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ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
ARE ETFS REPORTABLE SECURITIES? The answer turns out to be yes and no. National Compliance Services asked this same question in 2005, shortly after Rule 204A-1 came out. ETFs are structured as either an open-end fund or a unit investment trust. The SEC’s response in a no action letter was that the open-end fund variety is not a reportable security and the UIT varietyis a
CANADA’S FOREIGN CORRUPT PRACTICES ACT In the United States, the Foreign Corrupt Practices Act has received significant attention due to some recent high-profile prosecutions. Just to the North, there is the Canadian equivalent to the FCPA: the Corruption of Foreign Public Officials Act. It has not yet been a significant concern for most businesses that fall within itsjurisdiction.
THE ANTI-CORRUPTION PRINCIPLE IN THE U.S. CONSTITUTION The Constitution carries within it an anti-corruption principle, much like the separation-of-powers principle, or federalism. It is a freestanding principle embedded in the Constitution’s structure, and should be given independent weight, like these other principles, in deciding difficult questions concerning how we govern ourselves. THE KNOWLEDGEABLE EMPLOYEE EXEMPTION FOR PRIVATE FUNDS The SEC established Rule 3C-5 to allow “knowledgeable employees” to invest in their company’s private fund without having to be a qualified purchaser. The rule also exempts these knowledgeable employees from the 100 investor limit under the Section 3 (c) (1) exemption from the Investment Company Act. You will still need todetermine if
SUBSCRIPTION CREDIT FACILITY FRAUD Subscription Credit Facility Fraud. Doug Cornelius March 18, 2021. March 19, 2021. Fraud. Lots of private equity funds use a line of credit to fund acquisitions. It’s quicker to draw on the line than to call equity from investors. That line of credit is secured INTEGRITY, MORALITY, AND ETHICS Michael C. Jensen, Harvard Business School. I always struggle with definitions of ethics and morality. Michael Jensen, of Harvard Business School throws integrity into the mix of terms. Here are his definitions: Integrity: A state or condition of being whole, complete, unbroken, unimpaired, sound, in perfect condition.. Ethics: In a given group, ethics is the agreed upon standards of what is BEST PRACTICES FOR PRESENTING MODEL AND HYPOTHETICALSEE MORE ON COMPLIANCEBUILDING.COM WHAT IS A COMMODITY POOL? The CFTC stretched when it said that a fund entering into even a single swap used purely for hedging purposes — will hold “commodity interests” and accordingly could be viewed as commodity pools by the CFTC. The CFTC has construed the concept of commodity pool broadly and has consistently maintained that there is no minimum trading threshold for qualification as a CPO. IS A NOTE A SECURITY? If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a “security.” . Second, we examine the “plan of distribution” ofthe
ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
ARE ETFS REPORTABLE SECURITIES? The answer turns out to be yes and no. National Compliance Services asked this same question in 2005, shortly after Rule 204A-1 came out. ETFs are structured as either an open-end fund or a unit investment trust. The SEC’s response in a no action letter was that the open-end fund variety is not a reportable security and the UIT varietyis a
CANADA’S FOREIGN CORRUPT PRACTICES ACT In the United States, the Foreign Corrupt Practices Act has received significant attention due to some recent high-profile prosecutions. Just to the North, there is the Canadian equivalent to the FCPA: the Corruption of Foreign Public Officials Act. It has not yet been a significant concern for most businesses that fall within itsjurisdiction.
