business Administra-tion, with a focus on finance and international business, from theGeorgetown University McDonough School of Business. Prior tojoining the firm, Ms. Klaben worked in the Office of ComplianceInspections and Examinations in the U.S. Securities and ExchangeCommission. She also spent three years at SNL Financial, where shemanaged the Specialized Financial Services division.

Jennifer L. Klass (Chapter 63) is a partner at Morgan Lewis in NewYork City. Ms. Klass is a regulatory counseling lawyer with a broadbackground in investment management regulation. She advises clientson a wide range of investment advisory matters, including investmentadviser registration and interpretive guidance, disclosure and internalcontrols, regulatory examinations, and enforcement actions. Herclients include major investment banks, investment advisers, broker-dealers, and the sponsors of private investment funds and mutualfunds. Previously vice president and associate general counsel atGoldman, Sachs & Co., Ms. Klass’s practice focuses on the conver-gence of investment advisory and brokerage services.

Advertising and communications with the public, social media, andfiduciary duty and disclosure are among the securities regulatory areasin which Ms. Klass counsels clients. She also advises them oninvestment adviser registration, internal controls, compliance policiesand procedures, separately managed (or wrap fee) programs, regulatoryexaminations and enforcement actions, interpretive guidance, and no-action requests. While at Goldman, Sachs, Ms. Klass counseled its

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private wealth management and asset management businesses. Shewas also previously an associate at Morgan Lewis.

Ms. Klass has been recognized in Who’s Who Legal (2016) andInvestment Fund Formation and Management: Mutual Funds in theUS Legal 500 (2009). She received her B.A. magna cum laude fromLehigh University and her J.D. from Widener University School ofLaw.

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, corpo-rate governance disclosure issues, internal investigations andlitigation.

A former chief trial attorney for the Division of Enforcement of theSEC, 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 of counsel to Debevoise & PlimptonLLP based in the Washington, D.C. office. Mr. Larkin is in theInvestment Management Group. He has primarily worked on regula-tory and compliance issues related to the Investment Company Actand the Investment Advisers Act. Mr. Larkin joined the firm in 2008.Mr. Larkin received a J.D. degree from New York University School ofLaw in 2008. Mr. Larkin was named a member of the Order of theCoif, 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 Univer-sity 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, parti-cularly 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 advised oncompleted financing transactions with an aggregate value of approxi-mately $70 billion. His corporate finance and securities practiceincludes offerings of equity and debt securities, including invest-ment-grade debt, high-yield debt and convertible debt; public securitiesofferings, including IPOs and follow-on offerings; private securitiesofferings, including private placements, Rule 144A exempt offeringsand Regulation S exempt offerings; debt-restructuring transactionssuch as debt-for-equity exchange offers and other self-tenders; domes-tic and cross-border offerings for U.S. and non-U.S. issuers; primaryand secondary offerings; and financings for private investment 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, bothprivate and public; mergers and tender offers; joint ventures; privateequity and hedge fund transactions; domestic and cross-border trans-actions for U.S. and non-U.S. clients; Hart-Scott-Rodino premergernotification 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 of Wiscon-sin at Madison; his M.A. from Cornell University; his J.D. fromColumbia Law School, where he was a Stone Scholar and the SeniorEditor of the Columbia Law Review; and his LL.M., mention bien,from the University of Paris II (Panthéon-Assas).

Scott J. Lederman (Chapters 46 & 46A) is managing director atGrosvenor Capital Management, L.P., a firm specializing in creatingand managing investment programs utilizing alternative investmentstrategies for marketable securities. Prior to joining Grosvenor in1998, Mr. Lederman was, over five years, successively the GeneralCounsel and Chief Operating Officer of S.A.C. Capital Advisors, LLC,a multi-strategy hedge fund manager in Stamford, Connecticut.Mr. Lederman has practiced law since June 1982 and, before joiningSAC, was a partner in the Chicago law firm of Coffield Ungaretti &Harris which he joined in 1988. He received a J.D., cum laude, fromthe University of Chicago in 1982, and an M.B.A. in Finance and aB.S., magna cum laude, in Economics from The Wharton School ofthe University of Pennsylvania in 1979 and 1978, respectively.Mr. Lederman is a member 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 the initialRFP and facilitating vendor selection to negotiating all aspects of thedefinitive agreement and schedules—and is actively involved in thelegal, business and technology components of each outsourcing dealhe 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 experience

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working for federal and state public officials and political campaigns.Mr. Lucas received his law degree from Harvard Law School, magnacum 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 of NewYork at Buffalo, Duke University, and the University of North Car-olina at Chapel Hill. He was Chair of the Committee on Banking Lawfrom 2002–2005, was Chair of the Committee on Developments inInvestment 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, BankingLaw.

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, where

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he was a Graduate Fellow of the Center for the Study of FinancialInstitutions and the Securities Markets. Mr. Lybecker has been aSenior Lecturing Fellow in Law at Duke University Law School since2000.

Benjamin Lyon (Chapter 62) is an English and New Zealand–qualifiedinternational of counsel to Debevoise & Plimpton LLP ’s CorporateDepartment and a member of the firm’s Financial Institutions Group.He focuses on corporate transactions in the insurance industry,including mergers & acquisitions, corporate governance and insuranceregulatory advice, as well as all other aspects of corporate law withsignificant experience in acting on a wide range of public and privatemergers & acquisitions, capital markets transactions, joint venturesand other transactions both in the UK and internationally. Heregularly advises insurers, corporates, financial institutions, privateequity 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.

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 generalcorporate law matters.

Mr. Magera regularly assists registered investment advisers withdocumentations, compliance and transactional matters concerningtheir advisory businesses, and is experienced with mutual funddisclosure and other regulatory requirements. He has particular ex-perience in representing investment advisers, and other investment

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management industry participants (e.g., fund companies, sponsors,outsourcers), in connection with documenting contractual relation-ships, product development initiatives and strategic transactions.Mr. Magera has assisted buyers and sellers with all types of mergerand acquisition transactions, including asset sales, stock sales, mer-gers, divestitures and joint ventures. He also has represented invest-ment advisers and outsourcers in connection with establishingoutsourcing 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 regulatedentities in investigations by the Securities and Exchange Commissionand self-regulatory organizations; created hedge funds; and providedadvice and sought no-action relief for investment companies, invest-ment advisers, and broker-dealers. Prior to joining the firm,Mr. Marshall was Senior Associate Regional Administrator in theNew York office of the Securities and Exchange Commission. In thatposition, Mr. Marshall supervised a staff of seventy that conductedinspections of investment companies and advisers in the New Yorkregion and oversaw enforcement 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, in-cluding IA registration, preparation of Form ADV, creation ofsupervisor policies and procedures consistent with the InvestmentAdvisers Act and Investment Company Act requirements; litigatingclaims on 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;routinely representing investors and financial services firms in secu-rities litigation, regulatory and enforcement matters, and in investiga-tions; and representing clients in complex civil litigation includingbusiness torts, contract disputes, and trade secret and restrictivecovenant disputes.

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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.

Ben Marzouk (Chapter 8A) is an associate in the Washington, D.C.office of Eversheds Sutherland. Mr. Marzouk is a financial servicesattorney who advises broker-dealers and investment advisers on theirregulatory compliance matters with the U.S. Securities and ExchangeCommission (SEC) and the Financial Industry Regulatory Authority(FINRA), as well as state rules and regulations. Before joining Ever-sheds Sutherland as an associate, Mr. Marzouk participated in thefirm’s Summer Associate Program in 2010 where he assisted primarilywith financial services matters. He previously worked as an analyst fora global consulting firm where he analyzed testing documents as partof a large-scale SAP implementation for the United States Army ’sfinancial branch. Mr. Marzouk is admitted to the Virginia State Bar.His work is supervised by District of Columbia bar members. Hereceived his B.A., magna cum laude, from the College of William andMary, and his J.D. from the University of Virginia School of Law,where he served as President of the William Minor Lile Moot CourtBoard, and on the Editorial Board of The Virginia Journal of SocialPolicy & the 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 beforethe Internal Revenue Service (IRS) and the Department of Labor,obtaining prohibited transaction exemptions, private letter rulingsand/or voluntary compliance relief. She works with the full range ofretirement plans for both public and private employers. She has beenactive in the American Bar Association, where she served as a vice

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chair of the Employee Benefits Law Committee of the Tort andInsurance Practice Section and as a member of the Employee BenefitsCommittee of the 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 reg-ulatory 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, cul-minating in a unanimous decision in the Illinois Supreme Court.

Prior to joining Mayer Brown, Mr. McDonnell served as law clerk tothe Honorable Rebecca Pallmeyer of the United States District Courtfor the Northern District of Illinois. He graduated magna cum laudefrom Harvard Law School in 2009, where he was the Senior PolicyEditor of the Harvard Law and Policy Review. Mr. McDonnell has beena guest lecturer at Northwestern University School of Law on topicsrelating to the nexus between law and politics. He is an executiveboard member of the Democratic Party of Evanston and is active in theAmerican 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.

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

Michael C. Nicholas (Chapter 49F) is a partner in the SecuritiesRegulation & Investment Products (SRIP) Group of McCarthyTétrault LLP in its Toronto office. Mr. Nicholas’s practice is devotedto securities law matters generally, with an emphasis on registration orlicensing matters; dealer, adviser, investment fund manager, marketintermediary and marketplace regulation; related compliance andenforcement matters; litigation support; the regulation and imple-mentation of derivative transactions; the development of new finan-cial products and trading strategies, including monetizationtransactions, issuer put options, block trades and accelerated andprepaid share repurchases; and the regulation, development, restruc-turing, termination and unwinding of collective investment vehicles,including mutual funds and hedge funds.

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 theCommission’s Corporate Finance Division until September 1984.From July 1989 to July 1992, Mr. Nicholas served as the Director ofCorporate Finance for the Hong Kong Securities and Futures Commis-sion, 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.

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Eric L. Perelman (Chapter 63) is an associate in the New York Cityoffice of Morgan Lewis, where he counsels investment managers in arange of securities regulatory and transactional matters. He adviseshedge funds, private equity funds, venture capital funds, large financialinstitutions, and other market participants on structure and opera-tions, regulatory guidance and interpretation, investment advisercompliance and controls, internal and regulatory investigations, andenforcement actions and examinations by the SEC.

Mr. Perelman is part of a team of attorneys that counsels invest-ment funds, their advisers, and large financial institutions on a varietyof securities matters, including registration and disclosure, fiduciaryduty, product and service development, interpretive guidance, regula-tory examinations and investigations, and enforcement actions. Healso counsels clients on mergers, acquisitions, and joint venturesinvolving asset managers and investment advisers. While in lawschool, Mr. Perelman served in the Securities and Exchange Commis-sion’s Student Honors Program, completing rotations with the Divi-sion of Enforcement and the Division of Investment Management.He also served as a law clerk at the Investment Company Institute andwith the government and regulatory affairs team at the FinancialServices Roundtable. Mr. Perelman received his B.A. cum laude fromNew York University and his J.D. from The George WashingtonUniversity Law School.

Amanda N. Persaud (Chapter 47) is a partner in Ropes & Gray ’sprivate investment funds practice in New York. Her practice focuses onthe formation, 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

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earned her J.D. from the University of Virginia School of Law in 1999.She is a member of the International Bar Association, the New YorkState Bar Association and serves on the Private Investment FundsCommittee 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 eighteen years of experience working forand representing clients in the public and private sectors, with a

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particular emphasis in the financial services sector. He routinelycounsels clients on regulatory compliance and risk managementissues in addition to litigation, arbitration, enforcement proceedingsand investigations. He has represented a variety of institutions in thesecurities and commodities futures markets, including broker-dealers,clearing firms, hedge funds, commodity pools, public companies andtheir committees, 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 Universityof Wisconsin at Madison, and his J.D., cum laude, from TulaneUniversity 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 mutual funds,closed-end funds, exchange-traded funds, and business developmentcompanies. He dedicates a substantial portion of his practice to advisingindependent trustees and directors of mutual funds and variable annuitytrusts. Before entering private practice, Mr. Pugliese was a deputy generalcounsel for the Alliance Mutual Funds and in-house counsel to thePrudential Mutual funds. Mr. Pugliese has been recognized byChambers USA in 2016 and 2017. U.S. News & World Report citedhim as one of the “Best Lawyers in America (2017).” Mr. Pugliesereceived his B.S. from the State University of New York Binghamton,and his J.D., with honors, from George Washington University LawSchool, where he was a member of the George Washington UniversityLaw 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 regardingthe organization and structure of both managers and funds, includinginvestment advisers (registered and unregistered), commodity trading

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advisors, and commodity pool operators. Mr. Raby received his under-graduate degree from the College of the Holy Cross and his J.D. fromWashington University in St. Louis School of Law.

William D. Regner (Chapter 62) is a partner in Debevoise & PlimptonLLP, Co-Head of the firm’s Mergers & Acquisitions Group and amember of the Technology, Media & Telecommunications, FinancialInstitutions, and Corporate Governance Groups.

Mr. Regner is ranked as a leading M&A lawyer by Chambers USA(2013–2017). He is recommended by The Legal 500 US (2012–2017)and recognized by IFLR1000 (2017) as a leading M&A lawyer.

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 consulting andtraining to retirement plan service providers (broker-dealers, RIAs,investment managers, record-keepers, TPAs, etc.) and fiduciary educa-tion to plan sponsors. He is primarily responsible for tactical planningand business development at PRI and actively leads many of PRI’sconsulting 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 corporate counsel of Dougherty &Company. Mr. Rosedahl’s legal career spans over forty years. Prior toDougherty & Company, he was of counsel, Business LitigationSection, Financial Markets Group of Briggs and Morgan, P.A.Mr. Rosedahl has more than forty 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

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dispute resolution. Mr. Rosedahl’s unique background as a formerchief regulatory 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 inves-tigations, enforcement actions, remedial work and general inquiries.He is 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,and is admitted to practice in Minnesota and New York, and is amember of 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 himas 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 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, finan-cing strategies and structuring of corporate transactions. He is activelyinvolved in the firm’s corporate and corporate finance practices, with

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an 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, andstates. He also represents securities clients in litigation and arbitra-tion, and counsels them on regulatory and compliance matters. Inaddition, Mr. Rubin conducts internal investigations. Before joiningEversheds 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. from DukeUniversity.

