Investment Advisor Act Of 1940 Assignment Notebook


Information for Newly-Registered Investment Advisers

November 23, 2010   [Update Currently in Progress]

Prepared by the Staff of the Securities and Exchange Commission’s Division of Investment Management and Office of Compliance Inspections and Examinations1

This information sheet contains general information about certain provisions of the Investment Advisers Act of 1940 (also called the “Advisers Act”) and selected rules under the Advisers Act. It is intended to assist newly-registered investment advisers in understanding their compliance obligations with respect to these provisions. This information sheet also provides information about the resources available to investment advisers from the SEC to help advisers understand and comply with these laws and rules.

As an adviser registered with the SEC, you have an obligation to comply with all of the applicable provisions of the Advisers Act and the rules that have been adopted by the SEC. This information sheet does not provide a complete description of all of the obligations of SEC-registered advisers under the law. To access the Advisers Act and rules and other information, visit the SEC’s website at www.sec.gov (the Advisers Act and rules are available at http://www.sec.gov/divisions/investment.shtml).2

Investment Advisers Are Fiduciaries

As an investment adviser, you are a “fiduciary” to your advisory clients. This means that you have a fundamental obligation to act in the best interests of your clients and to provide investment advice in your clients’ best interests. You owe your clients a duty of undivided loyalty and utmost good faith. You should not engage in any activity in conflict with the interest of any client, and you should take steps reasonably necessary to fulfill your obligations. You must employ reasonable care to avoid misleading clients and you must provide full and fair disclosure of all material facts to your clients and prospective clients. Generally, facts are “material” if a reasonable investor would consider them to be important. You must eliminate, or at least disclose, all conflicts of interest that might incline you — consciously or unconsciously — to render advice that is not disinterested. If you do not avoid a conflict of interest that could impact the impartiality of your advice, you must make full and frank disclosure of the conflict. You cannot use your clients’ assets for your own benefit or the benefit of other clients, at least without client consent. Departure from this fiduciary standard may constitute “fraud” upon your clients (under Section 206 of the Advisers Act).

Investment Advisers Must Have Compliance Programs

As a registered investment adviser, you are required to adopt and implement written policies and procedures that are reasonably designed to prevent violations of the Advisers Act. The Commission has said that it expects that these policies and procedures would be designed to prevent, detect, and correct violations of the Advisers Act. You must review those policies and procedures at least annually for their adequacy and the effectiveness of their implementation, and designate a chief compliance officer (“CCO”) to be responsible for administering your policies and procedures (under the “Compliance Rule” — Rule 206(4)-7).

We note that your policies and procedures are not required to contain specific elements. Rather, you should analyze your individual operations and identify conflicts and other compliance factors that create risks for your firm and then design policies and procedures that address those risks. The Commission has stated that it expects your policies and procedures, at a minimum, to address the following issues to the extent that they are relevant to your business:

  • Portfolio management processes, including allocation of investment opportunities among clients and consistency of portfolios with clients’ investment objectives, your disclosures to clients, and applicable regulatory restrictions;
     
  • The accuracy ofdisclosures made to investors, clients, and regulators, including account statements and advertisements;
     
  • Proprietary trading by you and the personal trading activities of your supervised persons;
     
  • Safeguardingof client assets from conversion or inappropriate use by your personnel;
     
  • The accurate creation of required records and their maintenance in a manner that secures them from unauthorized alteration or use and protects them from untimely destruction;
     
  • Safeguards for the privacy protection of client records and information;
     
  • Trading practices, including procedures by which you satisfy your best execution obligation, use client brokerage to obtain research and other services (referred to as “soft dollar arrangements”), and allocate aggregated trades among clients;
     
  • Marketing advisory services, including the use of solicitors;
     
  • Processes to value client holdings and assess fees based on those valuations; and
     
  • Business continuity plans.

Investment Advisers Are Required to Prepare Certain Reports and to File Certain Reports with the SEC

As a registered investment adviser, you are required to file an annual update of Part 1A of your registration form (Form ADV) through the Investment Advisers Registration Depository (IARD). You must file an annual updatingamendment to your Form ADV within 90 days after the end of your fiscal year. In addition to making annual filings, you must promptly file an amendment to your Form ADV whenever certain information contained in your Form ADV becomes inaccurate (the Form ADV filing requirements are contained in Rule 204-1 of the Advisers Act, and in the instructions to the Form).

  • Make sure your Form ADV is complete and current. Inaccurate, misleading, or omitted Form ADV disclosure is the most frequently cited finding from our examinations of investment advisers.
     
  • Please keep the e-mail address of your contact person current (Form ADV, Part 1A, Item 1J). We use this e-mail address to keep you apprised of important developments (including when it’s time to file an amendment to your Form ADV).
     
  • Accurately report the amount of assets that you have under management (Form ADV, Part 1A, Item 5F(2)). Advisers who have less than $25 million of assets under management, who are not otherwise eligible to maintain their registration with the SEC, or who stop doing business as an investment adviser, should file a Form ADV-W through IARD to withdraw their registration.

With respect to Part 2A of your Form ADV, you are required to file it electronically through IARD. As with Part 1A, you must update Part 2 annually within 90 days of the end of your fiscal year and whenever it becomes materially inaccurate. Part 2B brochure supplements, are not required to be uploaded to IARD.

You may also be subject to other reporting obligations. For example, an adviser that exercises investment discretion (or that shares investment discretion with others) over certain equity securities (including convertible debt and options), which have a fair market value in the aggregate of $100 million or more, must file a Form 13F each quarter that discloses these holdings. “Discretionary authority” means that you have the authority to decide which securities to purchase, sell, and/or retain for your clients.

You should also be aware that it is unlawful to make any untrue statement or omit any material facts in an application or a report filed with the SEC (under Section 207 of the Advisers Act), including in Form ADV and Form ADV-W.

Investment Advisers Must Provide Clients and Prospective Clients with a Written Disclosure Statement

Registered investment advisers are required to provide their advisory clients and prospective clients with a written disclosure document (these requirements, and a few exceptions, are set forth in Rule 204-3 under the Advisers Act). As a registered adviser, you comply with this requirement by providing advisory clients and prospective clients with Part 2 of your Form ADV. This written disclosure document should be delivered to your prospective clients before or at the time of entering into an advisory contract (under certain conditions, you may comply with the delivery requirements through electronic media).

Each year, you also need to deliver Part 2 or summary of material changes to each client, without charge. You are required to maintain a copy of each disclosure document and each amendment or revision to it that was given or sent to clients or prospective clients, along with a record reflecting the dates on which such disclosure was given or offered to be given to any client or prospective client who subsequently became a client (under Rule 204-2(a)(14)).

