Big news today (June 5) as the 5th circuit court of appeals VACATED the SEC’s private fund adviser rule!! Go back and listen to Episode 21 if you want to waste your time hearing all the details of this now-defunct rule.

Special Note: you may notice while listening to today’s episode that I mistakenly refer listeners to Episode 29 for my full PFAR breakdown (I refer to “Episode 29” several times). Turns out, I’m even worse at math than I thought, because my PFAR episode is # 21; not 29…Rather than delay the episode and re-record, I’m alerting you here. Cuz everyone reads the show notes, obviously.

Key Points From This Episode:

• What is Section 206(4) of the Advisers Act, and why does it NOT give the SEC authority to issue PFAR?
• What is Section 211(h) of the Advisers Act, and why does it NOT give the SEC authority to issue PFAR?
• What provisions of the Advisers Act DO give the SEC authority to issue PFAR? Hint: None.
• A little bragging about how prescient I was in Episode 21 (not episode 29).

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

5th Circuit Ruling - https://storage.courtlistener.com/recap/gov.uscourts.ca5.215539/gov.uscourts.ca5.215539.123.1.pdf

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: tow@colefrieman.com

Today’s episode is all about the government’s attempts to jam the square peg of crypto mixers Tornado Cash and Samourai Wallet into the round hole of unlicensed “money transmitters”.

But to grasp the full story, we need to understand some basic terms. Like “money transmitter”.

Key Points From This Episode:

• What are (were?) Tornado Cash and Samourai Wallet?
• What is a “money transmitter”?
• The regulatory area where crypto guidance from the federal government has been relatively clear and proactive.
• Why these actions undercut that seeming clarity.
• A soapbox moment about “due process” and fairness.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: tow@colefrieman.com

Last episode we dissected the SEC’s “venture capital fund” definition and discussed how, if an adviser manages only VC funds, there is no AUM ceiling on its ability to remain exempt from registration. If that same adviser manages money for any non-Venture capital fund, it has to register as an investment adviser once AUM hits $150mm. This can lead some less scrupulous investment advisers to try to “game” the system by forming new adviser entities, thinking they can skirt regulation by forming new legal entities.

Well, not so fast. The wool can’t be pulled over Uncle Sam’s eyes that easily (unfortunately?) – the SEC has a doctrine of “adviser integration” where under certain circumstances, two ostensibly separate investment adviser entities are treated as one business for purposes of advisers act compliance.

Key Points From This Episode:

• Under what circumstances are two ostensibly separate investment adviser entities treated as one business?
• What is operational independence?
• The four areas the SEC focuses its analysis:
• Capital structure
• Control
• Personnel
• Investment decision-making
• Why, if this analysis is relevant to you, you really need a good lawyer.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: tow@colefrieman.com

Like I mentioned back in Episode 2, there are some down sides to relying on the private fund exemption – at the SEC level, the only “down” side is an AUM ceiling after which you have register (150mm…see ep 32). But many states require extra stuff if you’re managing any 3c1 funds: this varies by state, but many impose annual audit requirements and either increased investor accreditation thresholds, restrictions on who can pay performance-based comp, or both. EXCEPT those restrictions don’t apply to managers whose only clients are “venture capital funds”.

So what is a “venture capital fund”? Tune it to today’s episode to find out!

Key Points From This Episode:

• The “venture capital fund” definition. Quick summary:
  
• It’s a “private fund”;
• it represents to investors that it’s is pursuing a venture capital strategy;
• it severely limits any borrowing;
• it provides no redemption rights to investors except in extraordinary circumstances;
• it’s not registered under the Investment Company Act; and
• Immediately after acquiring any asset, it must hold no more than 20% of its aggregate capital contributions and uncalled commitments in assets that are not “qualifying investments”.

• What is a “qualifying investment”?
• Why do people hate Congress?

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: tow@colefrieman.com

One of the underappreciated tasks a new fund manager needs to complete is its management company operating agreement. This is the agreement among the principals of the management company that controls how the entity is governed, how economics are split among the principals, etc.

Key Points From This Episode:

• Why is it important to paper these agreements?
• Why they sometimes get put on the back burner.
• Brief discussion of the four primary areas to consider:
• Economics;
• Corporate governance;
• Exit provisions; and
• Restrictive covenants.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: tow@colefrieman.com

Recently, it seems like tokenizing things is all the rage. Everybody wants to talk about tokenizing real estate or art or securities or any other “real world asset”. Heck, even “RWA” has become a commonly understood acronym to describe things that exist in tangible form, as opposed to just digitally. Well, private investment funds are no different, and I’ve noticed an uptick recently in managers inquiring about tokenizing their fund offerings. Today’s episode is all about tokenized funds.

Key Points From This Episode:

• What are RWAs?
• What is a tokenized fund?
• Similarities and differences in the launch process for a tokenized fund vs a traditional fund.
• Considerations unique to tokenized funds.
• Theoretical and practical reasons to tokenize a fund offering.
• Benefits and drawbacks to tokenized fund products.
• Is it worth it? Preview – it depends.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Tokenized Fund Blog Post - https://hedgefundlawblog.com/tokenized-private-funds-hedge-funds-vc-funds.html

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: tow@colefrieman.com

March Madness means something different for compliance professionals and investment management lawyers: it means a crush of ADV Amendments! Tune in to today’s episode for some nice bedtime listening about the ins and outs of one of the world’s least interesting regulatory filings.

Key Points From This Episode:

• Who files a Form ADV?
• When are regular amendments due?
• What kinds of information typically change?
• How this amendment relates to a investment adviser registration obligations.
• Why is this similar to your annual gutter cleaning?

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: tow@colefrieman.com

What does My Cousin Vinny have to do with third party marketers? Tune in to today’s episode to find out! Hint: nothing.

Key Points From This Episode:

• What makes My Cousin Vinny such a great movie?
• How can I pay my cousin commissions for selling interests in my fund?
• Why your cousin is unlikely to be moonlighting as a broker-dealer.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: tow@colefrieman.com