G. Philip Rutledge (Chapter 35) is a partner of Bybel Rutledge LLP. Asan AV-rated lawyer by Martindale Hubbell, his practice focuses oncorporate and securities law, regulation of financial intermediaries,and representation before the SEC, FINRA and state securities reg-ulators. 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 FinancialModernization Act of 1999, the Sarbanes-Oxley Act of 2002, and theDodd-Frank Wall Street Reform and Consumer Protection Act of 2010.When in government, Mr. Rutledge served as an expert witness onbehalf of the Pennsylvania Office of the Attorney General in civilsecurities litigation and has testified as a securities expert before theU.S. Senate Permanent Subcommittee on Investigations. In private

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practice, 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 itsToronto office. Since joining the firm in 1989, Mr. Sadler has beenprimarily engaged in a securities trading and adviser regulationpractice, with particular emphasis on advising Canadian and nonre-sident dealers and advisers on the offering of their services in Canada,including structuring and regulation of collective investment vehiclesand the public and private offering of investment products andsecurities, retail mutual funds, institutional pooled funds, hedgefunds, closed-end funds, separately managed accounts, wrap accounts,wealth management services, family offices and registered educationsavings plans. Mr. Sadler also regularly advises on securities law/andon private placements, commodity futures and OTC derivatives trad-ing, acquisitions, divestitures and reorganizations of registrants andthe merger of investment fund complexes and the establishment ofinvestment fund businesses. Mr. Sadler has, together with localcounsel, assisted clients in establishing or restructuring investmentfunds in jurisdictions outside Canada, including Bermuda, BritishVirgin Islands, Cayman Islands and 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 and In-vestment Fund Managers, a handbook of Canadian securitiesregulatory requirements for non-resident securities firms publishedin 2012.

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 practitioners inCanada, as a leading lawyer in the area of asset managementand investment funds. He received his B.A. from the University ofToronto, his J.D. from the University of Windsor and his LL.M. in

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banking 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 compliance poli-cies, and assists clients with the development of their policies andprocedures. He has extensive experience with compliance reviews andaudits as well as internal investigations. Mr. Salter also representsclients in enforcement actions before the SEC, SROs, the U.S. Attor-ney ’s Offices, and the state Attorney General’s Offices.

Lorna A. Schnase (Chapter 8) has been practicing corporate andsecurities law for more than thirty years. Her practice emphasizesinvestment management matters, primarily for registered investmentadvisers and mutual funds. Ms. Schnase counsels clients regarding awide range of matters such as compliance programs, fiduciary duty,disclosure, custody, organizational issues, registration of funds andadvisers with the Securities and Exchange Commission, performanceissues, adviser and fund advertising, changes of control, best execu-tion, soft dollars, codes of ethics, director independence and othercorporate governance issues, reporting obligations, electronic docu-ment delivery, privacy compliance 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. Schnasepracticed with the law firm of Baker & McKenzie in Los Angeles and


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with 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-deal-ers in the start-up phase of their existence, helping with their applica-tion for membership, initial structuring and development of policiesand procedures. He speaks on and moderates panels discussing allareas of financial services and technology law, and is quoted frequentlyon these matters in publications including Bloomberg News, Law360and the Securities Lending Times.

Prior to joining Debevoise, Mr. Schneider was General Counsel anda member of the Executive Committee at ConvergEx, a global tech-nology firm specializing in proprietary software products and technol-ogy-driven execution services. Mr. Schneider previously served as thelead in-house counsel for broker-dealers at The Bank of New York, andprior to that worked as an associate for seven years, including as both acorporate and litigation associate at a leading international law firm.

Mr. Schneider is the author of “Regulatory Priorities for FinTechFirms—and Investors—in the Coming Year,” Journal of Taxation and


xlix(Inv. Adv. Reg., Rel. #14, 10/18)

Regulation 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.


l

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 counselingby The Legal 500 US. His practice includes the full range of labor andemployment matters, including those involving wage-hour and dis-crimination laws, non-competition agreements and trade secrets,Sarbanes-Oxley and other whistleblower protection laws, the Em-ployee Retirement Income Security Act (ERISA), and the OccupationalSafety and Health Act (OSHA). Mr. Schwartz has litigated employ-ment matters in state and federal courts and administrative forumsthroughout the country, as well as in arbitration, has representedclients before federal, state and local regulatory agencies and hasconducted 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 partner-ship law issues. In the area of private equity financings, she advises


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funds on their investments in private equity and debt securities. Inrecognition of her work, she has been named to The InternationalWho’s Who of Private Funds Lawyers and IFLR’s Guide to the World’sLeading Investment Funds Lawyers. She is a member of the New YorkCity Bar Association’s Committee on Private Investment Funds andthe New York Private Investment Fund Forum. She received her A.B.from Smith College and her J.D. from Columbia University School ofLaw.

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. Priorto joining 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 BenefitsCommittee of the American Bar Association Tort Trial and InsurancePractice Section and for several years as a delegate to the ABA JointCommittee on Employee Benefits. Mark serves on the board ofdirectors 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 thantwenty-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 corporationsand individuals in Foreign Corrupt Practices Act enforcement matters.Colleen is a cum laude graduate of Tulane University Law School,where she received her J.D. in 2014.

Lawrence P. Stadulis (Chapter 60) is a partner at Stradley, Ronon,Stevens & 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 and

lii


investment 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 & 42) is counsel at Seward & Kissel LLP.Mr. Strench’s practice focuses on exchange-traded funds, investmentadvisers, mutual funds and SMA sponsors. He provides advice onregulatory, compliance, entity formation, auditor independence,corporate governance and other issues related to the operation of theaforementioned 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 in 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 those

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years 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 in TheBest Lawyers in America® 2012 for Securities Law and named TheSecurities Law Lawyer of the Year. He was also ranked as one ofWashington’s Top Lawyers for securities law by Washingtonian Maga-zine 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 Associationin the District of Columbia. He is a member of the bar of the Districtof Columbia, and is admitted to practice before the following courts:U.S. Court of Appeals, District of Columbia; U.S. District Court,District of Columbia; U.S. Court of Appeals for the Fourth Circuit;U.S. District Court for the District of Maryland; District of ColumbiaCourt of Appeals; and the District of Columbia Superior Court.Mr. Sturc received his J.D., cum laude, from Harvard Law School,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 of1934, the Investment Advisers Act of 1940, the Investment CompanyAct of 1940, and other federal and state laws and regulations affectinginvestment companies, advisers, and broker-dealers.

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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.

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 a J.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 one ofthe 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.

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He was also recognized nationally as one of eight FCPA Masters at thefirst annual Main Justice Best FCPA Lawyers Client Service Awards in2013. Prior to joining private practice, Laurence held key leadershippositions at the U.S. Department of Justice (DOJ). As the DOJ’sActing Deputy Assistant Attorney General, he primarily supervisedthe Fraud Section, General Litigation and Legal Advice Section, andOffice of Policy and Management Analysis. Additionally, he testifiedbefore various congressional committees regarding the Department’swhite collar crime initiatives. He also served as the DOJ’s Chief of theFraud Section for the Criminal Division, where he advised U.S.Attorneys on white collar crime issues; supervised the prosecution ofbank, securities, and defense procurement frauds; and oversaw theFCPA 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.

Matthew T. Wirig (Chapter 24A) is a partner at Chapman and CutlerLLP in the firm’s investment management practice. He has beenpracticing law since 2006, when he joined the firm. Mr. Wirig hasextensive experience representing clients involved in the investmentmanagement industry. His experience includes the formation andongoing representation of over 2,000 investment companies, includ-ing unit investment trusts, open-end funds, closed-end funds, hedgefunds, and private equity funds. He has worked extensively withinvestment advisers, broker-dealers, and municipal securities dealersin a wide range of matters, including the development of regulatorycompliance and risk management programs. Mr. Wirig has been activein the development and implementation of a range of technology-enabled legal solutions for clients, including document automationapplications, document management systems, and automated com-pliance and contract management programs.

Mr. Wirig is also an Adjunct Professor at Notre Dame Law School,where he teaches transactional law. He writes extensively on regula-tory developments impacting investment companies, investment ad-visers, broker-dealers, and municipal securities dealers. Hisprofessional, teaching, and research interests are focused on theinvestment management industry, modern transactional legal prac-tice, innovation and the use of technology in legal practice, and therole of technology in access to justice. Mr. Wirig is actively involvedwith Illinois Legal Aid Online, an organization that seeks to increase


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access to justice for lower-income and vulnerable Illinois residentsthrough the innovative use of technology to assist and educate thepublic, and to train and support legal aid providers and pro bonoattorneys. He provides pro bono legal advice through their Free LegalAnswers program.

Mr. Wirig earned his B.S. in finance with highest honors from theUniversity of Illinois in 2003 and his J.D. from Notre Dame LawSchool, cum laude, in 2006.


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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 Efforts to Impose a Uniform Standard of Care onBroker-Dealers and Advisers

Chapter 9 The Advisory Contract

Chapter 10 Investment Adviser Compensation

(Inv. Adv. Reg., Rel. #14, 10/18) lix

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 24A Investment Adviser Compliance Obligations andRegulatory Filings

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


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Chapter 28 Gifts and Entertainment

Chapter 29 Insider Trading by Advisory Personnel

Chapter 30 Outsourcing by Financial Services Firms

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

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Table of Chapters

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PART XI: Advisory Products

Chapter 42 Mutual Funds

Chapter 43 Wrap Fee Programs

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: Structural and OperationalLegal Considerations

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


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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

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

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Table of Chapters

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

Chapter 60 Investment Adviser Use of Social Media andRelated Regulations

Chapter 61 Valuation Issues Under the InvestmentAdvisers Act

Chapter 62 Investment Management M&A

PART XIX: FinTech

Chapter 63 Regulation of Robo-Advisers

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Table of Contents

VOLUME 1

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

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

Table of Chapters.......................................................................... lix

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

(Inv. Adv. Reg., Rel. #14, 10/18) lxv

[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. #14, 10/18)

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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).......................... 4-5

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

§ 4:2.3 Financial Industry Affiliation and Private FundReporting (Item 7)..................................................... 4-6


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

§ 4:2.5 Custody (Item 9) ....................................................... 4-8§ 4:2.6 Persons Controlling the Adviser (Item 10) ............... 4-9§ 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................ 4-10§ 4:4 Client Disclosure: Form ADV Part 2.............................. 4-10

§ 4:4.1 Part 2A: The Brochure ............................................ 4-10[A] Item 1: Cover Page .................................................. 4-10[B] Item 2: Material Changes........................................ 4-11[C] Item 3: Table of Contents........................................ 4-11[D] Item 4: Advisory Business ....................................... 4-11[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 ............................ 4-13[J] Item 10: Other Financial Industry Activities

and Affiliations ........................................................ 4-13[K] Item 11: Code of Ethics, Participation or

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

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

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

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

Program Brochure.................................................... 4-16§ 4:4.3 Part 2B: The Brochure Supplement ........................ 4-16

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

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

(Inv. Adv. Reg., Rel. #14, 10/18)

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[A][3] Interim Delivery.................................................. 4-19[A][4] Flexibility Provided with Respect to

Sub-Advisory Programs ....................................... 4-19[B] Brochure Supplement .............................................. 4-20

§ 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..................... 4-22§ 4:7 Duty to Maintain Current Form ADV........................... 4-23§ 4:8 Termination of Registration ........................................... 4-24§ 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. #14, 10/18)

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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. #14, 10/18)

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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 Efforts to Impose a Uniform Standard of Careon Broker-Dealers and Advisers

Clifford E. Kirsch & Ben Marzouk

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

Broker-Dealer and Advisory Services ..............................8A-3§ 8A:3 Treatment of Broker-Dealers Under the Advisers Act ....8A-6

§ 8A:3.1 Generally .................................................................8A-6§ 8A:3.2 RAND Report ..........................................................8A-7

§ 8A:4 Harmonizing the Broker-Dealer andInvestment Adviser Standard of Care.............................8A-8

§ 8A:5 Legislative Proposals.......................................................8A-9§ 8A:5.1 Investor Protection Act of 2009..............................8A-9§ 8A:5.2 House Proposal........................................................8A-9§ 8A:5.3 Senate Banking Committee Proposal....................8A-10§ 8A:5.4 Dodd-Frank Wall Street Reform and

Consumer Protection Act of 2010........................8A-11[A] The SEC Study ......................................................8A-13[B] SEC’s Request for Cost/Benefit Data.....................8A-16[B][1] Assumptions About a Possible Uniform

Fiduciary Standard ............................................8A-17[B][2] Possible Uniform Fiduciary Standard................8A-18[B][3] Possible Alternatives to a Uniform Standard ....8A-19[B][4] Key Industry Concerns......................................8A-20[B][5] Information About Changes Made in

Response to 2007 Fee-Based Account RuleCase ..................................................................8A-21

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

§ 8A:6 Practical Implications to Consider ...............................8A-22§ 8A:7 SEC Activity: Since 2013 .............................................8A-23

§ 8A:7.1 Recent SEC Activity ..............................................8A-24§ 8A:8 Other Initiatives ...........................................................8A-25

§ 8A:8.1 Department of Labor ’s Fiduciary Duty Rule ........8A-25§ 8A:8.2 The GAO’s Financial Planner Study ....................8A-27

Chapter 9 The Advisory Contract

Clifford E. Kirsch

§ 9:1 Introduction ..................................................................... 9-1§ 9:2 Fees................................................................................... 9-2§ 9:3 Scope of Services .............................................................. 9-3§ 9:4 Conflicts of Interest.......................................................... 9-4§ 9:5 Administrative Issues ....................................................... 9-4

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 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 Types of Compensation Arrangements FallingWithin Performance Fee Prohibition....................... 10-7

[A] Direct Incentive Fees ............................................... 10-7[B] Contingent Fee Arrangements................................. 10-8[B][1] Advisory Fee Refunds and Rebates ...................... 10-8[C] Mutual Fund Fee Arrangements ............................ 10-10