Investment Advisers Must Have a Code of Ethics Governing Their Employees and Enforce Certain Insider Trading Procedures

As a registered investment adviser, you are required to adopt a code of ethics (under the “Code of Ethics Rule” — Rule 204A-1 under the Advisers Act). Your code of ethics should set forth the standards of business conduct expected of your “supervised persons” (i.e., your employees, officers, directors and other people that you are required to supervise), and it must address personal securities trading by these people.

We note that you are not required to adopt a particular standard of business ethics. Rather, the standard that you choose should reflect your fiduciary obligations to your advisory clients and the fiduciary obligations of the people you supervise, and require compliance with the federal securities laws. In adopting a code of ethics, investment advisers may set higher ethical standards than the requirements under the law.

In order to prevent unlawful trading and promote ethical conduct by advisory employees, advisers’ codes of ethics should include certain provisions relating to personal securities trading by advisory personnel. Your code of ethics must include the following requirements:

  • Your “access persons” must report their personal securities transactions to your CCO or to another designated person each quarter. “Access persons” are any of your supervised persons who have access to non-public information regarding client transactions or holdings, make securities recommendations to clients or have access to such recommendations, and, for most advisers, all officers, directors and partners.
     
  • Your access persons must submit a complete report of the securities that they hold at the time they first become an access person, and then at least once each year after that.3 Your code of ethics must also require that your access persons obtain your approval prior to investing in initial public offerings or private placements or other limited offerings, including pooled investment vehicles (except if your firm has only one access person).
     
  • Your CCO or another person you designate in addition to your CCO must review these personal securities transaction reports.
     
  • Your supervised persons must promptly report violations of your code of ethics (i.e., including the federal securities laws) to the CCO or to another person you designate (provided your CCO also receives a report on such issues). You must also maintain a record of these breaches.

Also, as a registered investment adviser, you are required to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the misuse of material non-public information (under Section 204A of the Advisers Act). These policies and procedures must encompass your activities and those of your supervised persons. Advisers often include this prohibition on insider trading in their code of ethics.

Provide each of the people that you supervise with a copy of your code of ethics (and any amendments that you subsequently make to it), and also obtain a written acknowledgement from the supervised person that he/she has received it. In addition, you must describe your code of ethics in your Form ADV, Part 2, Item 11 and provide a copy to your advisory clients, if they request it.

Investment Advisers are Required to Maintain Certain Books and Records

As a registered adviser, you must make and keep true, accurate and current certain books and records relating to your investment advisory business (under “the Books and Records Rule” — Rule 204-2). The books and records that you must make and keep are quite specific, and are described below in part:

  • Advisory business financial and accounting records, including: cash receipts and disbursements journals; income and expense account ledgers; checkbooks; bank account statements; advisory business bills; and financial statements.
  • Records that pertain to providing investment advice and transactions in client accounts with respect to such advice, including: orders to trade in client accounts (referred to as “order memoranda”); trade confirmation statements received from broker-dealers; documentation of proxy vote decisions; written requests for withdrawals or documentation of deposits received from clients; and written correspondence you sent to or received from clients or potential clients discussing your recommendations or suggestions.
     
  • Records that document your authority to conduct business in client accounts, including: a list of accounts in which you have discretionary authority; documentation granting you discretionary authority; and written agreements with clients, such as advisory contracts.
     
  • Advertising and performance records, including: newsletters; articles; and computational worksheets demonstrating performance returns.
     
  • Records related to the Code of Ethics Rule, including those addressing personal securities transaction reporting by access persons.
     
  • Records regarding the maintenance and delivery of your written disclosure document and disclosure documents provided by certain solicitors who seek clients on your behalf.
     
  • Policies and procedures adopted and implemented under the Compliance Rule, including any documentation prepared in the course of your annual review.

Some advisers are required to maintain additional records. For example, advisers that have custody and possession of clients’ funds and/or securities must make and keep additional records that are described in the Books and Records Rule (Rule 204-2, paragraph (b)), and advisers who provide investment supervisory or management services to any client must also make and keep specific additional records (which are described in Rule 204-2, paragraph (c)).

You must keep these records for specified periods of time. Generally, most books and records must be kept for five years from the last day of the fiscal year in which the last entry was made on the document or the document was disseminated. You may be required to keep certain records for longer periods, such as records that support performance calculations used in advertisements (as described in Rule 204-2, paragraph (e)).

You are required to keep your records in an easily accessible location. In addition, for the first two of these years, you must keep your records in your office(s). If you maintain some of your original books and records somewhere other than your principal office and place of business, you must note this practice and identify the alternative location on your Form ADV (in Section 1K of Schedule D). Many advisers store duplicate copies of their advisory records in a location separate from their principal office in order to ensure the continuity of their business in the case of a disaster.

You may store your original books and records by using either micrographic media or electronic media. These media generally include microfilm or digital formats (e.g., electronic text, digital images, proprietary and off-the-shelf software, and email). If you use email or instant messaging to make and keep the records that are required under the Advisers Act, you should keep the email, including all attachments that are required records, as examiners may request a copy of the complete record. In dealing with electronic records, you must also take precautions to ensure that they are secure from unauthorized access and theft or unintended destruction (similar safeguarding provisions regarding client information obtained by you is required by Regulation S-P under the Gramm-Leach-Bliley Act). In general, you should be able to promptly (generally within 24 hours) produce required electronic records that may be requested by the SEC staff, including email. In order to do so, the Advisers Act requires that you arrange and index required electronic records in a way that permits easy location, access, and retrieval of any particular electronic record.

Investment Advisers Must Seek to Obtain the Best Price and Execution for Their Clients’ Securities Transactions

As a fiduciary, you are required to act in the best interests of your advisory clients, and to seek to obtain the best price and execution for their securities transactions. The term “best execution” means seeking the best price for a security in the marketplace as well as ensuring that, in executing client transactions, clients do not incur unnecessary brokerage costs and charges. You are not obligated to get the lowest possible commission cost, but rather, you should determine whether the transaction represents the best qualitative execution for your clients. In addition, whenever trading may create a conflicting interest between you and your clients, you have an obligation, before engaging in the activity, to obtain the informed consent from your clients after providing full and fair disclosure of all material facts. The Commission has described the requirement for advisers to seek best execution in various situations.

In selecting a broker-dealer, you should consider the full range and quality of the services offered by the broker-dealer, including the value of the research provided, the execution capability, the commission rate charged, the broker-dealer’s financial responsibility, and its responsiveness to you. To seek to ensure that you are obtaining the best execution for your clients’ securities trades, you must periodically evaluate the execution performance of the broker-dealers you use to execute clients’ transactions.