THE ANTI-CORRUPTION PRINCIPLE IN THE U.S. CONSTITUTION The Constitution carries within it an anti-corruption principle, much like the separation-of-powers principle, or federalism. It is a freestanding principle embedded in the Constitution’s structure, and should be given independent weight, like these other principles, in deciding difficult questions concerning how we govern ourselves. THE KNOWLEDGEABLE EMPLOYEE EXEMPTION FOR PRIVATE FUNDS The SEC established Rule 3C-5 to allow “knowledgeable employees” to invest in their company’s private fund without having to be a qualified purchaser. The rule also exempts these knowledgeable employees from the 100 investor limit under the Section 3 (c) (1) exemption from the Investment Company Act. You will still need todetermine if
IMPORTANCE OF TIMELY AUDITS FOR PRIVATE FUNDS UNDER THE Importance of Timely Audits for Private Funds under the Custody Rule. Doug Cornelius May 27, 2020 Custody. The vast majority of private funds use the audited financial statements alternative for compliance with the Custody Rule. Fund managers have custody of the fund assets. Fund investors typically demand audited financial statements from WHAT IS A SECURITY? IS REAL ESTATE A When it comes to real estate joint ventures, the managing interest is not going to be a security. The non-managing interest is more likely to be a security. Notes, debt, and debt-to-own interests are likely to be considered securities. You can see notes listed right in the definition of securities. Given the continuing distress in the real REAL ESTATE FUNDS AND THE INVESTMENT COMPANY ACT Real Estate Funds and the Investment Company Act. Doug Cornelius March 30, 2011. April 9, 2012. Investment Company Act. Traditionally, private fund managers have looked at the section 3 (c) (1) or section 3 (c) (7) exemptions from the definition of “investment company” to avoid the restrictions of being regulated under the Investment ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
THE ANTI-CORRUPTION PRINCIPLE IN THE U.S. CONSTITUTION The Constitution carries within it an anti-corruption principle, much like the separation-of-powers principle, or federalism. It is a freestanding principle embedded in the Constitution’s structure, and should be given independent weight, like these other principles, in deciding difficult questions concerning how we govern ourselves. IS STOCK IN A MUTUAL WATER COMPANY A SECURITY In United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975), the United States Supreme Court found that not all stock is a security. In that case, it looked at shares issued and sold as part of housing coop in New York. The Court came up with five characteristics of a stock: Right to receive dividends. Negotiability. QUALIFIED PURCHASERS UNDER THE INVESTMENT COMPANY ACT A qualified purchaser is a much greater requirement than an accredited investor and a qualified client. To paraphrase the requirements under Section 2 (a) (51) of the Investment Company Act, a “qualified purchaser” means: a person not less than $5 million in investments. a company with not less than $5 million in investments owned by close INSIDER TRADING AND RESTRICTED LISTS Insider Trading and Restricted Lists. Doug Cornelius May 3, 2012 Conference Notes, Insider Trading. These are my notes from the “Insider trading and restricted lists” session at the Private Fund Compliance Forum 2012. Two items affect insider trading: federal securities law (10b5) and a firm’s code of ethics under the Investment Advisers Act. TAKING MANAGEMENT FEES IN ADVANCE, AND THEN MORE March 31, 2016. Accounting. It is not uncommon for fund managers and investment advisers to take management fees payable in advance. At some point, taking fees in advance is just stealing from investors. Steven Burrill and his firm reached that point and went well beyond it. To be clear, taking management fees in advance is not illegal. CAN YOU PREVENT PONZI SCHEMES? But with a new administration and issues in the financial marketplace, I expect to see some form of new regulatory requirements. Will they prevent Ponzi schemes? No, the government cannot prevent Ponzi schemes. Investors prevent Ponzi schemes. If it SUBSCRIPTION CREDIT FACILITY FRAUD Subscription Credit Facility Fraud. Doug Cornelius March 18, 2021. March 19, 2021. Fraud. Lots of private equity funds use a line of credit to fund acquisitions. It’s quicker to draw on the line than to call equity from investors. That line of credit is secured INTEGRITY, MORALITY, AND ETHICS Michael C. Jensen, Harvard Business School. I always struggle with definitions of ethics and morality. Michael Jensen, of Harvard Business School throws integrity into the mix of terms. Here are his definitions: Integrity: A state or condition of being whole, complete, unbroken, unimpaired, sound, in perfect condition.. Ethics: In a given group, ethics is the agreed upon standards of what is BEST PRACTICES FOR PRESENTING MODEL AND HYPOTHETICALSEE MORE ON COMPLIANCEBUILDING.COM WHAT IS A COMMODITY POOL? The CFTC stretched when it said that a fund entering into even a single swap used purely for hedging purposes — will hold “commodity interests” and accordingly could be viewed as commodity pools by the CFTC. The CFTC has construed the concept of commodity pool broadly and has consistently maintained that there is no minimum trading threshold for qualification as a CPO. IS A NOTE A SECURITY? If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a “security.” . Second, we examine the “plan of distribution” ofthe
ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
ARE ETFS REPORTABLE SECURITIES? The answer turns out to be yes and no. National Compliance Services asked this same question in 2005, shortly after Rule 204A-1 came out. ETFs are structured as either an open-end fund or a unit investment trust. The SEC’s response in a no action letter was that the open-end fund variety is not a reportable security and the UIT varietyis a
THE ANTI-CORRUPTION PRINCIPLE IN THE U.S. CONSTITUTION The Constitution carries within it an anti-corruption principle, much like the separation-of-powers principle, or federalism. It is a freestanding principle embedded in the Constitution’s structure, and should be given independent weight, like these other principles, in deciding difficult questions concerning how we govern ourselves. CANADA’S FOREIGN CORRUPT PRACTICES ACT In the United States, the Foreign Corrupt Practices Act has received significant attention due to some recent high-profile prosecutions. Just to the North, there is the Canadian equivalent to the FCPA: the Corruption of Foreign Public Officials Act. It has not yet been a significant concern for most businesses that fall within itsjurisdiction.
THE KNOWLEDGEABLE EMPLOYEE EXEMPTION FOR PRIVATE FUNDS The SEC established Rule 3C-5 to allow “knowledgeable employees” to invest in their company’s private fund without having to be a qualified purchaser. The rule also exempts these knowledgeable employees from the 100 investor limit under the Section 3 (c) (1) exemption from the Investment Company Act. You will still need todetermine if
SUBSCRIPTION CREDIT FACILITY FRAUD Subscription Credit Facility Fraud. Doug Cornelius March 18, 2021. March 19, 2021. Fraud. Lots of private equity funds use a line of credit to fund acquisitions. It’s quicker to draw on the line than to call equity from investors. That line of credit is secured INTEGRITY, MORALITY, AND ETHICS Michael C. Jensen, Harvard Business School. I always struggle with definitions of ethics and morality. Michael Jensen, of Harvard Business School throws integrity into the mix of terms. Here are his definitions: Integrity: A state or condition of being whole, complete, unbroken, unimpaired, sound, in perfect condition.. Ethics: In a given group, ethics is the agreed upon standards of what is BEST PRACTICES FOR PRESENTING MODEL AND HYPOTHETICALSEE MORE ON COMPLIANCEBUILDING.COM WHAT IS A COMMODITY POOL? The CFTC stretched when it said that a fund entering into even a single swap used purely for hedging purposes — will hold “commodity interests” and accordingly could be viewed as commodity pools by the CFTC. The CFTC has construed the concept of commodity pool broadly and has consistently maintained that there is no minimum trading threshold for qualification as a CPO. IS A NOTE A SECURITY? If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a “security.” . Second, we examine the “plan of distribution” ofthe
ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
ARE ETFS REPORTABLE SECURITIES? The answer turns out to be yes and no. National Compliance Services asked this same question in 2005, shortly after Rule 204A-1 came out. ETFs are structured as either an open-end fund or a unit investment trust. The SEC’s response in a no action letter was that the open-end fund variety is not a reportable security and the UIT varietyis a
THE ANTI-CORRUPTION PRINCIPLE IN THE U.S. CONSTITUTION The Constitution carries within it an anti-corruption principle, much like the separation-of-powers principle, or federalism. It is a freestanding principle embedded in the Constitution’s structure, and should be given independent weight, like these other principles, in deciding difficult questions concerning how we govern ourselves. CANADA’S FOREIGN CORRUPT PRACTICES ACT In the United States, the Foreign Corrupt Practices Act has received significant attention due to some recent high-profile prosecutions. Just to the North, there is the Canadian equivalent to the FCPA: the Corruption of Foreign Public Officials Act. It has not yet been a significant concern for most businesses that fall within itsjurisdiction.