§ 10:5.2 Exceptions.............................................................. 10-10[A] Exception for Asset-Based Fees .............................. 10-10[B] Exception for Fulcrum Fees ................................... 10-10[B][1] Appropriateness of Index................................... 10-12[B][2] Period Over Which Performance Is Measured.....10-12[C] Rule 205-3 Exception for Wealthy Clients............. 10-13[C][1] 1998 Amendments............................................ 10-14[C][2] Threshold Adjustments..................................... 10-14[C][2][a] 2016 Threshold Adjustment .......................... 10-16[C][3] Look-Through Provision.................................... 10-16[C][4] Rule 205-3 Applicability to Collective Trust

Funds and Insurance Company SeparateAccounts Under Investment Company ActSection 3(c)(11) ................................................. 10-17

[D] Qualified Purchaser Fund ...................................... 10-17[E] Foreign Clients ...................................................... 10-18

§ 10:6 Performance Fees Under ERISA ................................... 10-18§ 10:7 Performance Fees: Dually Registered Broker-Dealers/

Investment Advisers ..................................................... 10-19


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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...................................................... 11-12

§ 11:3.1 Custody ................................................................. 11-12§ 11:3.2 Independent Representative................................... 11-12§ 11:3.3 Operational Independence..................................... 11-13§ 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 .................... 11-14[A] Deduction of Advisory Fees ................................... 11-14[B] Affiliates ................................................................ 11-15

§ 11:4.2 Current Definition of “Custody” (As DefinedUnder the 2003 and 2010 Amendments) ............ 11-16

[A] Possession of Client Funds or Securities ............... 11-16[A][1] Assets That Are Not Funds or Securities.......... 11-17[A][2] Client Relationships for Which the Adviser

Is Providing Exclusively Non-InvestmentAdvisory Services............................................... 11-17

[A][3] No Compensation Received by Adviser ............ 11-17[B] Deduction of Advisory Fees ................................... 11-18[C] Trading Authorization ........................................... 11-18[D] Adviser Authority to Withdraw or Transfer

Client Funds.......................................................... 11-19[D][1] Standing Letters of Authorization

(SLOAs)—Third-Party Transfers ........................ 11-19[D][2] First-Party/Client Account Transfers ................. 11-20[D][3] Inadvertent Custody by Virtue of Custodial

Arrangement that Grants AdviserDisbursement Authority.................................... 11-21

[E] Legal Ownership—Pooled Investment Vehiclesand Trusts.............................................................. 11-22

[F] Affiliates of the Adviser ......................................... 11-23[G] Common Scenarios ............................................... 11-23

§ 11:5 Rule 206(4)-2 Controls................................................. 11-24§ 11:5.1 Requirements Prior to the 2003

Amendments ......................................................... 11-25§ 11:5.2 Current Requirements (Requirements Imposed

Pursuant to the 2003 and 2010 Amendments) .......11-26[A] Assets Must Be Held by a Qualified Custodian.......11-26[A][1] Exception for Mutual Fund Shares Purchased

Directly from Transfer Agent ............................ 11-27

(Inv. Adv. Reg., Rel. #14, 10/18)

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[A][2] Privately Offered Securities ............................... 11-27[A][2][a] Private Stock Certificates................................ 11-28[B] Notice .................................................................... 11-29[C] Delivery of Account Statements to Clients ........... 11-29[D] Surprise Audit Requirement .................................. 11-29[D][1] Hiring of an Independent Public Accountant ... 11-30[D][2] Contents of Written Agreement with an

Independent Public Accountant ........................ 11-31[D][3] Conducting the Surprise Examination .............. 11-31[E] Internal Control Report ......................................... 11-32[E][1] Form of the Internal Control Report................. 11-32[F] Exceptions.............................................................. 11-33[F][1] Advisers to Limited Partnerships ...................... 11-33[F][2] Advisers to Registered Investment

Companies ........................................................ 11-34§ 11:5.3 Treatment of Dually Registered Investment

Advisers/Broker-Dealers Under the Rule ............... 11-34§ 11:6 Custody of Mutual Fund Assets................................... 11-34§ 11:7 Custody As an SEC Exam Focus.................................. 11-35§ 11:8 GAO 2013 Study Costs Associated with the

Custody Rule ................................................................ 11-35

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


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Chapter 13 Proxy Voting

Clifford E. Kirsch

§ 13:1 Introduction ................................................................... 13-2§ 13:2 Requirements Under the Investment 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

§ 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 2016-01 .............................. 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 14:3.4 Information Required to Be Included inPrivacy 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

Chapter 15 Practical Implications Regarding theSafeguarding of Customer Information

Brian C. Edstrom, David E. Rosedahl & Keith Loveland

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

§ 15:2.1 Administrative Safeguards ....................................... 15-9§ 15:2.2 Technical Safeguards................................................ 15-9§ 15:2.3 Physical Safeguards.................................................. 15-9§ 15:2.4 An Enterprise-Wide Security Program..................... 15-9

§ 15:3 2008 Proposed Amendments to the Safeguards Rule .....15-10§ 15:3.1 Information Security Programs (ISPs) ................... 15-12

[A] Generally ............................................................... 15-12[B] Internal and External Risk Assessment................. 15-13[C] Developing Safeguarding Policies........................... 15-13[D] Additional ISP Safeguards...................................... 15-15

§ 15:3.2 Responding to Unauthorized Access or Use ofPersonal Information............................................. 15-16

§ 15:3.3 Disposal of Personal Information ......................... 15-17§ 15:3.4 Record-Keeping ...................................................... 15-18§ 15:3.5 Additional Exception to Notice and Opt-Out

Requirements—Limited Information DisclosureWhen Personnel Leave Their Firms ..................... 15-18

§ 15:3.6 Status of Rule Making .......................................... 15-19§ 15:4 FINRA Guidance .......................................................... 15-20

§ 15:4.1 Registered Representatives Changing Firms:Regulatory Notice 07-36 ....................................... 15-20

§ 15:4.2 FINRA Rules: Information EncryptionRequirements: FINRA Rule 8210 ......................... 15-21

§ 15:4.3 FINRA Rules: Business Continuity Plan:FINRA Rule 4370.................................................. 15-22


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§ 15:5 Investigations and Enforcement ................................... 15-22§ 15:5.1 Improper Recruiting Practices ............................... 15-23

[A] NEXT Financial Group, Inc. ................................. 15-23[B] Woodbury Financial Services, Inc. ......................... 15-25

§ 15:5.2 Unsecure Disposal of Client Records:J.P. Turner & Company, LLC................................ 15-25

§ 15:5.3 Insufficient Antivirus Protection:Commonwealth Equity Services, LLP ................... 15-26

§ 15:5.4 Fraudulent Use of Client Information.................. 15-26[A] Sale of Information: SEC v. Mondschein &

UNCI, Inc.............................................................. 15-26[B] Fraudulent Use of Information:

Merriman Curhan Ford & Co. .............................. 15-27[C] Improper Sharing of Confidential

Customer Information—Tomlinson ...................... 15-28§ 15:5.5 Inadequate Server and Web Portal Security .......... 15-29

[A] No Written Supervisory Procedures—LPLFinancial Corp. ...................................................... 15-29

[B] Open Web Portal Access—D.A. Davidson & Co. ....15-30[C] Weak Access Controls—Lincoln Financial

Securities Inc. ........................................................ 15-30[D] Inadequate Firewall and Password Protection—

Centaurus Financial .............................................. 15-31[E] Failure to Encrypt Laptop—Sterne,

Agee & Leach......................................................... 15-31§ 15:5.6 Supervisors/Executives Accountable—

GunnAllen Financial ............................................. 15-31§ 15:5.7 Transmitting Information to Non-Affiliates—

Jeffrey N. Lombardi ............................................... 15-32§ 15:5.8 Failure to Safeguard Hard Copy Records—

Hernan Chassy, Jr. ................................................ 15-32§ 15:5.9 Failure to Update Written Supervisory

Procedures—Patrick Walker ................................... 15-33§ 15:6 Red Flags Rules—Identity Theft Prevention

Programs (Reg S-ID) ..................................................... 15-33§ 15:7 States’ Efforts to Safeguard Customer Information...... 15-35

§ 15:7.1 Breach Notice Statutes .......................................... 15-35§ 15:7.2 Security Freeze Laws ............................................. 15-36§ 15:7.3 Social Security Number Protection Laws.............. 15-36§ 15:7.4 Disposal of Personal Information Laws................ 15-37§ 15:7.5 Encryption Statutes/Rules...................................... 15-37

§ 15:8 Implementing Policies and Procedures......................... 15-38§ 15:9 Customer Self-Protection of Data ................................ 15-39§ 15:10 Safeguarding Examinations .......................................... 15-41§ 15:11 Cybersecurity................................................................ 15-42

§ 15:11.1 NASAA Cybersecurity Initiatives .......................... 15-43

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 15:11.2 State Cybersecurity Initiatives............................... 15-44[A] New York ............................................................... 15-44[B] Vermont................................................................. 15-44[C] Colorado ................................................................ 15-45

§ 15:11.3 OCIE Cybersecurity Initiative ............................... 15-45§ 15:11.4 Cybersecurity Frameworks .................................... 15-46

[A] NIST Framework................................................... 15-46[B] ISO/IEC 27002 Standard ....................................... 15-47[C] SANS 20 Critical Security Controls ...................... 15-47[D] SEC Response to the 2016 EDGAR Breach........... 15-48[E] The NASAA Best Practices for

Investment Advisers .............................................. 15-48§ 15:11.5 Cybersecurity Litigation Lessons........................... 15-49

[A] Eli Lilly .................................................................. 15-50[B] BJ’s Wholesale ....................................................... 15-50

§ 15:11.6 Additional Cybersecurity Resources ...................... 15-51§ 15:12 Conclusion ................................................................... 15-51

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[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


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§ 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

§ 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 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

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


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Chapter 17 Soft Dollars

Andrew L. Bab, Kenneth J. Berman

§ 17:1 Introduction ................................................................... 17-3§ 17:2 What Are Soft Dollars? .................................................. 17-4§ 17:3 The Basic Legal Framework: Section 28(e) ..................... 17-6

§ 17:3.1 Investment Discretion............................................. 17-8§ 17:3.2 Brokerage Commissions: Agency and

Principal Transactions ........................................... 17-10[A] Principal Transactions and the 2001 Guidance..... 17-10[B] Over-the-Counter Agency Transactions................. 17-12[C] Transactions in Futures ......................................... 17-12[D] Primary Offerings; Selling Concessions and

FINRA Rule 5141 .................................................. 17-13[E] Commissions: Payment from Client Assets

Under MiFID II..................................................... 17-14§ 17:3.3 Brokerage and Research Services........................... 17-14

[A] Generally ............................................................... 17-14[B] The Eligibility Finding........................................... 17-16[B][1] Research and Publications; the Expression of

Reasoning and Knowledge................................. 17-16[B][2] Brokerage........................................................... 17-18[C] The Use Finding.................................................... 17-20[D] The Reasonableness Finding ................................. 17-20[E] Examples of Services Within and

Outside the Safe Harbor ........................................ 17-21[F] Mixed-Use Items; Proxy Voting Services ............... 17-26

§ 17:3.4 The “Provided By” and “Effected” Conditions;Step-Out Transactions; MiFID II andResearch Payment Accounts.................................. 17-27

[A] Generally ............................................................... 17-27[B] Multiple Brokers: Commission Sharing and

Step-Out Transactions ........................................... 17-29[B][1] Commission-Sharing Arrangements ................. 17-29[B][2] The Goldman Sachs and Capital Institutional

No-Action Letters ................................................17-30[B][3] Step-Out Transactions....................................... 17-32[C] MiFID II and RPAs................................................ 17-33

§ 17:4 The Investment Adviser ’s Obligations andPotential Liabilities....................................................... 17-35

§ 17:4.1 Generally ............................................................... 17-35§ 17:4.2 Related Liability Theories ..................................... 17-35

[A] The Investment Advisers Act ................................ 17-35[A][1] Section 206 ....................................................... 17-35[A][2] Section 207 ....................................................... 17-38

(Inv. Adv. Reg., Rel. #14, 10/18)

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[B] The Exchange Act.................................................. 17-38[C] The Securities Act ................................................. 17-39

§ 17:4.3 Disclosure Requirements....................................... 17-39§ 17:4.4 Compliance Procedures and Supervisory

Obligations ............................................................ 17-42§ 17:5 The Broker-Dealer ’s Obligations and

Potential Liabilities....................................................... 17-42§ 17:5.1 Aiding and Abetting the Adviser ’s Breach of

Fiduciary Duty....................................................... 17-43§ 17:5.2 The Duty to Supervise: Supervisory and

Compliance Procedures ......................................... 17-45§ 17:5.3 Disclosure—Confirmations ................................... 17-47§ 17:5.4 FINRA Rules ......................................................... 17-48§ 17:5.5 Acting As an Unregistered Investment

Adviser—MiFID II Implications ........................... 17-48§ 17:6 Documenting Soft-Dollar Arrangements...................... 17-49§ 17:7 Arrangements Outside the Safe Harbor:

Special Issues................................................................ 17-50§ 17:7.1 Directed Brokerage Arrangements......................... 17-50§ 17:7.2 Allocation of Brokerage in Exchange for

Distribution of Mutual Fund Shares .................... 17-51§ 17:8 Oversight by Mutual Fund Directors ........................... 17-54§ 17:9 The Future of Soft Dollars—The Impact of MiFID II ....17-55§ 17:10 Payment for Order Flow (POF)..................................... 17-59

§ 17:10.1 Overview................................................................ 17-59§ 17:11 Legal Issues Raised by POF .......................................... 17-62

§ 17:11.1 Best Execution ....................................................... 17-62§ 17:11.2 Agency/Principal Issues ......................................... 17-63

§ 17:12 Regulation of POF ........................................................ 17-64§ 17:13 Conclusion ................................................................... 17-69

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


lxxxviii

§ 19:2.1 The Scope of Section 206(3)’s Coverage................. 19-4[A] Whether Section 206(3) Reaches Affiliates of the

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

Security?.....................................................................19-4[C] What Types of Principal Trades Are Subject to

Section 206(3)? ........................................................ 19-5[D] When Is an Entity Entitled to Rely on the

