Draft of Obama Administration Bill To Require VCs to Register With The SEC

 Yesterday newspapers reported that the Obama administration would send draft legislation to the Congress which would require advisers to hedge funds and other private pools of capital, including advisers to venture capital funds, to be registered with the SEC as investment advisers.  A copy of the proposed legislation can be found here.  

You can find the press release accompanying the release of draft legislation here.  

An excerpt from the press release:  

“Continuing its push to establish new rules of the road and make the financial system more fair across the board, the Administration today delivered proposed legislation to Capitol Hill to require all advisers to hedge funds and other private pools of capital, including private equity and venture capital funds, to register with the Securities and Exchange Commission (SEC).”

The Act is titled the “Private Fund Investment Advisers Registration Act of 2009.”  It accomplishes its goal of requiring registration by eliminating the private adviser exemption for private funds with assets under management of $30 million or more.  Section 203(b) of the Investment Advisers Act of 1940 currently exempts from registration:

“any investment adviser who during the course of the preceding twelve months has had fewer than fifteen clients and who neither holds himself out generally to the public as an investment adviser nor acts as an investment adviser to any investment company registered under title I of this Act…”

The Obama bill would eliminate this exemption and in its place exempt “any investment adviser that is a foreign private adviser.”  The eliminated exemption is the exemption that most venture capital funds rely upon to exempt themselves from registration as investment advisers.

From the press release:

“Protect Investors From Fraud And Abuse

Require Advisers To Private Investment Funds to Register With The SEC. Although some advisers to hedge funds and other private investment funds are required to register with the Commodity Futures Trading Commission (CFTC), and some register voluntarily with the SEC, current law generally does not require private fund advisers to register with any federal financial regulator. The Administration’s legislation would, for the first time, require that all investment advisers with more than $30 million of assets under management to register with the SEC.  Once registered with the SEC, investment advisers to private funds will be subject to important requirements such as:

  • Substantial regulatory reporting requirements with respect to the assets, leverage, and off-balance sheet exposure of their advised private funds
  • Disclosure requirements to investors, creditors, and counterparties of their advised private funds
  • Strong conflict-of-interest and anti-fraud prohibitions
  • Robust SEC examination and enforcement authority and recordkeeping requirements
  • Requirements to establish a comprehensive compliance program

Require Increased Disclosure Requirements. The Administration’s legislation would require that all investment funds advised by an SEC-registered investment adviser be subject to recordkeeping requirements; requirements with respect to disclosures to investors, creditors, and counterparties; and regulatory reporting requirements.”

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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