THE KNOWLEDGEABLE EMPLOYEE EXEMPTION FOR PRIVATE FUNDS The SEC established Rule 3C-5 to allow “knowledgeable employees” to invest in their company’s private fund without having to be a qualified purchaser. The rule also exempts these knowledgeable employees from the 100 investor limit under the Section 3 (c) (1) exemption from the Investment Company Act. You will still need todetermine if
IMPORTANCE OF TIMELY AUDITS FOR PRIVATE FUNDS UNDER THE Importance of Timely Audits for Private Funds under the Custody Rule. Doug Cornelius May 27, 2020 Custody. The vast majority of private funds use the audited financial statements alternative for compliance with the Custody Rule. Fund managers have custody of the fund assets. Fund investors typically demand audited financial statements from WHAT IS A SECURITY? IS REAL ESTATE A When it comes to real estate joint ventures, the managing interest is not going to be a security. The non-managing interest is more likely to be a security. Notes, debt, and debt-to-own interests are likely to be considered securities. You can see notes listed right in the definition of securities. Given the continuing distress in the real REAL ESTATE FUNDS AND THE INVESTMENT COMPANY ACT Real Estate Funds and the Investment Company Act. Doug Cornelius March 30, 2011. April 9, 2012. Investment Company Act. Traditionally, private fund managers have looked at the section 3 (c) (1) or section 3 (c) (7) exemptions from the definition of “investment company” to avoid the restrictions of being regulated under the Investment ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
THE ANTI-CORRUPTION PRINCIPLE IN THE U.S. CONSTITUTION The Constitution carries within it an anti-corruption principle, much like the separation-of-powers principle, or federalism. It is a freestanding principle embedded in the Constitution’s structure, and should be given independent weight, like these other principles, in deciding difficult questions concerning how we govern ourselves. IS STOCK IN A MUTUAL WATER COMPANY A SECURITY In United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975), the United States Supreme Court found that not all stock is a security. In that case, it looked at shares issued and sold as part of housing coop in New York. The Court came up with five characteristics of a stock: Right to receive dividends. Negotiability. QUALIFIED PURCHASERS UNDER THE INVESTMENT COMPANY ACT A qualified purchaser is a much greater requirement than an accredited investor and a qualified client. To paraphrase the requirements under Section 2 (a) (51) of the Investment Company Act, a “qualified purchaser” means: a person not less than $5 million in investments. a company with not less than $5 million in investments owned by close INSIDER TRADING AND RESTRICTED LISTS Insider Trading and Restricted Lists. Doug Cornelius May 3, 2012 Conference Notes, Insider Trading. These are my notes from the “Insider trading and restricted lists” session at the Private Fund Compliance Forum 2012. Two items affect insider trading: federal securities law (10b5) and a firm’s code of ethics under the Investment Advisers Act. TAKING MANAGEMENT FEES IN ADVANCE, AND THEN MORE March 31, 2016. Accounting. It is not uncommon for fund managers and investment advisers to take management fees payable in advance. At some point, taking fees in advance is just stealing from investors. Steven Burrill and his firm reached that point and went well beyond it. To be clear, taking management fees in advance is not illegal. CAN YOU PREVENT PONZI SCHEMES? But with a new administration and issues in the financial marketplace, I expect to see some form of new regulatory requirements. Will they prevent Ponzi schemes? No, the government cannot prevent Ponzi schemes. Investors prevent Ponzi schemes. If it SUBSCRIPTION CREDIT FACILITY FRAUD Subscription Credit Facility Fraud. Doug Cornelius March 18, 2021. March 19, 2021. Fraud. Lots of private equity funds use a line of credit to fund acquisitions. It’s quicker to draw on the line than to call equity from investors. That line of credit is secured BEST PRACTICES FOR PRESENTING MODEL AND HYPOTHETICALSEE MORE ON COMPLIANCEBUILDING.COM IS A NOTE A SECURITY? If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a “security.” . Second, we examine the “plan of distribution” ofthe
SECTION 3(C)(5)
April 9, 2012. Investment Company Act 1. Traditionally, private fund managers have looked at the section 3 (c) (1) or section 3 (c) (7) exemptions from the definition of “investment company” to avoid the restrictions of being regulated under the Investment Company Act. Dodd-Frank defined a “private fund” as being “issuer that wouldbe
WHAT IS A COMMODITY POOL? The CFTC stretched when it said that a fund entering into even a single swap used purely for hedging purposes — will hold “commodity interests” and accordingly could be viewed as commodity pools by the CFTC. The CFTC has construed the concept of commodity pool broadly and has consistently maintained that there is no minimum trading threshold for qualification as a CPO. REAL ESTATE FUNDS AND THE INVESTMENT COMPANY ACT Real Estate Funds and the Investment Company Act. Doug Cornelius March 30, 2011. April 9, 2012. Investment Company Act. Traditionally, private fund managers have looked at the section 3 (c) (1) or section 3 (c) (7) exemptions from the definition of “investment company” to avoid the restrictions of being regulated under the Investment ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
CANADA’S FOREIGN CORRUPT PRACTICES ACT In the United States, the Foreign Corrupt Practices Act has received significant attention due to some recent high-profile prosecutions. Just to the North, there is the Canadian equivalent to the FCPA: the Corruption of Foreign Public Officials Act. It has not yet been a significant concern for most businesses that fall within itsjurisdiction.