Exception 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

§ 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—Expired

December 31, 2016............................................... 19-13§ 19:5 Aggregating Client Trades ............................................ 19-16§ 19:6 SEC Review of Regulatory Standards of Care

Applying to Broker-Dealers and Investment Advisers.....19-20

(Inv. Adv. Reg., Rel. #14, 10/18) lxxxix

Table of Contents

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[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

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§ 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§ 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

(Inv. Adv. Reg., Rel. #14, 10/18) xci

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§ 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§ 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

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§ 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§ 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

(Inv. Adv. Reg., Rel. #14, 10/18) xciii

Table of Contents

§ 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

Chapter 24A Investment Adviser Compliance Obligationsand Regulatory Filings

Scott R. Anderson & Matthew T. Wirig

§ 24A:1 Introduction .................................................................24A-3§ 24A:2 Annual Registration and Disclosure Updates...............24A-3

§ 24A:2.1 Review of Adviser Registration Status andEligibility................................................................24A-3

[A] Federal Versus State Registration Eligibility...........24A-4[B] Umbrella (Relying Adviser) Registration................24A-5

§ 24A:2.2 Federal and State Adviser Filing Requirements ....24A-6

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[A] Form ADV .............................................................24A-6[A][1] SEC Annual ADV Updates ...............................24A-7[A][2] SEC Other-Than-Annual ADV Updates............24A-7[B] State Filings ...........................................................24A-8[B][1] State Filings for SEC Registered

Adviser Firms ....................................................24A-8[B][2] State Filings for State Registered

Adviser Firms ....................................................24A-8[B][3] Investment Adviser Representative

Registration .......................................................24A-8[C] Updating Disclosure Documents...........................24A-9[C][1] Adviser Brochure and Brochure Supplement

Update...............................................................24A-9[C][2] Private Fund Offering Documents ....................24A-9[C][3] Registered Investment Company

Prospectuses and SAIs.......................................24A-9§ 24A:3 Review of Compliance Policies and Procedures............24A-9

§ 24A:3.1 Annual Review Process .......................................24A-10[A] Summary of SEC Examination Process for

Investment Advisers ............................................24A-11[B] Report to Management ........................................24A-12[C] Annual Certifications ..........................................24A-12

§ 24A:3.2 Specific Areas to Consider ..................................24A-12[A] Client Suitability and Portfolio Management......24A-12[B] Recordkeeping......................................................24A-13[C] Privacy Issues ......................................................24A-13[D] Advertising (Including Social Media) ...................24A-14[E] Performance Reporting ........................................24A-15[E][1] General............................................................24A-15[E][2] GIPS® Compliance and Annual Reviews .......24A-15[F] Business Continuity, Disaster Recovery and

Transition Plans...................................................24A-15[G] Best Execution and Soft Dollars ..........................24A-16[H] Trading Conflicts .................................................24A-16[I] Proxy Voting ........................................................24A-16[J] Anti-Money Laundering ......................................24A-17[K] Cybersecurity .......................................................24A-18[L] Custody ...............................................................24A-18[M] Dealing with Governmental Entities:

Pay-to-Play Practices and Tracking ofPolitical Contributions ........................................24A-20

[N] Whistleblower Policies .........................................24A-20[O] Solicitors ..............................................................24A-21[P] Robo-Advisers ......................................................24A-21[Q] Training ...............................................................24A-21

§ 24A:3.3 Code of Ethics and Personnel Trading Issues.....24A-22

(Inv. Adv. Reg., Rel. #14, 10/18) xcv

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§ 24A:4 Selected Other Filings.................................................24A-22§ 24A:4.1 Section 13 Filings................................................24A-22

[A] Schedules 13D and 13G......................................24A-22[B] Form 13F.............................................................24A-23[C] 13H Large Trader Reporting Obligations .............24A-23

§ 24A:4.2 SEC Form D and Related State BlueSky Filing Requirements .....................................24A-24

§ 24A:4.3 Section 16 Filings................................................24A-24§ 24A:4.4 Form PF Filings...................................................24A-24§ 24A:4.5 Treasury International Capital (TIC)

Reporting .............................................................24A-25§ 24A:4.6 Hart-Scott-Rodino Filings....................................24A-26§ 24A:4.7 Specified Foreign Financial Assets—FATCA.......24A-26§ 24A:4.8 FBAR Reporting...................................................24A-27

§ 24A:5 Annual Delivery and Certification Requirements ......24A-27§ 24A:5.1 Adviser Brochure and Brochure Supplement

Delivery ...............................................................24A-27§ 24A:5.2 Privacy Notices ....................................................24A-28§ 24A:5.3 Annual Custody Audit and Financial

Statement Delivery..............................................24A-28§ 24A:5.4 New Issue Certifications .....................................24A-29

§ 24A:6 Other Annual Legal and ComplianceConsiderations ...........................................................24A-29

§ 24A:6.1 Review of Advisory Agreements ..........................24A-29§ 24A:6.2 CPO and CTA Registration and

Exemption Filings................................................24A-29§ 24A:6.3 Municipal Advisor Exclusion ..............................24A-30§ 24A:6.4 Change of Address or Agent Filings ...................24A-31§ 24A:6.5 Review of Liability Insurance ..............................24A-31§ 24A:6.6 ERISA Review......................................................24A-31§ 24A:6.7 Department of Labor Conflict of Interest Rule ..... 24A-31

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

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§ 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, Zila Reyes Acosta-Grimes

§ 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 ......................... 26-5§ 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[D] Suspicious Activity Reports (SARs).......................... 26-7[E] BSA Record-Keeping ................................................ 26-9

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

§ 26:4 FinCEN Proposed AML Program andSAR Reporting Rules for Investment Advisers ............. 26-11

§ 26:5 Customer Due Diligence Rule...................................... 26-14§ 26:6 Compliance Measures .................................................. 26-15

§ 26:6.1 Required Measures ................................................ 26-15§ 26:6.2 Additional Measures Worthy of Consideration........26-15§ 26:6.3 OFAC Compliance Programs ................................ 26-16

(Inv. Adv. Reg., Rel. #14, 10/18)

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[A] OFAC Compliance Guidance ................................ 26-16[A][1] 2004 Guidance.................................................. 26-16[A][2] 2008 Guidance.................................................. 26-17[A][2][a] Screening Focus .............................................. 26-17[A][2][b] Identity Verification........................................ 26-17[A][2][c] Risk Factors .................................................... 26-18[A][2][d] Organizational Factors.................................... 26-18[B] BSA/AML Examination Manual ............................ 26-18

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

§ 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


xcviii

[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§ 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 28:6.3 Guggenheim Partners InvestmentManagement 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§ 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

[C] FRB Supervisory Letter: Outsourcing ofInformation 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[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

(Inv. Adv. Reg., Rel. #14, 10/18)

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[B] Evaluating a Financial Institution’s RiskManagement 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[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


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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§ 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 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

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

William Michael, Jr., Laurence A. Urgenson,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


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§ 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-12§ 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 of Liabilityfor the Conduct of Others Under a WillfulBlindness 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] Braskem, S.A. ..................................................31A-23[B][2] JPMorgan ........................................................31A-24[B][3] VimpelCom.....................................................31A-25[B][4] Alstom SA.......................................................31A-26[B][5] Avon Products Inc. ..........................................31A-27[B][6] Archer Daniels Midland..................................31A-28[B][7] Weatherford International ...............................31A-29[B][8] Siemens AG ....................................................31A-29[B][9] BAE Systems PLC ...........................................31A-30[B][10] Diebold Inc......................................................31A-31[B][11] Marubeni Corporation ....................................31A-32[B][12] Johnson & Johnson.........................................31A-33[B][13] BizJet International Sales and Support Inc. ....31A-34[B][14] The Gabon “Sting” Prosecutions.....................31A-35[C] SEC Enforcement Actions Taken Without

the DOJ ...............................................................31A-36[C][1] Eastern Europe ................................................31A-36[C][2] Asia/South Asia ...............................................31A-37[C][3] South America ................................................31A-39[C][4] Africa/Middle East ...........................................31A-40

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 31A:4.3 Trends..................................................................31A-41[A] Individual Enforcement and the Yates Memo .....31A-41[B] A Voluntary Disclosure Renaissance? DOJ’s

Enforcement Plan and Pilot Program ..................31A-43[C] Global Enforcement and Cooperation Remain

on the Rise As the UK Bribery Act Heats Up .....31A-45[D] Unexpected Enforcers: Brazil and Operation

Lava Jato ..............................................................31A-48[E] The World Bank As an Anticorruption Agent.....31A-49[F] Judicial Scrutiny of Deferred Prosecution

Agreements..........................................................31A-49[G] Jurisdiction Over Foreign Nationals ....................31A-50[H] Control Person Liability ......................................31A-52[I] Sovereign Wealth Funds and the Financial

Services Industry .................................................31A-53§ 31A:5 Overview of FCPA Compliance Practice.....................31A-54

§ 31A:5.1 Generally .............................................................31A-54§ 31A:5.2 Sources of Guidance............................................31A-55

§ 31A:6 Conclusion .................................................................31A-61

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

§ 32:2.6 Client Disclosures—Rule 204-2(a)(14) .................... 32-7§ 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


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(Inv. Adv. Reg., Rel. #14, 10/18)

§ 32:2.9 Records Relating to Portfolio ManagementServices—Rule 204-2(c)(1)–(2) ................................. 32-8

§ 32:2.10 Code of Ethics; Access Person Reports ofTransactions and Holdings—Rule 204-2(a)(12); (13) ............................................ 32-8

[A] Framework Prior to 2004 ........................................ 32-8[B] Current Framework ............................................... 32-10

§ 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) ....32-12§ 32:2.14 Records Relating to Compliance Policies and

Procedures.............................................................. 32-12§ 32:2.15 Emails.................................................................... 32-13

§ 32:3 Time, Place, and Mode of Storing Records Under theInvestment Advisers 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§ 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

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§ 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

§ 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


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(Inv. Adv. Reg., Rel. #14, 10/18)

[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-15[E][1] Section 21E of the Exchange Act and

Section 27A of the Securities Act....................34A-15[E][2] Applying for Waivers .......................................34A-16[F] Eligibility for Streamlined Offering Process .........34A-16[F][1] Rule 405 of the Securities Act.........................34A-17[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-22[B] Section 9(b) of the Investment Company Act .....34A-24[C] Reporting Obligations ..........................................34A-24

§ 34A:3.4 Collateral Consequences and State RegulatoryRegimes ...............................................................34A-24

§ 34A:3.5 Collateral Consequences and RegulatedAffiliates...............................................................34A-25

§ 34A:3.6 Collateral Consequences, Reporting andNotification Requirements—Form ADV .............34A-26

§ 34A:4 Reporting and Notification Requirements ..................34A-29§ 34A:4.1 Form BD..............................................................34A-29§ 34A:4.2 Forms U4 and U5...............................................34A-30§ 34A:4.3 Schedule 13D Filing............................................34A-31§ 34A:4.4 Form N1-A ..........................................................34A-31§ 34A:4.5 Forms 7-R and 8-R .............................................34A-31

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

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[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

§ 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


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[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

§ 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 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§ 35:15.6 Use of Senior-Specific Certifications and

Professional Designations...................................... 35-35§ 35:15.7 Time Period for Action on an Application ........... 35-36

§ 35:16 Substantive Requirements Relating to InvestmentAdviser 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


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§ 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[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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 35:21 Agents of Broker-Dealers Who Also Are InvestmentAdvisers ........................................................................ 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

§ 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


cxiv

[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

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

(Inv. Adv. Reg., Rel. #14, 10/18)

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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

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


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§ 38:2.4 Emergence of Financial Planning As aStand-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[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

(Inv. Adv. Reg., Rel. #14, 10/18)

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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[C] “Financial Plans” Offered by Advisers and

“Financial Tools” Offered by Broker-Dealers ......... 39-17[D] Is “Hat Switching” by Dual Registrants

Between 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


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[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§ 39:5.4 Supervision of “Robo-Adviser” Financial

Planning 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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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

§ 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


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§ 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

[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

(Inv. Adv. Reg., Rel. #14, 10/18)

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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[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


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(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 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

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§ 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

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


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§ 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§ 45B:3.3 Investment Advisers That Must Report on

Form 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 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 ................................................................... 46-6§ 46:2 What Exactly Is a Hedge Fund?...................................... 46-8

§ 46:2.1 Diverse Strategies .................................................... 46-8§ 46:2.2 Common Characteristics ...................................... 46-10

§ 46:3 Rationale for Regulation............................................... 46-11§ 46:4 Raising Capital ............................................................. 46-21

§ 46:4.1 Private Placement .................................................. 46-21[A] Regulation D.......................................................... 46-21[B] Accredited Investors............................................... 46-22[B][1] Natural Person’s Net Worth.............................. 46-22[B][2] Periodic Review of Accredited Investor

Standard ............................................................ 46-23[C] Non-Accredited Investors ...................................... 46-23[C][1] Purchaser Representative................................... 46-24[C][2] Counting Non-Accredited Investors.................. 46-25[D] Disclosure Requirements ....................................... 46-25[E] Manner of the Offering.......................................... 46-28[E][1] Prohibition of General Solicitation or

General Advertising........................................... 46-28[E][2] Accredited Investor-Only Exception .................. 46-34[E][2][a] Verifying Accredited Investor Status ............... 46-34


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[E][2][a][i] Principles-Based Method of VerifyingAccredited Investor Status........................... 46-35

[E][2][a][ii] Non-Exclusive Methods of VerifyingAccredited Investor Status of NaturalPersons ........................................................ 46-36

[E][2][b] Reasonable Belief ............................................ 46-38[E][2][c] Interplay with Other Offering Requirements....46-39[F] Limits on Resales .................................................. 46-41[G] Disqualified Offerings............................................ 46-42[H] Post-Sale Filing ...................................................... 46-49

§ 46:4.2 State Law Preemption ........................................... 46-54§ 46:4.3 Related Considerations Affecting the Size and

Scope of the Private Placement............................. 46-57[A] Securities Exchange Act Reporting ........................ 46-57[B] Publicly Traded Partnerships.................................. 46-59[C] Plan Asset Regulations .......................................... 46-59