You may determine that it is reasonable for your clients to pay commission rates that are higher than the lowest commission rate available in order to obtain certain products or services from a broker-dealer (i.e., soft dollar arrangement). To qualify for a “safe harbor” from possible charges that you have breached your fiduciary duty by causing your clients to pay more than the lowest commission rate, you must use clients’ brokerage commissions to pay for certain defined “brokerage or research” products and services, use such products and services in making investment decisions, make a good faith determination that the commissions that clients will pay are reasonable in relation to the value of the products and services received, and disclose these arrangements.

The SEC staff has stated that, in directing orders for the purchase or sale of securities, you may aggregate or “bunch” orders on behalf of two or more client accounts, so long as the bunching is done for the purpose of achieving best execution, and no client is systematically advantaged or disadvantaged by the bunching. The SEC staff has also said that, if you decide not to aggregate orders for client accounts, you should disclose to your clients that you will not aggregate and the potential consequences of not aggregating orders.

If your clients impose limitations on how you will execute securities transactions on their behalf, such as by directing you to exclusively use a specific broker-dealer to execute their securities transactions, you have an obligation to fully disclose the effects of these limitations to the client. For example, if you negotiate volume commission discounts on bunched orders, a client that has directed you to use a specific broker should be informed that he/she will forego any benefit from savings on execution costs that you might obtain for your other clients through this practice.

You should also seek to obtain the best price and execution when you enter into transactions for clients on a “principal” or “agency cross” basis. If you have acted as a principal for your own account by buying securities from, or selling securities to, a client, you must disclose the arrangement and the conflicts of interest in this practice (in writing) and also obtain the client’s consent for each transaction prior to the time that the trade settles. There are also explicit conditions under which you may cross your advisory clients’ transactions in securities with securities transactions of others on an agency basis (under Rule 206(3)-2). For example, you must obtain advance written authorization from the client to execute such transactions, and also provide clients with specific written disclosures. Compliance with Rule 206(3)-2 is generally not required for transactions internally crossed or effected between two or more clients you advise and for which you receive no additional compensation (i.e., commissions or transaction-based compensation); however, full disclosure regarding this practice should be made to your clients.

Requirements for Investment Advisers’ Contracts with Clients

As a registered investment adviser, your contracts with your advisory clients must include some specific provisions (which are set forth in Section 205 of the Advisers Act). Your advisory contracts (whether oral or written) must convey that the advisory services that you provide to the client may not be assigned by you to any other person without the prior consent of the client. With limited exceptions, contracts cannot include provisions providing for your compensation to be based on the performance of the client’s account. In addition, the SEC staff has stated that an adviser should not enter into contracts with clients, except with certain sophisticated clients, that contain terms or clauses commonly referred to as a “hedge clause” because such clauses or provisions are likely to lead other clients to believe that they have waived their rights of legal action, whether under the federal securities laws or common law.

Investment Advisers May be Examined by the SEC Staff

As a registered investment adviser, your books and records are subject to compliance examinations by the SEC staff (under Section 204 of the Advisers Act). The purpose of SEC examinations is to protect investors by determining whether registered firms are complying with the law, adhering to the disclosures that they have provided to their clients, and maintaining appropriate compliance programs to ensure compliance with the law. If you are examined, you are required to provide examiners with access to all requested advisory records that you maintain (under certain conditions, documents may remain private under the attorney-client privilege).

More information about examinations by the SEC and the examination process is provided in the brochure, “Examination Information for Broker-Dealers, Transfer Agents, Clearing Agencies, Investment Advisers and Investment Companies,” which is available on the SEC’s website at http://www.sec.gov/about/offices/ocie/ocie_exambrochure.pdf.

Requirements for Investment Advisers that Vote Proxies of Clients’ Securities

As a registered investment adviser, if you have voting authority over proxies for clients’ securities, you must adopt policies and procedures reasonably designed to ensure that you: vote proxies in the best interests of clients; disclose information to clients about those policies and procedures; and describe to clients how they may obtain information about how you have voted their proxies (these requirements are in Rule 206(4)-6 under the Advisers Act).

If you vote proxies on behalf of your clients, you must also retain certain records. You must keep: your proxy voting policies and procedures; the proxy statements you received regarding your client’s securities (the Rule provides some alternative arrangements); records of the votes you cast on behalf of your clients; records of client requests for proxy voting information; and any documents that you prepared that were material to making a decision as to how to vote or that memorialized the basis for your decision (these requirements are described in Advisers Act Rule 204-2(c)(2)).

Requirements for Investment Advisers that Advertise their Services

To protect investors, the SEC prohibits certain types of advertising practices by advisers. An “advertisement” includes any communication addressed to more than one person that offers any investment advisory service with regard to securities (under “the Advertising Rule” — Rule 206(4)-1). An advertisement could include both a written publication (such as a website, newsletter or marketing brochure) as well as oral communications (such as an announcement made on radio or television).

Advertising must not be false or misleading and must not contain any untrue statement of a material fact. Advertising, like all statements made to advisory clients and prospective clients, is subject to the general prohibition on fraud (Section 206 as well as other anti-fraud provisions under the federal securities laws). Specifically prohibited are: testimonials; the use of past specific recommendations that were profitable, unless the adviser includes a list of all recommendations made during the past year; a representation that any graph, chart, or formula can in and of itself be used to determine which securities to buy or sell; and advertisements stating that any report, analysis, or service is free, unless it really is free.

The SEC staff has said that, if you advertise your past investment performance record, you should disclose all material facts necessary to avoid any unwarranted inference. For example, SEC staff has indicated that it may view performance data to be misleading if it:

  • does not disclose prominently that the results portrayed relate only to a select group of the adviser’s clients, the basis on which the selection was made, and the effect of this practice on the results portrayed, if material;
     
  • does not disclose the effect of material market or economic conditions on the results portrayed (e.g., an advertisement stating that the accounts of the adviser’s clients appreciated in value 25% without disclosing that the market generally appreciated 40% during the same period);
     
  • does not reflect the deduction of advisory fees, brokerage or other commissions, and any other expenses that accounts would have or actually paid;
     
  • does not disclose whether and to what extent the results portrayed reflect the reinvestment of dividends and other earnings;
     
  • suggests or makes claims about the potential for profit without also disclosing the possibility of loss;
     
  • compares model or actual results to an index without disclosing all material facts relevant to the comparison (e.g., an advertisement that compares model results to an index without disclosing that the volatility of the index is materially different from that of the model portfolio); and
     
  • does not disclose any material conditions, objectives, or investment strategies used to obtain the results portrayed (e.g., the model portfolio contains equity stocks that are managed with a view towards capital appreciation).