ARE ETFS REPORTABLE SECURITIES? The answer turns out to be yes and no. National Compliance Services asked this same question in 2005, shortly after Rule 204A-1 came out. ETFs are structured as either an open-end fund or a unit investment trust. The SEC’s response in a no action letter was that the open-end fund variety is not a reportable security and the UIT varietyis a
CAN YOU PREVENT PONZI SCHEMES? But with a new administration and issues in the financial marketplace, I expect to see some form of new regulatory requirements. Will they prevent Ponzi schemes? No, the government cannot prevent Ponzi schemes. Investors prevent Ponzi schemes. If it SUBSCRIPTION CREDIT FACILITY FRAUD Subscription Credit Facility Fraud. Doug Cornelius March 18, 2021. March 19, 2021. Fraud. Lots of private equity funds use a line of credit to fund acquisitions. It’s quicker to draw on the line than to call equity from investors. That line of credit is secured BEST PRACTICES FOR PRESENTING MODEL AND HYPOTHETICALSEE MORE ON COMPLIANCEBUILDING.COM IS A NOTE A SECURITY? If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a “security.” . Second, we examine the “plan of distribution” ofthe
SECTION 3(C)(5)
April 9, 2012. Investment Company Act 1. Traditionally, private fund managers have looked at the section 3 (c) (1) or section 3 (c) (7) exemptions from the definition of “investment company” to avoid the restrictions of being regulated under the Investment Company Act. Dodd-Frank defined a “private fund” as being “issuer that wouldbe
WHAT IS A COMMODITY POOL? The CFTC stretched when it said that a fund entering into even a single swap used purely for hedging purposes — will hold “commodity interests” and accordingly could be viewed as commodity pools by the CFTC. The CFTC has construed the concept of commodity pool broadly and has consistently maintained that there is no minimum trading threshold for qualification as a CPO. REAL ESTATE FUNDS AND THE INVESTMENT COMPANY ACT Real Estate Funds and the Investment Company Act. Doug Cornelius March 30, 2011. April 9, 2012. Investment Company Act. Traditionally, private fund managers have looked at the section 3 (c) (1) or section 3 (c) (7) exemptions from the definition of “investment company” to avoid the restrictions of being regulated under the Investment ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
CANADA’S FOREIGN CORRUPT PRACTICES ACT In the United States, the Foreign Corrupt Practices Act has received significant attention due to some recent high-profile prosecutions. Just to the North, there is the Canadian equivalent to the FCPA: the Corruption of Foreign Public Officials Act. It has not yet been a significant concern for most businesses that fall within itsjurisdiction.