§ 46:4.4 FINRA Considerations .......................................... 46-62§ 46:4.5 Commodity Pools.................................................. 46-67

[A] Disclosure Document............................................ 46-68[B] Reporting and Record-Keeping............................... 46-75[C] Exemptions from Disclosure, Reporting, and

Record-Keeping Requirements ............................... 46-77[C][1] Rule 4.12(b) ....................................................... 46-77[C][2] Rule 4.7............................................................. 46-78[C][2][a] Qualified Eligible Persons ............................... 46-79[C][2][b] QEPs Who Need Not Satisfy Portfolio

Requirements.................................................. 46-79[C][2][c] QEPs Who Must Satisfy Portfolio

Requirements.................................................. 46-82[C][2][d] Portfolio Requirements ................................... 46-83[C][3] Offshore Commodity Pools............................... 46-84[C][4] Electronic Filing ................................................ 46-86

§ 46:5 Avoiding Investment Company Status......................... 46-87§ 46:5.1 Section 3(c)(1) Funds............................................. 46-88

[A] The 100-Beneficial-Owner Requirement ............... 46-89[B] Knowledgeable Employees ..................................... 46-90[C] Involuntary Transferees ......................................... 46-93[D] Look-Through Rule................................................ 46-94[E] Private Placement Requirement............................. 46-96

§ 46:5.2 Section 3(c)(7) Funds............................................. 46-96[A] Qualified Purchasers.............................................. 46-97[B] Knowledgeable Employees ..................................... 46-99[C] Involuntary Transferees ......................................... 46-99[D] Investments ........................................................... 46-99[E] The Private Placement Requirement ................... 46-102[F] Numerical Limits on Section 3(c)(7) Funds......... 46-102

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 46:5.3 The Interplay of Sections 3(c)(1) and 3(c)(7) ...... 46-102[A] Conversion .......................................................... 46-103[B] Integration ........................................................... 46-103

§ 46:5.4 Combined Domestic and Offshore FundStructures ............................................................ 46-104

§ 46:5.5 Commodity Pools................................................ 46-106§ 46:5.6 Hybrid Funds....................................................... 46-107

§ 46:6 Hedge Fund Manager ................................................. 46-109§ 46:6.1 Bifurcated Regulation .......................................... 46-110§ 46:6.2 Eligibility for Federal Registration ....................... 46-112

[A] Assets Under Management ................................. 46-112[B] Mid-Sized Advisers .............................................. 46-114[C] Switching Between Federal and State

Registration.......................................................... 46-115§ 46:6.3 Eligibility for State Registration .......................... 46-115§ 46:6.4 Exemption from Federal Registration.................. 46-117

[A] Private Adviser Exemption................................... 46-117[B] Private Fund Exemptions..................................... 46-118[B][1] The Private Fund............................................. 46-118[B][2] Private Fund Adviser Exemption..................... 46-118[B][2][a] U.S. Advisers ................................................ 46-119[B][2][b] Non-U.S. Advisers ........................................ 46-119[B][2][c] Private Fund Assets ...................................... 46-120[B][3] Venture Capital Funds .................................... 46-121[B][3][a] Qualifying Investments ................................ 46-122[B][3][b] Limitation on Leverage................................. 46-124[B][3][c] Redemption Rights ....................................... 46-124[B][3][d] Venture Capital Strategy Representation ...... 46-124[B][3][e] Private Fund Status ...................................... 46-125[B][3][f] Grandfathered Funds .................................... 46-125[B][4] Exempt Reporting Advisers ............................. 46-126[C] Other Exemptions ............................................... 46-129[C][1] Intra-State Exemption ..................................... 46-129[C][2] CTA Exemption .............................................. 46-130[C][3] Family Office................................................... 46-130[C][3][a] Family Clients .............................................. 46-132[C][3][b] Family Member ............................................ 46-132[C][3][c] Key Employees.............................................. 46-133[C][3][d] Ownership and Control................................ 46-134[C][3][e] Grandfather Provision .................................. 46-134

§ 46:6.5 Exemption from State Registration..................... 46-134§ 46:6.6 Jurisdictional Reach of Advisory Regulations ..... 46-135

[A] State Oversight .................................................... 46-135[B] Federal Anti-Fraud Rule....................................... 46-136


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§ 46:7 Offshore Managers ..................................................... 46-139§ 46:7.1 Foreign Private Advisers ...................................... 46-139

[A] Clients ................................................................. 46-140[B] Private Fund Investors ......................................... 46-142[C] In the United States ............................................ 46-142[D] Assets Under Management ................................. 46-143[E] Holding Out ........................................................ 46-143[F] Adviser Lite.......................................................... 46-144

§ 46:7.2 Affiliation with Domestic Managers................... 46-145§ 46:8 Registration Process.................................................... 46-149§ 46:9 Implications of Federal Registration........................... 46-159

§ 46:9.1 Fiduciary Duties .................................................. 46-159§ 46:9.2 Substantive Prohibitions and Requirements ....... 46-164§ 46:9.3 Compliance Policies ............................................ 46-165§ 46:9.4 Chief Compliance Officer ................................... 46-167§ 46:9.5 Code of Ethics ..................................................... 46-172§ 46:9.6 Supervision .......................................................... 46-178

§ 46:10 Performance-Based Compensation ............................. 46-178§ 46:11 Commodity Pool Operator and Commodity

Trading Adviser .......................................................... 46-182§ 46:11.1 Registration of CPOs and CTAs ......................... 46-183§ 46:11.2 Exclusions and Exemptions from Registration

of CPOs and CTAs ............................................. 46-186[A] Section 4.5 Exclusion from the Definition of

Commodity Pool Operator .................................. 46-186[B] Section 4.13 Exemptions from Registration

As a Commodity Pool Operator .......................... 46-189[B][1] Section 4.13(a)(1) No Compensation

Exemption ....................................................... 46-189[B][2] Section 4.13(a)(2) Small Operator

Exemption ....................................................... 46-190[B][3] Section 4.13(a)(3) Limited Futures

Trading Exemption.......................................... 46-190[B][4] Family Office................................................... 46-192[C] Exemptions from Registration As a

Commodity Trading Adviser ............................... 46-193[C][1] Section 4.14(a)(4) and (a)(5) CPO

Exemptions ..................................................... 46-193[C][2] Section 4.14(a)(8) Registered Investment

Adviser Exemption .......................................... 46-193[C][3] Section 4.14(a)(10) Private CTA Exemption......46-195[D] Offshore Commodity Pools ................................. 46-196[E] Exemption Notice Filings .................................... 46-197

§ 46:12 Market Participation................................................... 46-198§ 46:12.1 Broker-Dealer Status............................................ 46-198

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 46:12.2 New Issues .......................................................... 46-200[A] Rule 5130 ............................................................ 46-200[A][1] Definition of “New Issue” .............................. 46-201[A][2] Restricted Persons ........................................... 46-202[A][3] Portfolio Manager............................................ 46-202[A][4] De Minimis Exemption .................................. 46-203[A][5] Carve-Outs...................................................... 46-204[A][6] Compliance ..................................................... 46-205[B] Rule 5131 ............................................................ 46-206

§ 46:12.3 Best Execution ..................................................... 46-209§ 46:12.4 Soft Dollars ......................................................... 46-211

[A] Goods or Services Provided by the Broker ........... 46-213[B] Investment Discretion ......................................... 46-214[C] Good-Faith Determination .................................. 46-215[D] Brokerage and Research Services ......................... 46-215[D][1] Research .......................................................... 46-215[D][2] Brokerage......................................................... 46-217[D][3] Mixed-Use Items............................................. 46-218[D][4] Lawful and Appropriate Assistance ................. 46-219[E] Operating Outside the Safe Harbor ..................... 46-219

§ 46:13 Disclosures of Market Participation ........................... 46-220§ 46:13.1 Sections 13(d) and 13(g) ..................................... 46-221

[A] Section 13(d)........................................................ 46-221[B] Section 13(g) ........................................................ 46-223

§ 46:13.2 Decoupling of Shareholder Economic andVoting Rights and Section 13(o) ......................... 46-226

§ 46:13.3 Section 13(f) ........................................................ 46-230§ 46:13.4 Section 13(h) ....................................................... 46-231§ 46:13.5 Section 16............................................................ 46-237§ 46:13.6 Hart-Scott-Rodino Act ......................................... 46-241§ 46:13.7 State Anti-Takeover Statutes ............................... 46-249§ 46:13.8 CFTC Large Trader Reporting............................. 46-250

§ 46:14 Derivatives Markets Participants................................ 46-251§ 46:14.1 Regulatory Jurisdiction Over Swaps .................... 46-251

[A] Swap .................................................................... 46-252[B] Security-Based Swap ............................................ 46-253[C] Mixed Swap ......................................................... 46-253[D] Security-Based Swap Agreement .......................... 46-254[E] Swap and Security-Based Swap Exclusions .......... 46-254

§ 46:14.2 Clearing and Exchange Trading .......................... 46-256[A] Clearing ............................................................... 46-257[B] Exchange Trading................................................. 46-262[C] Eligible Contract Participant................................ 46-265


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§ 46:14.3 Swap Dealers and Major Swap Participants ....... 46-265[A] Statutory Definition of “Swap Dealer” and

“Security-Based Swap Dealer” ............................. 46-265[B] Regulatory Definition of Swap Dealers................ 46-268[B][1] Holding Out and Commonly Known

As a Swap Dealer ............................................ 46-268[B][2] Market Making ............................................... 46-269[B][3] Ordinary Course of Business........................... 46-270[B][4] Hedging Exclusion........................................... 46-271[C] Regulatory Definition of Security-Based

Swap Dealer......................................................... 46-271§ 46:14.4 De Minimis Exception ........................................ 46-272§ 46:14.5 Definition of “Major Swap Participant” and

“Major Security-Based Swap Participant”............ 46-275§ 46:14.6 Registration.......................................................... 46-282§ 46:14.7 Hedge Funds as Counterparties .......................... 46-286

§ 46:15 Systemic Risk Regulation ........................................... 46-287§ 46:15.1 Financial Stability Oversight Council ................. 46-288§ 46:15.2 Nonbank Financial Company ............................. 46-288

[A] Supervision and Regulation of CertainNonbank Financial Companies ........................... 46-292

[B] Prudential Regulation .......................................... 46-298[C] Reporting ............................................................. 46-301[D] Orderly Liquidation ............................................. 46-305

§ 46:15.3 Systemic Risk Information and Form PF ........... 46-308[A] Records and Reports ............................................ 46-308[B] Form PF............................................................... 46-309[B][1] Form PF Filers................................................. 46-310[B][1][a] Hedge Funds................................................. 46-311[B][1][b] Large Private Fund Advisers ......................... 46-312[B][1][c] Exempt Reporting Advisers........................... 46-312[B][1][d] Aggregation of Assets Under Management.....46-313[C] Frequency of Reporting ........................................ 46-313[D] Information Required on Form PF ...................... 46-314[D][1] Section 1 ......................................................... 46-314[D][2] Section 2 ......................................................... 46-315[E] Forms CPO-PQR and CTA-PR............................ 46-316[E][1] Form CPO-PQR .............................................. 46-316[E][1][a] Form CPO-PQR Schedule A......................... 46-318[E][1][b] Form CPO-PQR Schedule B ......................... 46-318[E][1][c] Form CPO-PQR Schedule C......................... 46-319[E][2] Form CTA-PR ................................................. 46-320[F] Confidentiality of Records and Reports ............... 46-320

(Inv. Adv. Reg., Rel. #14, 10/18)

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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[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


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[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[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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 46A:7.4 Surprise Examinations and Annual AuditException .............................................................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[B][1] Section 4.13(a)(1) No Compensation

Exemption .....................................................46A-126[B][2] Section 4.13(a)(2) Small Operator

Exemption .....................................................46A-127[B][3] Section 4.13(a)(3) Limited Futures Trading

Exemption .....................................................46A-127[B][4] Section 4.13(a)(4) Sophisticated Investor

Exemption .....................................................46A-128[C] Exemptions from Registration

As a Commodity Trading Adviser .....................46A-130[C][1] Section 4.14(a)(4) and (a)(5) CPO

Exemptions ...................................................46A-130[C][2] Section 4.14(a)(8) Registered Investment

Adviser Exemption ........................................46A-130[C][3] Section 4.14(a)(10) Private CTA

Exemption .....................................................46A-132[D] Electronic Filing.................................................46A-133


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Chapter 47 Private Equity Funds: Structural andOperational Legal Considerations

Amanda N. Persaud

§ 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 LiabilityIssues)........................................................................... 47-10

§ 47:3.1 Partnerships ........................................................... 47-10[A] Certain Tax Considerations Relevant to the

Partnership Form................................................... 47-11[A][1] Generally No Federal Income Tax at the

Fund Level......................................................... 47-11[A][2] Certain Tax Considerations for Tax-Exempt

Organizations Investing in Private EquityFunds................................................................. 47-12

[A][3] Certain Tax Considerations for Non-U.S.Persons Investing in Private Equity Funds ........ 47-15

[A][4] Special Tax Issues for Sovereign WealthInvestors............................................................ 47-16

[A][5] Pass-Through of Losses to Partners ................... 47-17[A][6] Tax-Free Distribution of Property to Partners......47-17[A][6][a] Cash ............................................................... 47-17[A][6][b] Property .......................................................... 47-18[A][6][c] Marketable Securities ..................................... 47-18[A][7] Tax-Favored Treatment for Fund Sponsors........ 47-19[A][7][a] Tax-Favored Treatment of

General Partner ’s Carry.................................. 47-19[A][7][b] Management Fee Waivers ............................... 47-19[A][8] Utility of Non-U.S. Partnerships in Non-U.S.