In addition, as a registered adviser, you may not imply that the SEC or another agency has sponsored, recommended or approved you, based upon your registration (under Section 208 of the Advisers Act). You should not use the term “registered investment adviser” unless you are registered, and you should not use this term to imply that as a registered adviser, you have a level of professional competence, education or special training. For example, the SEC staff has stated that advisers should not use the term “RIA” after a person’s name because using initials after a name usually indicates a degree or a licensed professional position for which there are certain qualifications; however, there are no federal qualifications for becoming an SEC-registered adviser.

Requirements for Investment Advisers that Pay Others to Solicit New Clients

Registered investment advisers may pay cash compensation to others to seek out new clients on their behalf, commonly called “solicitors” or “finders,” if they meet certain conditions (under Rule 206(4)-3 of the Advisers Act):

  • The solicitor is not subject to certain disciplinary actions.
     
  • The fee is paid pursuant to a written agreement to which you are a party and (with limited exceptions) the agreement must: describe the solicitor’s activities and compensation arrangement; require that the solicitor perform the duties you assign and in compliance with the Advisers Act; require the solicitor to provide clients with a current copy of your disclosure document; and, if seeking clients for personalized advisory services, require the solicitor to provide clients with a separate written disclosure document containing specific information.
     
  • You receive from the solicited client, prior to or at the time you enter into an agreement, a signed and dated notice confirming that he/she was provided with your disclosure document and, if required, the solicitor’s disclosure document.
     
  • You have a reasonable basis for believing that the solicitor has complied with the terms of your agreement.

Requirements for Investment Advisers that have Custody or Possession of Clients' Funds or Securities

Registered investment advisers that have “custody” or “possession” of client assets must take specific measures to protect client assets from loss or theft (under “the Custody Rule” — Rule 206(4)-2 under the Advisers Act).

The first step is to determine whether you have custody or possession of client assets. “Custody” is defined as “holding, directly or indirectly, client funds or securities, or having any authority to obtain possession of them.” This includes situations in which you:

  • have physical possession of client funds or securities, even temporarily;
     
  • enter into arrangements (including a general power of attorney) authorizing you to withdraw funds or securities from the client’s account (note that if you are authorized to deduct your advisory fees or other expenses directly from clients’ accounts, you have custody); and
     
  • serve in a capacity that gives you or a supervised person legal ownership or access to client funds or securities (note that if you are a general partner to a privately-offered pooled investment vehicle, you have custody).
     
  • If you are a trustee, you may have custody.

If you have custody, with limited exceptions, you must maintain these client funds and securities at a “qualified custodian.” Generally, qualified custodians include most banks and insured savings associations, SEC-registered broker-dealers, Commodity Exchange Act-registered futures commission merchants, and certain foreign financial institutions. With a limited exception, for client accounts over which you have custody, you must have a reasonable basis, after due inquiry, for believing that the client (or a designated representative) receives periodic reports directly from the custodian that contain specific information with respect to the funds and securities in custody. With respect to pooled investment vehicles over which you have custody, the qualified custodian must send account statements for the pooled vehicle directly to each investor.

If you have custody of client funds or securities that are held at an unrelated, independent qualified custodian, then you must have a "surprise verification" by an independent public accountant. The independent public accountant must verify the funds and securities in your custody or possession at least once each calendar year, and must then promptly file a “certificate of accounting” with Form ADV-E electronically through IARD.4

If you have custody of client funds or securities that you or a related person maintains as a qualified custodian, then you must also have an internal control report completed by an independent public accountant registered with, and subject to regular inspection by, the Public Company Accounting Oversight Board.

Staff answers to frequently asked questions regarding the custody rule may be found at http://www.sec.gov/divisions/investment/custody_faq_030510.htm.

Requirements for Investment Advisers to Disclose Certain Financial and Disciplinary Information

Registered investment advisers may be required to disclose certain financial and disciplinary information (under Rule 206(4)-4 under the Advisers Act). These requirements are described below.

Registered advisers that have custody or discretionary authority over client funds or securities, or that require prepayment six months or more in advance of more than $1,200 in advisory fees, must promptly disclose to clients and any prospective clients any financial conditions that are reasonably likely to impair their ability to meet their contractual commitments to their clients.

All registered advisers must also promptly disclose any legal or disciplinary events that would be material to a client’s or a prospective client’s evaluation of the adviser’s integrity or its ability to meet its commitments to clients (regardless of whether the adviser has custody or requires prepayment of fees). The types of legal and disciplinary events that may be material include:

  • Criminal or civil actions, where the adviser or a management person of the adviser was convicted, pleaded guilty or “no contest,” or was subject to certain disciplinary actions with respect to conduct involving investment-related businesses, statutes, regulations, or activities; fraud, false statements, or omissions; wrongful taking of property; or bribery, forgery, counterfeiting, or extortion.
     
  • Administrative proceedings before the SEC, other federal regulatory agencies, or any state agency where the adviser’s or a management person’s activities were found to have caused an investment-related business to lose its authorization to do business or where such person was involved in a violation of an investment-related statute or regulation and was the subject of specific disciplinary actions taken by the agency.
     
  • Self-regulatory organization (SRO) proceedings in which the adviser or a management person was found to have caused an investment-related business to lose its authorization to do business; or was found to have been involved in a violation of the SRO’s rules and was the subject of specific disciplinary actions taken by the organization.

Informational Resources Available From the SEC

The SEC provides a great deal of helpful information about the compliance obligations of investment advisers on the SEC’s website at https://www.sec.gov/investment. This information includes links to relevant laws and rules, staff guidance and studies, enforcement cases, and staff no-action and interpretive letters (generally from 2001 — present). In addition, the SEC’s website contains a list of the source materials that were used in preparing this information sheet.

To assist chief compliance officers of investment advisers and investment companies in meeting their compliance responsibilities and to help enhance compliance in the securities industry, the SEC has established the “CCOutreach Program.” This program includes regional and national seminars on compliance issues of concern to CCOs. Information about CCOutreach and any scheduled events is available at http://edgarfeed.sec.gov/info/complianceoutreach.htm.

Finally, the SEC staff regularly receive calls and correspondence concerning the application of the federal securities laws, and advisers and other registrants are encouraged to communicate any questions or issues to SEC staff. To ensure that you reach the right person at the SEC, the SEC’s website lists the names and contact information for SEC staff in the Division of Investment Management who are responsible for responding to communication from the public about specific topics (https://www.sec.gov/investment/contact/divisions-investment-imcontacthtm.html). With respect to issues or questions that arise in the context of a compliance examination by the SEC, advisers are encouraged to raise any questions or issues directly with the SEC examination team, or with examination supervisors in their local SEC office (contact information for senior examination staff is available at http://www.sec.gov/about/offices/ocie/ocie_org.htm).


Additional Information: Reference Materials

The following informational sources may be helpful.