ARE ETFS REPORTABLE SECURITIES? The answer turns out to be yes and no. National Compliance Services asked this same question in 2005, shortly after Rule 204A-1 came out. ETFs are structured as either an open-end fund or a unit investment trust. The SEC’s response in a no action letter was that the open-end fund variety is not a reportable security and the UIT varietyis a
CAN YOU PREVENT PONZI SCHEMES? But with a new administration and issues in the financial marketplace, I expect to see some form of new regulatory requirements. Will they prevent Ponzi schemes? No, the government cannot prevent Ponzi schemes. Investors prevent Ponzi schemes. If it THE ONE THAT IS A HOLLYWOOD STORY The One That is a Hollywood Story. Doug Cornelius May 2, 2021. April 30, 2021. Fraud. Zach Horwitz was struggling actor using the stage name “Zach Avery.”. His IMDB entry lists him in minor parts in mostly bad movies. His biggest movie role is an uncredited part as a medic in Brad Pitt’s “Fury.”. Mr. Horowitz couldn’t figure outhow
SECTION 3(C)(5)
April 9, 2012. Investment Company Act 1. Traditionally, private fund managers have looked at the section 3 (c) (1) or section 3 (c) (7) exemptions from the definition of “investment company” to avoid the restrictions of being regulated under the Investment Company Act. Dodd-Frank defined a “private fund” as being “issuer that wouldbe
WHAT IS A COMMODITY POOL? The CFTC stretched when it said that a fund entering into even a single swap used purely for hedging purposes — will hold “commodity interests” and accordingly could be viewed as commodity pools by the CFTC. The CFTC has construed the concept of commodity pool broadly and has consistently maintained that there is no minimum trading threshold for qualification as a CPO. IMPORTANCE OF TIMELY AUDITS FOR PRIVATE FUNDS UNDER THE Importance of Timely Audits for Private Funds under the Custody Rule. Doug Cornelius May 27, 2020 Custody. The vast majority of private funds use the audited financial statements alternative for compliance with the Custody Rule. Fund managers have custody of the fund assets. Fund investors typically demand audited financial statements from ANALYSIS OF A 3(C)5 FUND Analysis of a 3 (c)5 Fund. Dodd-Frank created a new legal definition for a “private fund” as pooled investment vehicles that are excluded from the definition of “investment company” under the Investment Company Act of 1940 by section 3 (c) (1) or 3 (c) (7) of that Act. Under 3 (c) (1), the main limitations are that you have onehundred
QUALIFIED PURCHASERS UNDER THE INVESTMENT COMPANY ACT A qualified purchaser is a much greater requirement than an accredited investor and a qualified client. To paraphrase the requirements under Section 2 (a) (51) of the Investment Company Act, a “qualified purchaser” means: a person not less than $5 million in investments. a company with not less than $5 million in investments owned by close DUE DILIGENCE FOR ALTERNATIVE INVESTMENTS Due Diligence for Alternative Investments. Doug Cornelius January 29, 2014 Compliance Programs. The Securities and Exchange Commission published a new risk alert on investment advisers and alternative investments. It’s a rambling piece that spends most its time laying out the OCIE’s observations on due diligence practices. IS STOCK IN A MUTUAL WATER COMPANY A SECURITY In United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975), the United States Supreme Court found that not all stock is a security. In that case, it looked at shares issued and sold as part of housing coop in New York. The Court came up with five characteristics of a stock: Right to receive dividends. Negotiability. THE ANTI-CORRUPTION PRINCIPLE IN THE U.S. CONSTITUTION The Constitution carries within it an anti-corruption principle, much like the separation-of-powers principle, or federalism. It is a freestanding principle embedded in the Constitution’s structure, and should be given independent weight, like these other principles, in deciding difficult questions concerning how we govern ourselves. CAN YOU PREVENT PONZI SCHEMES? But with a new administration and issues in the financial marketplace, I expect to see some form of new regulatory requirements. Will they prevent Ponzi schemes? No, the government cannot prevent Ponzi schemes. Investors prevent Ponzi schemes. If itSkip to content
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THE ONE WITH KING, TROUT, AND LEGACYDoug Cornelius
June 3,
2021June 2, 2021