Investments....................................................... 47-20[A][9] Certain Other Tax Considerations Relevant

to the Partnership Form .................................... 47-20[A][9][a] FATCA and Related Regimes.......................... 47-20[A][9][b] New Partnership Audit Rules ......................... 47-21[B] Other Non-Tax Advantages of the Partnership

Form ...................................................................... 47-22[B][1] Limited Liability................................................ 47-22

§ 47:3.2 Limited Liability Company (LLC) ......................... 47-24[A] Tax Issues .............................................................. 47-24

(Inv. Adv. Reg., Rel. #14, 10/18)

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[B] Liability Issues ....................................................... 47-24[C] Partnerships Still Predominate .............................. 47-25

§ 47:4 ERISA Issues ................................................................ 47-25§ 47:5 Securities Law Issues.................................................... 47-30

§ 47:5.1 Statutory Exemption: Section 4(a)(2) .................... 47-32§ 47:5.2 Regulation D ......................................................... 47-33

[A] Rule 506 ................................................................ 47-33[B] Look-Through........................................................ 47-37[C] Integration ............................................................. 47-38

§ 47:5.3 Other Exemptions ................................................. 47-40§ 47:6 Investment Company Act of 1940 ............................... 47-41

§ 47:6.1 Private Investment Fund Exemption .................... 47-42[A] One Hundred Beneficial Owners Limitation ......... 47-43[B] Look-Through Provisions ...................................... 47-43[B][1] Automatic Statutory Look-Through .................. 47-43[B][2] Secondary Look-Through Rules......................... 47-44[C] Knowledgeable Employees ..................................... 47-45

§ 47:6.2 Qualified Purchaser Fund Exemption ................... 47-46§ 47:7 Investment Advisers Act of 1940 ................................. 47-48

§ 47:7.1 Consequences of Registration ............................... 47-49§ 47:7.2 Jurisdictional Provisions and Exemptions

Under Dodd-Frank ................................................ 47-56[A] Jurisdictional Provisions ........................................ 47-56[B] Exemptions from Registration ............................... 47-57[B][1] Venture Capital Fund Exemption...................... 47-57[B][2] Private Fund Adviser Exemption....................... 47-58[B][3] Foreign Private Adviser Exemption ................... 47-59[B][4] Exempt Reporting Advisers ............................... 47-59[C] State Regulation..................................................... 47-60

§ 47:7.3 Carried Interest Exemptions ................................. 47-60[A] Qualified Purchaser Funds..................................... 47-60[B] Rule 205-3: “Qualified Client” Exemption ............ 47-61

§ 47:8 Additional Regulations ................................................. 47-62§ 47:8.1 Gramm-Leach-Bliley Act Privacy Rule .................. 47-62§ 47:8.2 Gramm-Leach-Bliley Act Safeguards Rule............. 47-64§ 47:8.3 “Pay-to-Play,” Placement Agent Regulations

and Lobbying Laws................................................ 47-65§ 47:8.4 EU AIFM Directive ............................................... 47-68§ 47:8.5 Foreign Corrupt Practices Act ............................... 47-69§ 47:8.6 Registration As a Broker-Dealer ............................ 47-70

§ 47:9 Issues, Trends and Future Challenges .......................... 47-71§ 47:9.1 SEC Enforcement Focus on

the Private Equity Industry ................................... 47-71§ 47:9.2 PATRIOT Act Anti-Money Laundering Programs....47-73


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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 ....... 48-6[A] Fund General Partners, Managing Members,

and Similar SPVs .......................................................48-6[B] Umbrella Registration and Form ADV Separately

Managed Account Disclosures................................. 48-7§ 48:2.3 Registration Process—Form ADV............................ 48-8§ 48:2.4 Consequences of Investment Advisers Act

Registration............................................................ 48-11[A] Required Policies and Procedures........................... 48-11[B] SEC Examinations and Enforcement..................... 48-11[C] Performance-Based Compensation ........................ 48-15[D] Section 207 of the Advisers Act............................. 48-18[E] Section 208 of the Advisers Act............................. 48-19[F] Form PF................................................................. 48-19

§ 48:3 Exemptions from Investment Advisers ActRegistration .................................................................. 48-22

§ 48:3.1 Exemption for Investment Advisers withLess Than $150 Million Regulatory AUM inthe United States .................................................. 48-23

[A] Determination of Regulatory AUM inthe United States................................................... 48-24

[B] Frequency of Calculation ofPrivate Fund Assets ............................................... 48-25

§ 48:3.2 Exemption for Advisers to VentureCapital Funds ........................................................ 48-26

[A] “Grandfather” Provision ........................................ 48-28[B] Application to Non-U.S. Advisers ......................... 48-29

§ 48:3.3 Exemption for Foreign Private Advisers................ 48-29[A] Counting Clients ................................................... 48-30[B] Counting Investors ................................................ 48-31[C] Meaning of “in the United States”........................ 48-32[D] Meaning of “Place of Business”............................. 48-33

§ 48:4 Exempt Reporting Advisers........................................... 48-33§ 48:4.1 Reporting Requirements ........................................ 48-34

§ 48:5 Substantive Provisions of the Advisers Act .................. 48-34§ 48:5.1 Section 206: Anti-Fraud Provisions ...................... 48-34

[A] Generally ............................................................... 48-34[B] Potential Conflicts of Interest................................ 48-39

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 48:5.2 Code of Ethics ....................................................... 48-41[A] Rule 204A-1........................................................... 48-41[B] Personal Trading .................................................... 48-43[C] Gifts and Entertainment ....................................... 48-45[D] Outside Business Activities ................................... 48-45

§ 48:5.3 Insider Trading ...................................................... 48-46[A] General Overview .................................................. 48-46[B] Adopting Insider Trading Policies .......................... 48-49

§ 48:5.4 Principal Transactions ........................................... 48-50[A] Cross Trading ........................................................ 48-51

§ 48:5.5 Advertising Practices ............................................. 48-52[A] Testimonials .......................................................... 48-54[B] Past Specific Recommendations............................. 48-55

§ 48:5.6 Performance Advertising........................................ 48-56[A] Clover Capital No-Action Letter ........................... 48-57[B] Model Performance................................................ 48-58[C] Performance “Net of Fees” Requirement ............... 48-59[D] Performance Advertising Record-Keeping

Requirement .......................................................... 48-61[E] Performance Presentation Considerations for

Private Equity Firms .............................................. 48-62[F] FINRA Rules Concerning Performance

Advertising............................................................. 48-63[F][1] Related Performance.......................................... 48-63[F][2] Target Returns ................................................... 48-64[F][3] Projected Returns .............................................. 48-65[F][4] Hypothetical and Backtested Performance ........ 48-65[F][5] Risk Factors....................................................... 48-66[F][6] 2017 Marketing and Advertising Guidance ...... 48-67[G] Track Record Portability......................................... 48-67[G][1] Employee Track Record Portability.................... 48-67[G][2] Adviser Track Record Portability ....................... 48-69

§ 48:5.7 Proxy Voting Procedures........................................ 48-69§ 48:5.8 Custody Rule ......................................................... 48-71§ 48:5.9 Fees and Expenses ................................................. 48-73§ 48:5.10 Broker-Dealer Registration..................................... 48-75§ 48:5.11 Adviser Compliance Policies and Procedures........ 48-76§ 48:5.12 Business Continuity Planning............................... 48-76§ 48:5.13 Cybersecurity ......................................................... 48-78

§ 48:6 Offshore Advisers ......................................................... 48-78


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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 inPrivate 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. #14, 10/18)

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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§ 49:3.1 Satisfying the Plan Fiduciary ’s Own Duty ........... 49-19

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§ 49:3.2 Delegating Investment Accountability to anInvestment Manager ............................................. 49-20

§ 49:3.3 Obtaining Broad Section 406(a) Relief forInvestment 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§ 49:5.21 Mortgage Pool Investment Trusts and

Other Asset-Backed Securities............................... 49-64

(Inv. Adv. Reg., Rel. #14, 10/18) cxli

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§ 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-3

§ 49A:2.2 Plan-Level Disclosures Under 408(b)(2)—2014Proposed Rule ........................................................49A-6

§ 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-12§ 49A:4.3 Proposal to Redefine “Fiduciary”

(“Conflict of Interests Rule”)...............................49A-13§ 49A:4.4 Prohibited Transactions and IRA Rollovers ........49A-14§ 49A:4.5 Co-Fiduciary Liability..........................................49A-16

§ 49A:5 Action Items...............................................................49A-17§ 49A:6 Conclusion .................................................................49A-23

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. #14, 10/18) cxliii

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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-4§ 49C:2 Key Considerations for Advisers Dealing with

Non-U.S. Clients......................................................... 49C-4§ 49C:2.1 Scope of the Investment Advisers Act................ 49C-4§ 49C:2.2 Statutory Reach to Non-U.S. Clients ................. 49C-6

[A] Overview ............................................................. 49C-6[B] Regulation of Registered Non-U.S. Advisers ....... 49C-6[C] Regulation of Registered U.S. Advisers................ 49C-7

§ 49C:2.3 General Client Relations and Anti-FraudConsiderations .................................................... 49C-8

[A] Overview ............................................................. 49C-8[B] Direct Advisory Services...................................... 49C-8[C] Considerations for Pooled Vehicles ..................... 49C-9

§ 49C:2.4 Fiduciary Duty Owed to All Clients ................ 49C-10[A] Overview ........................................................... 49C-10[B] Proposed Regulation Best Interest ..................... 49C-11[C] SEC Proposed Fiduciary Duty Interpretation .... 49C-16

§ 49C:2.5 Disclosure Obligations...................................... 49C-18§ 49C:2.6 Brochure Rule.................................................... 49C-20

[A] Overview ........................................................... 49C-20[B] Form ADV Filing Requirements........................ 49C-21[C] Annual Delivery Requirements ......................... 49C-21

§ 49C:2.7 Fees ................................................................... 49C-22§ 49C:2.8 Cash Solicitation Rule ...................................... 49C-23§ 49C:2.9 Advertising ........................................................ 49C-24§ 49C:2.10 Suitability .......................................................... 49C-27§ 49C:2.11 Custody ............................................................. 49C-27

[A] Overview ........................................................... 49C-27[B] Definition of Custody ....................................... 49C-28[C] Attribution to Adviser of Custody of a

Related Person................................................... 49C-29[D] Implications for Having Custody ...................... 49C-30[E] Special Provision for Pooled Investment

Vehicles ............................................................. 49C-30[F] Operationally Independent Advisers ................. 49C-31

§ 49C:2.12 Books and Records............................................ 49C-31§ 49C:2.13 Wrap Fee Programs ........................................... 49C-32§ 49C:2.14 Use of Adviser Performance Record ................. 49C-33§ 49C:2.15 Contract Issues ................................................. 49C-33

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§ 49C:3 Key Considerations for U.S. and Non-U.S.Broker-Dealers Dealing with Non-U.S. Clients ....... 49C-34

§ 49C:3.1 Scope of the Exchange Act RegistrationProvisions.......................................................... 49C-34

[A] Overview ........................................................... 49C-34[B] Application to U.S. Entities Selling to

Non-U.S. Clients .............................................. 49C-35§ 49C:3.2 Scope of the Exchange Act Registration

Provisions for Non-U.S. Broker-Dealers ........... 49C-36[A] Wholesaling Non-U.S. Funds to U.S.

Intermediaries with NRA Clients from withinthe United States .............................................. 49C-36

[B] Application to Foreign Intermediaries............... 49C-37[C] Chaperoning of Foreign Broker-Dealers ............ 49C-38

§ 49C:3.3 Application of FINRA Licensing Provisions ..... 49C-45§ 49C:3.4 Applicability of FINRA Communication

Rules to Sales of Non-U.S. Funds .................... 49C-47[A] Institutional Sales Material............................... 49C-47[B] Interpretive Guidance........................................ 49C-48

§ 49C:3.5 Applicability of Securities Act to the Sale ofSecurities to Non-U.S. Persons......................... 49C-52

[A] Overview ........................................................... 49C-52[B] Scope of Regulation S........................................ 49C-53[B][1] “Offshore Transactions” ................................. 49C-56[B][2] “Directed Selling Efforts” ............................... 49C-56[C] Regulation S Compliance Considerations......... 49C-58

§ 49C:3.6 Application of the Investment Company Act .. 49C-59§ 49C:3.7 Compliance with Local Law ............................. 49C-61§ 49C:3.8 Other Material Considerations......................... 49C-62

[A] Anti-Fraud Provisions ....................................... 49C-62[B] Duty of Fair Dealing ......................................... 49C-62[C] Suitability Requirements ................................... 49C-63[D] Anti-Money Laundering Considerations ........... 49C-63[E] Data Protection/Regulation S-P......................... 49C-64

§ 49C:4 Navigating Global Regulatory Requirements............. 49C-65§ 49C:4.1 Non-U.S. Considerations in Offering

Advisory Services ............................................. 49C-65[A] Overview ........................................................... 49C-65[B] Licensing Considerations .................................. 49C-66[B][1] Managed Accounts ......................................... 49C-66[B][2] Commingled Funds........................................ 49C-67[C] Marketing Considerations................................. 49C-67[D] Client Servicing Considerations........................ 49C-69[E] Other Considerations........................................ 49C-69

(Inv. Adv. Reg., Rel. #14, 10/18) cxlv

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§ 49C:4.2 Non-U.S. Considerations in OfferingBroker-Dealer Services to Non-U.S. Persons .... 49C-70

[A] Brokerage Services ............................................. 49C-71[B] Offering Shares of Pooled Products ................... 49C-72

§ 49C:4.3 Key Considerations in Offering to EuropeanClients (MiFID) ................................................ 49C-72

[A] Overview ........................................................... 49C-72[B] Trading European Equities, Fixed Income, or

Derivatives ........................................................ 49C-74[B][1] Changes to Market Structure ......................... 49C-75[B][2] Impact on Equity and Fixed Income

Financial Markets .......................................... 49C-76[B][3] Commodity Derivatives ................................. 49C-77[C] Providing Sub-Advisory Services........................ 49C-77[D] Marketing Cross-Border Products and

Services.............................................................. 49C-78[D][1] Separately Managed Accounts........................ 49C-79[D][2] Pooled Products .............................................. 49C-80[E] Marketing with an EU Subsidiary..................... 49C-81[E][1] Product Governance ....................................... 49C-81[E][2] Disclosure Requirements................................ 49C-82[E][3] Client Classification and Appropriateness

Tests ............................................................... 49C-83[E][4] New Sales Regime for Independent

Advisers .......................................................... 49C-83[F] EU Subsidiaries with Portfolio Management