Investment Advisers Are Fiduciaries

Investment Advisers Must Have Compliance Programs

Investment Advisers Are Required to Prepare Certain Reports and to File Certain Reports with the SEC

Investment Advisers Must Provide Clients and Prospective Clients with a Written Disclosure Statement

  • Rule 204-3 under the Advisers Act.
     
  • Use Of Electronic Media By Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information; Additional Examples Under The Securities Act Of 1933, Securities Exchange Act Of 1934, And Investment Company Act, Advisers Act Release No. 1562 (May 9, 1996), available on the SEC’s website at http://www.sec.gov/rules/interp/33-7288.txt.

Investment Advisers Must Have a Code of Ethics Governing Their Employees and Enforce Certain Insider Trading Procedures

  • Section 204A and Rule 204A-1 of the Advisers Act.
     
  • Investment Adviser Codes of Ethics, Advisers Act Release No. 2256 (July 2, 2004), available on the SEC’s website at http://www.sec.gov/rules/final/ia-2256.htm.
     
  • SEC staff no-action letter, Kleinwort Benson Investment Management Limited (pub. avail. Dec. 15, 1993), available on the SEC’s website at http://www.sec.gov/divisions/investment/noaction/kleinwort121593.htm.
     
  • SEC staff no-action letter, Corinne E. Wood (Herbert-Simon Co.) (pub. avail. April 17, 1986), available on the SEC’s website at http://www.sec.gov/divisions/investment/noaction/herbert-simon031886.htm.

Investment Advisers are Required to Maintain Certain Books and Records

  • Rule 204-2 under the Advisers Act and Regulation S-P, privacy rules promulgated under Section 504 of the Gramm-Leach-Bliley Act.
     
  • Privacy of Consumer Financial Information (Regulation S-P), Advisers Act Release No. 1883 (June 22, 2000), which is available on the SEC's website at http://www.sec.gov/rules/final/34-42974.htm.
     
  • Electronic Recordkeeping by Investment Companies and Investment Advisers, Advisers Act Release No. 1945 (May 24, 2001), which is available on the SEC�s website at http://www.sec.gov/rules/final/ic-24991.htm.

Investment Advisers Must Seek to Obtain the Best Price and Execution for Their Clients’ Securities Transactions

  • Section 206 of the Advisers Act.
     
  • Interpretive Release Concerning Scope of Section 28(e) of the Securities Exchange Act of 1934 and Related Matters, Exchange Act Release No. 23170 (Apr. 23, 1986), available on the SEC’s website at http://www.sec.gov/rules/interp/34-23170.pdf.
     
  • Interpretation of Section 206(3) of the Investment Advisers Act of 1940, Advisers Act Release No. 1732 (July 17, 1998), available on the SEC’s website at http://www.sec.gov/rules/interp/ia-1732.htm.
     
  • Commission Guidance Regarding Client Commission Practices Under Section 28(e) of the Securities Exchange Act of 1934, Exchange Act Release No. 54165 (July 18, 2006), available on the SEC’s website at http://www.sec.gov/rules/interp/2006/34-54165.pdf.
     
  • In re Thompson and McKinnon, Exchange Act Release No. 8310 (May 8, 1968), available on the SEC’s website at http://www.sec.gov/litigation/opinions/34-8310.pdf.
     
  • In re Mark Bailey and Co., Advisers Act Release No. 1105 (Feb. 24, 1988), available on the SEC’s website at http://www.sec.gov/litigation/admin/ia-1105.pdf.
     
  • In re Kingsley, Jennison, McNulty & Morse, Inc., Advisers Act Release No. 1396 (Dec. 23, 1993), available on the SEC’s website at http://www.sec.gov/litigation/opinions/ia-1396.pdf.
     
  • In re Marvin & Palmer Associates, Inc., Advisers Act Release No. 1841 (Sept. 30, 1999), available on the SEC’s website at http://www.sec.gov/litigation/admin/ia-1841.htm.
     
  • SEC staff no-action letter, United Missouri Bank of Kansas City, N.A. (pub. avail. May 11, 1990), available on the SEC’s website at http://www.sec.gov/investment/noaction/unitedmissouribank012395.htm.
     
  • SEC staff no-action letter, SMC Capital, Inc. (pub. avail. Sept. 5, 1995), available on the SEC’s website at http://www.sec.gov/divisions/investment/noaction/smccapital090595.htm.
     
  • SEC staff no-action letter, Pretzel & Stouffer (Dec. 1, 1995), available on the SEC’s website at http://www.sec.gov/divisions/investment/noaction/pretzelstouffer120195.htm.

Requirements for Investment Advisers’ Contracts with Clients

Investment Advisers May be Examined by the SEC Staff

Requirements for Investment Advisers that Vote Proxies of Clients’ Securities

Requirements for Investment Advisers that Advertise their Services

  • Section 206 and Rule 206(4)-1 under the Advisers Act.
     
  • SEC staff no-action letter, Clover Capital Management, Inc. (pub. avail. Oct. 28, 1986), available on the SEC’s website at http://www.sec.gov/divisions/investment/noaction/clovercapital102886.htm.
     
  • SEC staff no-action letter, Investment Company Institute, (pub. avail. Sept. 23, 1988), available on the SEC’s website at http://www.sec.gov/divisions/investment/noaction/ici092388.htm.
     
  • SEC staff no-action letter, Mandell Financial Group. (pub. avail. May 21, 1997), available on the SEC’s website at http://www.sec.gov/divisions/investment/noaction/mandell052197.htm.

Requirements for Investment Advisers that Pay Others Cash to Solicit New Clients

Requirements for Investment Advisers that have Custody or Possession of Clients' Funds or Securities

Requirements for Investment Advisers to Disclose Certain Financial and Disciplinary Information


1 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any publication or statement by any of its employees. The views expressed herein are those of the staff and do not necessarily reflect the views of the Commission or the other staff members of the SEC.

2 This information sheet contains descriptions of the Advisers Act, rules, Commission releases, court decisions, Commission orders and opinions, which impose or explain legal obligations. It also contains staff interpretations and no-action letters that have been issued by the Division of Investment Management. Staff interpretations and no-action letters provide informal interpretative and advisory assistance and represent the views of persons who are continuously working with the provisions of the Advisers Act. Opinions expressed by the staff, however, are not an official expression of the Commission’s views and they do not have the force of law. You may wish to speak with an attorney or a compliance professional about specific provisions and how they apply to your firm. This information is current as of June 2007.

3 A complete report contains: the title and type of security; the exchange ticker symbol or CUSIP number; the number of shares, and principal amount of the security; the name of any broker, dealer or bank where the access person has an account that holds securities for the access person's direct or indirect benefit; and the date the access person submits the report.