Fraud
Randy King, his son Matthew King, and Andrea Trout founded and ran The Legacy Group, Inc. a real estate investment firm based in Colorado Springs. The firm’s business model was to provide mezzanine loans to real estate projects. These Legacy mezzanine loans would be junior to the secured mortgage loans on the project. Legacy raised … Readmore »
DATA PRIVACY COMES TO REAL ESTATEDoug Cornelius
June 2,
2021May 31, 2021
Cybersecurity
New York City passed a law imposing specific requirements on real estate owners in the city. As buildings are becoming “smarter” landlords are collecting more data about the building coming in, moving around inside, and exiting from their buildings. This is largely for good intentions. It makes the elevators more efficient. It makes the heating … Read more » THE ONE WITH FAILING TO MEET INVESTMENT CRITERIADoug Cornelius
June 1,
2021May 31, 2021
Fraud
Knight Nguyen Investments raised millions from its retail investor clients to invest in securities that met the firm’s investment criteria: (a) always allocate “secured” capital to attract at least 10% returns, and would select entities (b) with taxable income to support returns and that often do over $10 million of revenue; (c) that are … Read more » THE ONE WITH THE PRE-IPO SHARESDoug Cornelius
May 9,
2021May 7, 2021
Fraud
Peter Quartararo met with potential investors and told them that he had access to “pre-IPO” stock in Peloton, WeWork, and Airbnb. The first potential investor was an acquaintance that had done a favor for Mr. Quartararo. He offered to let the investor buy the shares in WeWork and AirBnB at his cost, with was less … Read more » THE ONE THAT IS A HOLLYWOOD STORYDoug Cornelius
May 2,
2021April 30, 2021
Fraud
Zach Horwitz was struggling actor using the stage name “Zach Avery.” His IMDB entry lists him in minor parts in mostly bad movies. His biggest movie role is an uncredited part as a medic in Brad Pitt’s “Fury.” Mr. Horowitz couldn’t figure out how to get rich and famous, but he did hatch a plan … Read more » COMPLIANCE BRICKS AND MORTAR FOR APRIL 30Doug Cornelius
April 30,
2021April 29, 2021
Compliance
Bricks and Mortar
These are some of the compliance-related stories that recently caught my attention. The Bizarre Case of Snowden and a Get-Rich-Quick Real Estate Investing ConferenceJack PoulsonVice.com Edward Snowden joined an online “elite real estate investment club” Saturday afternoon, spoke for several minutes about whistleblowing, called out one of the hosts for allegedly running a Ponzi scheme, … Read more » THE ONE WITH THE LACK OF WRITE-DOWNSDoug Cornelius
April 25,
2021April 23, 2021
Fraud
I think many frauds start with a failure to recognize mistakes. Yes, it’s hard to tell your investors that you lost some of their money. It makes it harder to attract new investors and additional investments. It gets really hard to do that when you go to jail. Martin Silver was the co-founder, managing partner, … Read more » COMPLIANCE BRICKS AND MORTAR FOR APRIL 23Doug Cornelius
April 23,
2021April 22, 2021
Compliance
Bricks and Mortar
These are some of the compliance-related stories that recently caught my attention. Alex Oh Named SEC Director of Enforcement Washington D.C., April 22, 2021 — The Securities and Exchange Commission today announced that Alex Oh has been appointed Director of the Division of Enforcement. Oh was most recently a partner at Paul, Weiss, Rifkind, Wharton … Read more » WITHDRAWAL OF NO ACTION LETTERSDoug Cornelius
April 19,
2021April 19, 2021
SEC
News
In connection with Securities and Exchange Commission’s new Marketing Rule, I’m expecting the SEC to withdraw a bunch of the no-action letters that address advertising by registered investment advisers. For example, the Clover no-action letter doesn’t seem to fit with the new Marketing Rule and will likely have to be withdrawn to avoid confusion. The … Read more » COMPLIANCE BRICKS AND MORTAR FOR APRIL 16Doug Cornelius
April 16,
2021April 15, 2021
Compliance
Bricks and Mortar
These are some of the compliance-related stories that recently caught my attention. U.S. Senate votes 53-45 to confirm Gary Gensler as Biden’s SEC chiefKatanga JohnsonReuters “Gary Gensler has the perfect mix of market expertise, regulatory experience and commitment to the public interest to be an outstanding SEC Chairman,” said Barbara Roper, chief investor advocate at … Read more »POSTS NAVIGATION
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