Permission......................................................... 49C-84[F][1] Internal Organization and Governance

Requirements ................................................. 49C-84[F][2] Compliance .................................................... 49C-85[F][3] Transaction Reporting .................................... 49C-86[F][4] Direct Electronic Access and Algorithmic

Trading ........................................................... 49C-87[F][5] Other Considerations..................................... 49C-87

§ 49C:5 Other Material Considerations.................................. 49C-88§ 49C:5.1 Know-Your-Customer Obligations..................... 49C-88

[A] Application of U.S. Bank Secrecy Laws............. 49C-88[B] Application of Foreign Law ............................... 49C-89

§ 49C:5.2 Shareholder Reporting Obligations ................... 49C-89[A] U.S. Reporting Obligations ............................... 49C-90[A][1] Sections 13(d) and 13(g) of the Exchange

Act.................................................................. 49C-90[A][2] Section 13(f) of the Exchange Act .................. 49C-90[A][3] Section 13(h) of the Exchange Act ................. 49C-91[A][4] Section 16 of the Exchange Act...................... 49C-92

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§ 49C:5.3 Anti-Bribery Legislation .................................... 49C-92[A] The Foreign Corrupt Practices Act.................... 49C-93[B] UK Bribery Act of 2010..................................... 49C-95

§ 49C:5.4 Use of Affiliates ................................................ 49C-96[A] Taxation Considerations ................................... 49C-96[B] Non-U.S. Regulatory Considerations ................ 49C-97

§ 49C:6 Foreign Account Tax Compliance Act (FATCA)........ 49C-99§ 49C:7 OECD Common Reporting Standard (CRS) ........... 49C-100

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[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

(Inv. Adv. Reg., Rel. #14, 10/18) cxlvii

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[C] Activities Carried On in Connection withthe 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§ 49D:15 Conduct of Business and Other Obligations to

Clients ...................................................................... 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


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§ 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-3§ 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-7

§ 49E:3.2 Application of the Exchange Act........................... 49E-7[A] Direct Sales............................................................ 49E-8[B] Wholesaling ......................................................... 49E-10[C] Chaperoning of Foreign Broker-Dealers............... 49E-11

§ 49E:3.3 Application of FINRA Licensing Provisions ....... 49E-18§ 49E:3.4 Applicability of FINRA Sales Literature Rules.... 49E-20

[A] Institutional Sales Material ................................. 49E-20[B] Interpretive Guidance .......................................... 49E-21

§ 49E:3.5 Application of the Securities Act ........................ 49E-25[A] Scope of Regulation S .......................................... 49E-26[A][1] “Offshore Transactions” .................................. 49E-28[A][2] “Directed Selling Efforts” ................................ 49E-28[B] Regulation S Compliance Considerations ........... 49E-30

§ 49E:3.6 Application of the Investment Company Act..... 49E-31

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§ 49E:3.7 Compliance with Local Law ............................... 49E-34§ 49E:3.8 Other Material Considerations ........................... 49E-34

[A] Anti-Fraud Provisions .......................................... 49E-34[B] Duty of Fair Dealing............................................ 49E-35[C] Suitability Requirements ..................................... 49E-35[D] Anti-Money Laundering Considerations ............. 49E-36[E] Data Protection/Regulation S-P ........................... 49E-36[F] Translation of Materials ...................................... 49E-36

§ 49E:4 Offering Advisory Services to Latin AmericanClients ........................................................................ 49E-37

§ 49E:4.1 Application of the Investment Advisers Act....... 49E-37§ 49E:4.2 Investment Advisers Act Client Relationship

Rules .................................................................... 49E-39[A] General Anti-Fraud Considerations..................... 49E-40[B] Fiduciary Duty Owed to All Clients.................... 49E-41[B][1] Overview ......................................................... 49E-41[B][2] Proposed Regulation Best Interest ................... 49E-42[B][3] Proposed Fiduciary Duty Interpretation .......... 49E-48[C] Disclosure Obligations......................................... 49E-49[D] Fees...................................................................... 49E-51[E] Cash Solicitation Rule ......................................... 49E-52[F] Advertising........................................................... 49E-53[G] Suitability ............................................................ 49E-55[H] Wrap Fee Programs .............................................. 49E-56[I] Contract Issues.................................................... 49E-56[J] Know-Your-Customer Obligations ....................... 49E-56

§ 49E:5 Navigating Local Latin American RegulatoryRequirements.............................................................. 49E-58

§ 49E:5.1 Brokerage Services ............................................... 49E-58§ 49E:5.2 Offering Advisory Services................................... 49E-59

[A] Licensing Considerations..................................... 49E-60[B] Marketing Considerations ................................... 49E-61[C] Client Servicing Considerations .......................... 49E-62[D] Other Considerations .......................................... 49E-62

§ 49E:5.3 Offering Pooled Products Directly....................... 49E-63§ 49E:6 Foreign Corrupt Practices Act .................................... 49E-64§ 49E:7 Foreign Account Tax Compliance Act (FATCA)......... 49E-66§ 49E:8 The OECD Common Reporting Standard (CRS)....... 49E-67


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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§ 49F:8.3 Offering Memorandum Requirement.................. 49F-28

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 49F:8.4 Exempt Trade Reporting and Filing FeeRequirements....................................................... 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§ 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


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§ 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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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 and

Advisers Should Care .............................................. 53-2§ 53:1.2 Political Law and Its Implications for

Broker-Dealers and Advisers ................................... 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 Various Conflictof Interest Rules ...................................................... 53-7

§ 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 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 ................... 54-9[B] Application of the Tower Amendment to

Municipal Advisors................................................ 54-12§ 54:1.2 Nonsolicitor Municipal Advisors: The Importance

of the Term “Advice”; the Advice Standard ..............54-12[A] The General-Information Exclusion...................... 54-14[B] The Tension Between Giving Particularized

Information and Avoiding a RecommendationUnder the General-Information Exclusion ............ 54-15

[B][1] Disclaimers ....................................................... 54-17[B][2] Effect of Overall Course of Conduct ................. 54-18[C] Business Promotional Materials Provided by

Potential Underwriters .......................................... 54-18[C][1] Disclaimers in the Context of Potential

Underwriter Promotional Material.................... 54-21[C][2] Effect of Overall Course of Conduct in the

Context of Potential Underwriter PromotionalMaterials .............................................................54-21

§ 54:1.3 Municipal Advisory Activity.................................. 54-22§ 54:2 Key Definitions and SEC Interpretive Guidance .......... 54-23

§ 54:2.1 Municipal Entity and Obligated Person................ 54-23§ 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........................... 54-28§ 54:2.4 Municipal Financial Products ............................... 54-29

[A] Municipal Derivatives ........................................... 54-29[B] Guaranteed Investment Contracts ........................ 54-31[C] Investment Strategies ............................................ 54-32


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§ 54:2.5 Solicitor Municipal Advisors: Solicitation of aMunicipal Entity or Obligated Person .................. 54-34

[A] What Type of Communication Is a Solicitation?.....54-36[A][1] Advertisements.................................................. 54-36[A][2] Assistance with a Request for Proposals ........... 54-37[A][3] Endorsements.................................................... 54-38[B] Issues Related to Solicitation on Behalf of

Investment Advisers .............................................. 54-39[B][1] The Jurisdictional Implications of Solicitation

on Behalf of Investment Advisers ........................54-39[B][2] Solicitation by Investments Advisers ................ 54-41[B][3] Placement Agents Soliciting on Behalf of

Pooled Investment Vehicles............................... 54-42[B][4] Solicitors Under the Advisers Act ..................... 54-43[C] Issues Related to Solicitation on Behalf of

Broker-Dealers: Rule G-38..................................... 54-43[D] Solicitation of an Obligated Person ....................... 54-44[D][1] Obligated Persons Under the Rule G-37

Definition of Municipal Advisor Third-PartySolicitors ........................................................... 54-45

[E] Exemption for Certain Solicitors ........................... 54-45[F] Standard of Conduct Applicable to Solicitor

Municipal Advisors................................................ 54-46[F][1] Who Is the Solicitor ’s Client?........................... 54-46[F][2] Fiduciary Duty .................................................. 54-47[F][3] Dual Clients...................................................... 54-47[F][4] Fair Dealing....................................................... 54-49

§ 54:3 The Underwriter Exclusion .......................................... 54-51§ 54:3.1 Broker-Dealer Activities Within or

Not Within the Underwriter Exclusion ................ 54-52§ 54:3.2 The Relationship of the Underwriter Exclusion

to MSRB Rule G-17 and MSRB Rule G-23 ......... 54-54§ 54:3.3 Persons Engaged in Activities Similar to

the Underwriting of Municipal Securities ............ 54-59[A] Placement Agents .................................................. 54-59[B] Dealers or Agents in Tender Offers or Exchange

Transactions .......................................................... 54-60[C] Remarketing Agents............................................... 54-60[D] Commercial Paper Dealers .................................... 54-62[E] Brokerage Services ................................................. 54-62

§ 54:3.4 Time and Method of the Engagement ofan Underwriter ...................................................... 54-63

§ 54:3.5 Post-Issuance Advice ............................................. 54-65[A] Official Statement Corrections .............................. 54-65[B] Continuing Disclosure Filings............................... 54-66[C] Due Diligence on Rule 15c2-12 Compliance ........ 54-67

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 54:4 The Registered Investment Adviser Exclusion ............ 54-68§ 54:5 The Registered Commodity Trading Advisor

Exclusion; Exemption for Swap Dealers....................... 54-71§ 54:6 The Exclusion for an Attorney Providing Legal

Advice........................................................................... 54-73§ 54:6.1 General Information.............................................. 54-73§ 54:6.2 The Type of Advice ............................................... 54-74§ 54:6.3 The Recipient of the Advice ................................. 54-75

§ 54:7 The Exclusion for an Engineer ProvidingEngineering Advice ....................................................... 54-75

§ 54:8 The Exemptions ........................................................... 54-76§ 54:8.1 Accountants........................................................... 54-77§ 54:8.2 Banks ..................................................................... 54-77§ 54:8.3 Responses to Requests for Proposals or

Qualifications ........................................................ 54-79§ 54:8.4 Participation by an Independent Registered

Municipal Advisor ................................................. 54-80§ 54:9 Registration of Municipal Advisors .............................. 54-82

§ 54:9.1 Registration with the SEC..................................... 54-82[A] Form MA............................................................... 54-82[B] Form MA-I ............................................................ 54-84

§ 54:9.2 Registration with MSRB........................................ 54-85[A] Form A-12 ............................................................. 54-85[B] Fees........................................................................ 54-86

§ 54:10 Professional Qualifications ........................................... 54-86§ 54:10.1 Municipal Advisor Representative Examination ......54-87§ 54:10.2 Municipal Advisor Principal Examination ............ 54-87§ 54:10.3 Municipal Advisor Continuing Education

Requirements......................................................... 54-88§ 54:11 Rule G-44: Municipal Advisor Supervisory and

Compliance Obligations ............................................... 54-89§ 54:11.1 Purpose of In-House Supervisors and

Compliance Personnel........................................... 54-89§ 54:11.2 Supervisory System and Procedures...................... 54-91§ 54:11.3 Compliance Processes and Chief Compliance

Officer.................................................................... 54-92§ 54:12 The Fiduciary Duty of Municipal Advisors to

Their Municipal Entity Clients .................................... 54-95§ 54:12.1 The Dodd-Frank Act Standard.............................. 54-95§ 54:12.2 Reconciling the Interests of Municipal

Entities and the Interests of Investors.................. 54-98§ 54:12.3 The Dodd-Frank Act Delegation of Authority

to the MSRB.......................................................... 54-98§ 54:13 The Fair Dealing Obligation of Municipal Advisors .......54-99

§ 54:13.1 MSRB Rule G-17................................................... 54-99§ 54:13.2 First Southwest Cease-and-Desist Order .............. 54-99


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§ 54:14 Rule G-42: Core Standards of Conduct forNonsolicitor Municipal Advisors................................ 54-100

§ 54:14.1 General Standards of Conduct............................ 54-101[A] Duty of Care........................................................ 54-102[B] Duty of Loyalty Owed a Municipal Entity .......... 54-103

§ 54:14.2 Disclosures at Commencement ofMunicipal Advisory Activity................................ 54-105

[A] Inadvertent Advice............................................... 54-107[B] Consequences of Rendering Inadvertent Advice ....54-108

§ 54:14.3 Documentation of Municipal AdvisoryRelationship......................................................... 54-109

§ 54:14.4 Recommendations ............................................... 54-110§ 54:14.5 Specific Prohibitions ............................................ 54-113§ 54:14.6 Ban on Principal Transactions ............................ 54-114§ 54:14.7 The Fixed-Income Transaction Exception to

the Ban on Principal Transactions...................... 54-116§ 54:15 Rule G-20: Gifts, Gratuities, and Expenses of

Issuance...................................................................... 54-118§ 54:15.1 General Limitation.............................................. 54-119§ 54:15.2 Exclusions from the $100 Limit......................... 54-120§ 54:15.3 Prohibition on Use of Offering Proceeds ............ 54-121

§ 54:16 Rule G-37: Political Contributions............................. 54-122§ 54:16.1 The Two-Year Ban ............................................... 54-123

[A] Municipal Advisors Excluding Third-PartySolicitors .............................................................. 54-123

[B] Municipal Advisor Third-Party Solicitors ............ 54-125[C] The Effect on Regulated Entity Clients of a

Municipal Advisor Third-Party SolicitorTwo-Year Ban ....................................................... 54-126

[D] Cross-Bans for Dealer–Municipal Advisors ......... 54-126§ 54:16.2 Prohibition on Soliciting and Coordinating

Contributions ...................................................... 54-127§ 54:17 Municipal Advisors Subject to Registration

As Broker-Dealers; Placement Agent Activity............. 54-128

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

(Inv. Adv. Reg., Rel. #14, 10/18)

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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§ 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


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§ 55:7 Investment Advisers in Public Finance ........................ 55-45§ 55:7.1 Advisers to Investment Vehicles for Municipal

Securities .................................................................. 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§ 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

(Inv. Adv. Reg., Rel. #14, 10/18)

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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[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

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[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[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