4 There are exceptions to this requirement. For example, an adviser is not required to provide regular account statements with respect to a registered investment company or a limited partnership (or another type of pooled investment vehicle) that is subject to an audit at least annually and that distributes its audited financial statements prepared in accordance with generally accepted accounting principles (GAAP) to all investors, generally within 120 days of the end of its fiscal year (under Rule 206(4)-2).

 

http://www.sec.gov/divisions/investment/advoverview.htm


FDIC Law, Regulations, Related Acts

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8000 - Miscellaneous Statutes and Regulations


INVESTMENT ADVISERS ACT OF 1940

To provide for the registration and regulation of investment companies and investment advisers, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

TITLE II—INVESTMENT ADVISERS

Findings

SEC. 201.  Upon the basis of facts disclosed by the record and report of the Securities and Exchange Commission made pursuant to section 30 of the Public Utility Holding Company Act of 1935, and facts otherwise disclosed and ascertained, it is hereby found that investment advisers are of national concern, in that, among other things--

(1)  their advice, counsel, publications, writings, analyses, and reports are furnished and distributed, and their contracts, subscription agreements, and other arrangements with clients are negotiated and performed, by the use of the mails and means and instrumentalities of interstate commerce;

(2)  their advice, counsel, publications, writings, analyses, and reports customarily relate to the purchase and sale of securities traded on national securities exchanges and in interstate over-the-counter markets, securities issued by companies engaged in business in interstate commerce, and securities issued by national banks and member banks of the Federal Reserve System; and

(3)  the foregoing transactions occur in such volume as substantially to affect interstate commerce, national securities exchanges, and other securities markets, the national banking system and the national economy.

[Codified to 15 U.S.C. 80b--1]

[Source: Section 201 of title II of the Act of August 22, 1940 (Pub. L. No. 768; 54 Stat. 847), effective November 1, 1940]

SEC. 914.  STUDY ON ENHANCING INVESTMENT ADVISER EXAMINATIONS.

(a)  STUDY REQUIRED.--

(1)  IN GENERAL.--The Commission shall review and analyze the need for enhanced examination and enforcement resources for investment advisers.

(2)  AREAS OF CONSIDERATION.--The study required by this subsection shall examine--

(A)  the number and frequency of examinations of investment advisers by the Commission over the 5 years preceding the date of the enactment of this subtitle;

(B)  the extent to which having Congress authorize the Commission to designate one or more self-regulatory organizations to augment the Commission's efforts in overseeing investment advisers would improve the frequency of examinations of investment advisers; and

(C)  current and potential approaches to examining the investment advisory activities of dually registered broker dealers and investment advisers or affiliated broker-dealers and investment advisers.

(b)  REPORT REQUIRED.--The Commission shall report its findings to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate, not later than 180 days after the date of enactment of this subtitle, and shall use such findings to revise its rules and regulations, as necessary. The report shall include a discussion of regulatory or legislative steps that are recommended or that may be necessary to address concerns identified in the study.

[Codified to 15 U.S.C. 80b--1 Note]

[Section 914 of title IX of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1830), effective July 21, 2010]


Definitions

SEC. 202.  (a)  When used in this title, unless the context otherwise requires, the following definitions shall apply:

(1)  "Assignment" includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor; but if the investment adviser is a partnership, no assignment of an investment advisory contract shall be deemed to result from the death or withdrawal of a minority of the members of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members who, after such admission, shall be only a minority of the members and shall have only a minority interest in the business.

(2)  "Bank" means (A) a banking institution organized under the laws of the United States, or a Federal savings association, as defined in section 2(5) of the Home Owners' Loan Act (B) a member bank of the Federal Reserve System, (C) any other banking institution, savings association, as defined in section 2(4) of the Home Owners' Loan Act, or trust company, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency, and which is supervised and examined by State or Federal authority having supervision over banks or savings associations, and which is not operated for the purpose of evading the provisions of this title, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B), or (C) of this paragraph.

(3)  The term "broker" has the same meaning as given in section 3 of the Securities Exchange Act of 1934.

(4)  "Commission" means the Securities and Exchange Commission.

(5)  "Company" means a corporation, a partnership, an association, a joint-stock company, a trust, or any organized group of persons, whether incorporated or not; or any receiver, trustee in a case under title 11, or similar official, or any liquidating agent for any of the foregoing, in his capacity as such.

(6)  "Convicted" includes a verdict, judgment, or plea of guilty, or a finding of guilt on a plea of nolo contendere, if such verdict, judgment, plea, or finding has not been reversed, set aside, or withdrawn, whether or not sentence has been imposed.

(7)  The term "dealer" has the same meaning as given in section 3 of the Securities Exchange Act of 1934, but does not include an insurance company or investment company.

(8)  "Director" means any director of a corporation or any person performing similar functions with respect to any organization, whether incorporated or unincorporated.

(9)  "Exchange" means any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.

(10)  "Interstate commerce" means trade, commerce, transportation, or communication among the several States, or between any foreign country and any State, or between any State and any place or ship outside thereof.

(11)  "Investment adviser" means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities; but does not include (A) a bank, or any bank holding company as defined in the Bank Holding Company Act of 1956, which is not an investment company, except that the term "investment adviser" includes any bank or bank holding company to the extent that such bank or bank holding company serves or acts as an investment adviser to a registered investment company, but if, in the case of a bank, such services or actions are performed through a separately identifiable department or division, the department or division, and not the bank itself, shall be deemed to be the investment adviser (B) any lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his profession; (C) any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor; (D) the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation; (E) any person whose advice, analyses, or reports relate to no securities other than securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States, or securities issued or guaranteed by corporations in which the United States has a direct or indirect interest which shall have been designated by the Secretary of the Treasury, pursuant to section 3(a)(12) of the Securities Exchange Act of 1934, as exempted securities for the purposes of that Act; (F) any nationally recognized statistical rating organization, as that term is defined in section 3(a)(62) of the Securities Exchange Act of 1934, unless such organization engages in issuing recommendations as to purchasing, selling, or holding securities or in managing assets, consisting in whole or in part of securities, on behalf of others; (G) any family office, as defined by rule, regulation, or order of the Commission, in accordance with the purposes of this title; or (H) such other persons not within the intent of this paragraph, as the Commission may designate by rules and regulations or order.

(12)  "Investment company," "affiliated person," and "insurance company" have the same meanings as in the Investment Company Act of 1940. "Control" means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company.

(13)  "Investment supervisory services" means the giving of continuous advice as to the investment of funds on the basis of the individual needs of each client.

(14)  "Means or instrumentality of interstate commerce" includes any facility of a national securities exchange.

(15)  "National securities exchange" means an exchange registered under section 6 of the Securities Exchange Act of 1934.