(Inv. Adv. Reg., Rel. #14, 10/18) clxiii

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[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[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

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[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[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

(Inv. Adv. Reg., Rel. #14, 10/18) clxv

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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§ 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[H] SEC Rules Applying to Advisers Registered or

Required 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

§ 57:6 Conclusion ................................................................... 57-21


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Chapter 58 Commodity Trading Advisor Statusand Regulation

Ruth S. Epstein, Peter M. Hong & Nicole M. Kalajian

§ 58:1 Introduction ................................................................... 58-4§ 58:2 Bifurcated Regulatory System ......................................... 58-5

§ 58:2.1 Overview.................................................................. 58-5§ 58:2.2 Exclusive CFTC Jurisdiction ................................... 58-6§ 58:2.3 Shared CFTC/SEC Jurisdiction ............................... 58-7§ 58:2.4 Exclusive SEC Jurisdiction ...................................... 58-8

§ 58:3 Commodity Trading Advisor Definition......................... 58-9§ 58:3.1 Overview.................................................................. 58-9§ 58:3.2 Commodity Interests............................................. 58-10

[A] Futures................................................................... 58-10[B] Commodity Options.............................................. 58-11[C] Swaps..................................................................... 58-11[C][1] Overview ........................................................... 58-11[C][2] Foreign Exchange Swaps and Forwards ............. 58-13[D] Retail Forex............................................................ 58-14[E] Leverage Contracts ................................................ 58-15[F] Commodity Pools .................................................. 58-16

§ 58:3.3 Engages in the Business of Advising Others ........ 58-16§ 58:3.4 For Compensation or Profit .................................. 58-17§ 58:3.5 Referrals to Other CTAs ....................................... 58-18§ 58:3.6 Extraterritoriality ................................................... 58-18

§ 58:4 Exclusions and Exemptions.......................................... 58-18§ 58:4.1 Overview................................................................ 58-18§ 58:4.2 Statutory Exclusions from the CTA

Definition for Certain Entities.............................. 58-19[A] Overview................................................................ 58-19[B] Solely Incidental .................................................... 58-20[B][1] Banks and Trust Companies ............................. 58-20[B][2] Publishers and Producers .................................. 58-21

§ 58:4.3 Statutory Exemptions from CTA Registration...... 58-22[A] Overview................................................................ 58-22[B] Section 4m(1)—No More Than Fifteen

Clients/Not Holding Out....................................... 58-22[B][1] Section 4m(1) Holding Out............................... 58-23[C] Section 4m(3)—SEC-Registered Advisers

Not Primarily Engaged in CTA Activities.............. 58-24[C][1] Section 4m(3) Holding Out............................... 58-25[C][2] Broader Commodity Interest Definition ........... 58-26

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 58:4.4 CFTC Exclusions and Exemptions from CTARegulation.............................................................. 58-27

[A] Overview................................................................ 58-27[B] Rule 4.14(a)(8)—Investment Advisers Engaged

in “Solely Incidental” CTA Activities .................... 58-27[B][1] Advisers Eligible for Rule 4.14(a)(8) .................. 58-27[B][2] Eligible Clients .................................................. 58-28[B][3] Solely Incidental................................................ 58-30[B][4] Holding Out ...................................................... 58-31[B][5] Notice Filings .................................................... 58-32[B][6] Combining Rule 4.14(a)(8) with Other CTA

Exemptions ....................................................... 58-32[B][7] Combining CTA Registration with Reliance

on Rule 4.14(a)(8).............................................. 58-33[C] Other CFTC Exclusions and Exemptions from

CTA Regulation ..................................................... 58-33[C][1] Rule 4.6 Exclusions ........................................... 58-34[C][1][a] Insurance Companies ..................................... 58-34[C][1][b] Swap Dealers .................................................. 58-35[C][1][c] CPOs Excluded Under Rule 4.5 ..................... 58-36[C][2] Rules 4.14(a)(4) and 4.14(a)(5) for Registered

and Exempt CPOs............................................. 58-37[C][3] Rule 3.10(c)(3) for Offshore CTAs..................... 58-37

§ 58:5 CTA Regulation............................................................ 58-38§ 58:5.1 Overview................................................................ 58-38§ 58:5.2 CFTC Staff Advisory Concerning CTAs and

Swaps..................................................................... 58-39[A] CTAs—A General Framework ............................... 58-39[B] CTAs and Swap Risk Disclosure ........................... 58-42[C] CTAs that Advise “Special Entities” on Swaps...... 58-42

§ 58:5.3 CFTC Requirements ............................................. 58-43[A] Disclosure Document............................................ 58-44[A][1] Filings and Amendments .................................. 58-44[A][2] Delivery and Acknowledgment ......................... 58-45[A][3] Substantive Disclosure ...................................... 58-45[B] Performance Information Disclosure..................... 58-46[C] Advertising............................................................. 58-47[D] NFA Virtual Currency Requirements..................... 58-48[E] Recordkeeping........................................................ 58-50[E][1] Content of Required Records ............................ 58-50[E][2] The “Main Business Office” Requirement ........ 58-50[E][3] Manner and Keeping of Records ....................... 58-52[E][3][a] Duration of Retention .................................... 58-53[E][3][b] Form and Manner of Retention...................... 58-53[E][3][c] Inspection and Production.............................. 58-54[F] Custody ................................................................. 58-55


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[G] Reporting (Form CTA-PR and NFA Form PR)....... 58-55[G][1] General.............................................................. 58-55[G][2] CFTC and NFA “FAQs” .................................... 58-56[G][3] Financial Ratio Information.............................. 58-57[G][4] Late Filing Fees ................................................. 58-59[H] Additional Reporting Requirements for CTAs

that Trade Virtual Currency Products.................... 58-59[I] Gramm-Leach-Bliley Act—Privacy and Security

Safeguards Procedures............................................ 58-60§ 58:5.4 Rule 4.7—Limited Regulation for CTAs to

“Qualified Eligible Persons”................................... 58-61[A] QEP Definition ...................................................... 58-62[B] Disclosure.............................................................. 58-64[C] Due Consent ......................................................... 58-65[D] Recordkeeping........................................................ 58-65[E] Notice Filing .......................................................... 58-65

§ 58:5.5 NFA Regulation ..................................................... 58-66[A] Overview................................................................ 58-66[B] CTA Registration ................................................... 58-66[B][1] Firm Application ............................................... 58-66[B][2] Principal and Associated Person Applications.....58-68[B][3] Identifying Principals ........................................ 58-68[B][4] Identifying Associated Persons .......................... 58-69[B][5] Proficiency Requirements .................................. 58-70[B][6] Associated Person Exemptions .......................... 58-71[C] CTA Compliance Policies and Procedures............. 58-72[D] Prohibition from Doing Business with Non-NFA

Members................................................................ 58-77[E] Annual Questionnaire ........................................... 58-79[F] Annual Compliance Review—NFA

Self-Examination Questionnaire............................ 58-79[G] NFA Examinations ................................................ 58-80[G][1] Purpose of NFA Examinations .......................... 58-80[G][2] Preparing for the Exam ..................................... 58-81[G][3] Description of the Exam Process....................... 58-81[G][3][a] Prior to the Exam ........................................... 58-81[G][3][b] On-site Visit ................................................... 58-82[G][3][c] Follow Up ....................................................... 58-82[G][3][d] Closing the Exam ........................................... 58-82[G][4] Schedule of Examinations ................................. 58-83[G][5] Areas of Focus ................................................... 58-83

§ 58:5.6 The CFTC’s Project “KISS” (Keep it SimpleStupid) Initiative.................................................... 58-84

(Inv. Adv. Reg., Rel. #14, 10/18)

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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

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 of Social Media........................................................ 60-7

§ 60:3.1 Advertising............................................................... 60-7[A] Testimonials ............................................................ 60-8[B] Past Specific Recommendations............................... 60-8


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[C] Untrue Statements of Material Fact ........................ 60-9[D] Industry Response to Advertising Rule .................... 60-9

§ 60:3.2 Fiduciary Duty—Recommendations andDisclosure .............................................................. 60-10

§ 60:3.3 Compliance Rule ................................................... 60-11§ 60:3.4 Recordkeeping........................................................ 60-11§ 60:3.5 Form ADV............................................................. 60-12§ 60:3.6 Supervision ............................................................ 60-13

§ 60:4 SEC Guidance on the Use of Social Media byInvestment Advisers ..................................................... 60-13

§ 60:4.1 Social Media Sweep............................................... 60-13§ 60:4.2 2012 Risk Alert ..................................................... 60-14

[A] Advertising and Third-Party Content .................... 60-14[B] Fiduciary Duty....................................................... 60-15[C] Compliance Policies and Procedures ..................... 60-15[D] Recordkeeping........................................................ 60-16

§ 60:4.3 2017 Risk Alert ..................................................... 60-17§ 60:4.4 Interactive Content ............................................... 60-19§ 60:4.5 Testimonials .......................................................... 60-21

[A] Third-Party Commentary ...................................... 60-21[B] Inclusion of Investment Adviser Advertisements

on Independent Social Media Site ......................... 60-23[C] Reference to Independent Social Media Site

Commentary on Investment Adviser Non-SocialMedia Advertisements ........................................... 60-23

[D] Client Lists ............................................................ 60-23[E] Fan/Community Pages........................................... 60-23

§ 60:5 Advertising Rules Applicable to Robo-Advisers ............ 60-24§ 60:6 FINRA Guidance .......................................................... 60-24§ 60:7 Enforcement Actions .................................................... 60-24§ 60:8 Conclusion ................................................................... 60-26

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

(Inv. Adv. Reg., Rel. #14, 10/18)

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§ 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

Chapter 62 Investment Management M&A

Kenneth J. Berman, Gregory V. Gooding,David Innes, William D. Regner, Seth L. Rosen,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


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§ 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.................................................................. 62-20[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...................... 62-27§ 62:3.3 Underwriting Arrangements.................................. 62-27§ 62:3.4 Profits from the Sale of an Investment

Company Adviser .................................................. 62-28§ 62:3.5 Dealing with Fund Directors ................................ 62-29§ 62:3.6 Acquisitions by Broker-Dealers ............................. 62-31§ 62:3.7 The DOL Fiduciary Rule....................................... 62-32§ 62:3.8 Other Regulatory Matters ..................................... 62-33

§ 62:4 Special Tax Planning Issues.......................................... 62-35§ 62:4.1 Tax Cuts and Jobs Act .......................................... 62-35§ 62:4.2 Form of the Transaction ....................................... 62-36§ 62:4.3 Competing Goals of the Acquiror and

the Selling Shareholders of the Adviser ................ 62-36§ 62:4.4 Asset Allocations................................................... 62-37§ 62:4.5 U.S. Holding Company for Foreign Purchaser ..... 62-38§ 62:4.6 FIRPTA Certificates............................................... 62-38§ 62:4.7 Allocation of Adviser Taxes................................... 62-38

§ 62:5 Regulatory Due Diligence............................................. 62-39

(Inv. Adv. Reg., Rel. #14, 10/18)

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PART XIX: FinTech

Chapter 63 Regulation of Robo-Advisers

Jennifer L. Klass, Eric L. Perelman & Ezra D. Church

§ 63:1 What is a Robo-Adviser? ................................................ 63-2§ 63:2 Regulatory Framework for Digital Investment Advice.... 63-4

§ 63:2.1 SEC Division of Investment ManagementGuidance ................................................................. 63-5

§ 63:2.2 SEC Office of Compliance Inspections andExaminations Focus ................................................ 63-6

§ 63:2.3 FINRA Report on Digital Investment Advice ......... 63-7[A] Governance and Supervision ................................... 63-7[B] Investor Profiling ..................................................... 63-8[C] Rebalancing............................................................ 63-10[D] Training ................................................................. 63-10

§ 63:2.4 SEC and FINRA Joint Investor Alert.................... 63-10§ 63:3 Posture of State Regulators........................................... 63-11§ 63:4 Federal Registration with the SEC................................ 63-12

§ 63:4.1 Internet Adviser Exemption .................................. 63-13§ 63:4.2 Multi-State Adviser Exemption ............................. 63-13§ 63:4.3 Related Advisers .................................................... 63-14

§ 63:5 Suitability ..................................................................... 63-14§ 63:5.1 Client Profile Questionnaires................................ 63-15§ 63:5.2 Client-Directed Changes in Investment

Strategy .................................................................. 63-16§ 63:6 Disclosure..................................................................... 63-16

§ 63:6.1 Content of Disclosures.......................................... 63-17§ 63:6.2 Scope of Advisory Services .................................... 63-19§ 63:6.3 Presentation of Disclosure .................................... 63-19

§ 63:7 Status of Discretionary IA Programs—InvestmentCompany Act Rule 3a-4 ............................................... 63-20

§ 63:7.1 Reasonable Restrictions ......................................... 63-21§ 63:7.2 Individualized Management .................................. 63-22§ 63:7.3 “Reasonably Available” Requirement .................... 63-23

§ 63:8 Trading Practices .......................................................... 63-23§ 63:8.1 Trading Suspensions.............................................. 63-23§ 63:8.2 Rebalancing............................................................ 63-23

§ 63:9 Electronic Delivery ....................................................... 63-24§ 63:10 Advertising ................................................................... 63-25

§ 63:10.1 Hypothetical Performance ..................................... 63-26§ 63:10.2 Use of Graphs, Charts, and Formulas.................. 63-26§ 63:10.3 Claims of Free Services ......................................... 63-27§ 63:10.4 Social Media .......................................................... 63-27


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§ 63:11 Solicitation and Referral Programs ............................... 63-28§ 63:11.1 Online Advertising and Referral Arrangements .......63-29

§ 63:12 Algorithm Oversight, Maintenance, and Testing ......... 63-30§ 63:13 Privacy and Cybersecurity ............................................ 63-32

§ 63:13.1 Privacy and Cybersecurity Regulation................... 63-33§ 63:13.2 Privacy and Cybersecurity Enforcement................ 63-35§ 63:13.3 Robo-Adviser Privacy and Cybersecurity

Checklist................................................................ 63-36

Table of Authorities .....................................................................T-1

Index ................................................................................................ I-1

(Inv. Adv. Reg., Rel. #14, 10/18)

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