(16)  "Person" means a natural person or a company.

(17)  The term "person associated with an investment adviser" means any partner, officer, or director of such investment adviser (or any person performing similar functions), or any person directly or indirectly controlling or controlled by such investment adviser, including any employee of such investment adviser, except that for the purposes of section 203 of this title (other than subsection (f) thereof), persons associated with an investment adviser whose functions are clerical or ministerial shall not be included in the meaning of such term. The Commission may by rules and regulations classify, for the purposes of any portion or portions of this title, persons, including employees controlled by an investment adviser.

(18)  "Security" means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security" or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guaranty of, or warrant or right to subscribe to or purchase any of the foregoing.

(19)  "State" means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States.

(20)  "Underwriter" means any person who has purchased from an issuer with a view to, or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributor's or seller's commission. As used in this paragraph the term "issuer" shall include in addition to an issuer, any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer.

(21)  "Securities Act of 1933", "Securities Exchange Act of 1934", and "Trust Indenture Act of 1939", mean those Acts, respectively, as heretofore or hereafter amended.

(22)  "Business development company" means any company which is a business development company as defined in section 2(a)(48) of this title and which complies with section 54 of this title, except that--

(A)  the 70 per centum of the value of the total assets condition referred to in sections 2(a)(48) and 54 of this title shall be 60 per centum for purposes of determining compliance therewith;

(B)  such company need not be a closed-end company and need not elect to be subject to the provisions of sections 54 through 64 of this title; and

(C)  the securities which may be purchased pursuant to section 54(a) of this title may be purchased from any person.

For purposes of this paragraph, all terms in sections 2(a)(48) and 54 of this title shall have the same meaning set forth in subchapter I of this chapter as if such company were a registered closed-end investment company, except that the value of the assets of a business development company which is not subject to the provisions of sections 54 through 64 of this title shall be determined as of the date of the most recent financial statements which it furnished to all holders of its securities, and shall be determined no less frequently than annually.

(23)  "Foreign securities authority" means any foreign government, or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its laws as they relate to securities matters.

(24)  "Foreign financial regulatory authority" means any (A) foreign securities authority, (B) other governmental body or foreign equivalent of a self-regulatory organization empowered by a foreign government to administer or enforce its laws relating to the regulation of fiduciaries, trusts, commercial lending, insurance, trading in contracts of sale of a commodity for future delivery, or other instruments traded on or subject to the rules of a contract market, board of trade or foreign equivalent, or other financial activities, or (C) membership organization a function of which is to regulate the participation of its members in activities listed above.

(25)  "Supervised person" means any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser.

(26)  The term "separately identifiable department or division" of a bank means a unit--

(A)  that is under the direct supervision of an officer or officers designated by the board of directors of the bank as responsible for the day-to-day conduct of the bank's investment adviser activities for one or more investment companies, including the supervision of all bank employees engaged in the performance of such activities; and

(B)  for which all of the records relating to its investment adviser activities are separately maintained in or extractable from such unit's own facilities or the facilities of the bank, and such records are so maintained or otherwise accessible as to permit independent examination and enforcement by the Commission of this Act or the Investment Company Act of 1940 and rules and regulations promulgated under this Act or the Investment Company Act of 1940.

(27)  The terms "security future" and "narrow-based security index" have the same meanings as provided in section 3(a)(55) of the Securities Exchange Act of 1934.

(28)  The term "credit rating agency" has the same meaning as in section 3 of the Securities Exchange Act of 1934.

(29)  The term "private fund" means an issuer that would be an investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3), but for section 3(c)(1) or 3(c)(7) of that Act.

(30)  The term "foreign private adviser" means any investment adviser who--

(A)  has no place of business in the United States;

(B)  has, in total, fewer than 15 clients and investors in the United States in private funds advised by the investment adviser;

(C)  has aggregate assets under management attributable to clients in the United States and investors in the United States in private funds advised by the investment adviser of less than $25,000,000 or such higher amount as the Commission may, by rule, deem appropriate in accordance with the purpose of this title; and

(D)  neither--

(i)  holds itself out generally to the public in the United States as an investment adviser; nor

(ii)  acts as--

(I)  an investment adviser to any investment company registered under the Investment Company Act of 1940; or

(II)  a company that has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. 80a-53), and has not withdrawn its election.

(b)  No provision in this title shall apply to, or be deemed to include, the United States, a State, or any political subdivision of a State, or any agency, authority, or instrumentality of any one or more of the foregoing, or any corporation which is wholly owned directly or indirectly by any one or more of the foregoing, or any officer, agent, or employee of any of the foregoing acting as such in the course of his official duty, unless such provision makes specific reference thereto.

(c)  CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION.--Whenever pursuant to this title the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.

[Codified to 15 U.S.C. 80b--2]

[Source: Section 202 of title II of the Act of August 22, 1940 (Pub. L. No. 768; 54 Stat. 847), effective November 1, 1940, as amended by section 12(c) of the Act of June 25, 1959 (Pub. L. No. 86--70; 73 Stat. 143), effective June 25, 1959; section 7(d) of the Act of July 12, 1960 (Pub. L. No. 86--624; 74 Stat. 412), effective July 12, 1960; section 1 of the Act of September 13, 1960 (Pub. L. No. 86--750; 74 Stat. 885), effective September 13, 1960; section 13(j) of the Act of July 1, 1966 (Pub. L. No. 89--485; 80 Stat. 243), effective July 1, 1966; section 23 of the Act of December 14, 1970 (Pub. L. No. 91--547; 84 Stat. 1430), effective December 14, 1970; section 311 of title III of the Act of November 6, 1978 (Pub. L. No. 95--598; 92 Stat. 2672), effective October 1, 1979; section 201 of title II of the Act of October 21, 1980 (Pub. L. No. 96--477; 94 Stat. 2289), effective October 21, 1980; section 6 of the Act of October 13, 1982 (Pub. L. No. 97--303; 96 Stat. 1410), effective October 13, 1982; section 701 of title VII of the Act of December 4, 1987 (Pub. L. No. 100--181; 101 Stat. 1263), effective December 4, 1987; and section 206(b) of title II of the Act of November 15, 1990 (Pub. L. No. 101--550; 104 Stat. 2720), effective November 15, 1990; section 303(c) of title III of the Act of October 11, 1996 (Pub. L. No. 104--290; 110 Stat. 3438), effective April 9, 1997; sections 217, 218, 219 and 224 of title II of the Act of November 12, 1999 (Pub. L. No. 106--102; 113 Stat. 1399, 1400 and 1402), effective May 12, 2001; sections 209(a)(2) and (4) of title II of the Act of December 21, 2000 (Pub. L. No. 106--554; 114 Stat. 2763A--435 and 436), effective December 21, 2000; section 4(b)(3)(A) and (B) of the Act of September 29, 2006 (Pub. L. No. 109--291; 120 Stat. 1337), effective September 29, 2006; section 401(b)(1) of title IV of the Act of October 13, 2006 (Pub. L. No. 109--351; 120 Stat. 1973; sections 402(a) and 409(a) of title IV of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1570 and 1575), effective July 21, 2011]

Notes

(b)  OTHER DEFINITIONS.--As used in this title, the terms "investment adviser'' and "private fund'' have the same meanings as in section 202 of the Investment Advisers Act of 1940, as amended by this title.

[Codified to 15 U.S.C. 80b--2 Note]

[Section 402(b) of title IV of the Act of July 21, 2010 (Pub. L. No. 111--203;124 Stat. 1571), effective July 21, 2011]

(b)  RULEMAKING.--The rules, regulations, or orders issued by the Commission pursuant to section 202(a)(11)(G) of the Investment Advisers Act of 1940, as added by this section, regarding the definition of the term "family office'' shall provide for an exemption that--

(1)  is consistent with the previous exemptive policy of the Commission, as reflected in exemptive orders for family offices in effect on the date of enactment of this Act, and the grandfathering provisions in paragraph (3);

(2)  recognizes the range of organizational, management, and employment structures and arrangements employed by family offices; and

(3)  does not exclude any person who was not registered or required to be registered under the Investment Advisers Act of 1940 on January 1, 2010 from the definition of the term "family office'', solely because such person provides investment advice to, and was engaged before January 1, 2010 in providing investment advice to--

(A)  natural persons who, at the time of their applicable investment, are officers, directors, or employees of the family office who--

(i)  have invested with the family office before January 1, 2010; and

(ii)  are accredited investors, as defined in Regulation D of the Commission (or any successor thereto) under the Securities Act of 1933, or, as the Commission may prescribe by rule, the successors-in-interest thereto;

(B)  any company owned exclusively and controlled by members of the family of the family office, or as the Commission may prescribe by rule;

(C)  any investment adviser registered under the Investment Adviser Act of 1940 that provides investment advice to the family office and who identifies investment opportunities to the family office, and invests in such transactions on substantially the same terms as the family office invests, but does not invest in other funds advised by the family office, and whose assets as to which the family office directly or indirectly provides investment advice represent, in the aggregate, not more than 5 percent of the value of the total assets as to which the family office provides investment advice.

(c)  ANTIFRAUD AUTHORITY.--A family office that would not be a family office, but for subsection (b)(3), shall be deemed to be an investment adviser for the purposes of paragraphs (1), (2) and (4) of section 206 of the Investment Advisers Act of 1940.

[Codified to 15 U.S.C. 80b--2 Note]

[Section 409 (b) and (c) of title IV of the Act of July 21, 2010 (Pub. L. No. 111--203;124 Stat. 1575-1576), effective July 21, 2011]


SEC. 419.  TRANSITION PERIOD.

Except as otherwise provided in this title, this title and the amendments made by this title shall become effective 1 year after the date of enactment of this Act, except that any investment adviser may, at the discretion of the investment adviser, register with the Commission under the Investment Advisers Act of 1940 during that 1-year period, subject to the rules of the Commission.

[Codified to 15 U.S.C. 80b--2 Note]

[Section 419 of title IV of the Act of July 21, 2010 (Pub. L. No. 111--203;124 Stat. 1580), effective July 21, 2011]

Registration of Investment Advisers

SEC. 203.  (a)  Except as provided in subsection (b) and section 203A, it shall be unlawful for any investment adviser, unless registered under this section, to make use of the mails or any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser.

(b)  The provisions of subsection (a) shall not apply to--

(1)  any investment adviser, other than an investment adviser who acts as an investment adviser to any private fund all of whose clients are residents of the State within which such investment adviser maintains his or its principal office and place of business, and who does not furnish advice or issue analyses or reports with respect to securities listed or admitted to unlisted trading privileges on any national securities exchange;

(2)  any investment adviser whose only clients are insurance companies;

(3)  any investment adviser that is a foreign private adviser;

(4)  any investment adviser that is a charitable organization, as defined in section 3(c)(10)(D) of the Investment Company Act of 1940, or is a trustee, director, officer, employee, or volunteer of such a charitable organization acting within the scope of such person's employment or duties with such organization, whose advice, analyses, or reports are provided only to one or more of the following:

(A)  any such charitable organization;

(B)  a fund that is excluded from the definition of an investment company under section 3(c)(10)(B) of the Investment Company Act of 1940; or

(C)  a trust or other donative instrument described in section 3(c)(10)(B) of the Investment Company Act of 1940, or the trustees, administrators, settlors (or potential settlors), or beneficiaries of any such trust or other instrument;

(5)  any plan described in section 414(e) of the Internal Revenue Code of 1986, any person or entity eligible to establish and maintain such a plan under the Internal Revenue Code of 1986, or any trustee, director, officer, or employee of or volunteer for any such plan or person, if such person or entity, acting in such capacity, provides investment advice exclusively to, or with respect to, any plan, person, or entity or any company, account, or fund that is excluded from the definition of an investment company under section 3(c)(14) of the Investment Company Act of 1940;

(6)(A)  any investment adviser that is registered with the Commodity Futures Trading Commission as a commodity trading advisor whose business does not consist primarily of acting as an investment adviser, as defined in section 202(a)(11) of this title, and that does not act as an investment adviser to--

(i)  an investment company registered under title I of this Act; or

(ii)  a company which has elected to be a business development company pursuant to section 54 of title I of this Act and has not withdrawn its election; or

(B)  any investment adviser that is registered with the Commodity Futures Trading Commission as a commodity trading advisor and advises a private fund, provided that, if after the date of enactment of the Private Fund Investment Advisers Registration Act of 2010, the business of the advisor should become predominately the provision of securities-related advice, then such adviser shall register with the Commission.

(7)  any investment adviser, other than any entity that has elected to be regulated or is regulated as a business development company pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. 80a-54), who solely advises--

(A)  small business investment companies that are licensees under the Small Business Investment Act of 1958;

(B)  entities that have received from the Small Business Administration notice to proceed to qualify for a license as a small business investment company under the Small Business Investment Act of 1958, which notice or license has not been revoked; or

(C)  applicants that are affiliated with 1 or more licensed small business investment companies described in subparagraph (A) and that have applied for another license under the Small Business Investment Act of 1958, which application remains pending.

(c)(1)  An investment adviser, or any person who presently contemplates becoming an investment adviser, may be registered by filing with the Commission an application for registration in such form and containing such of the following information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors:

(A)  the name and form of organization under which the investment adviser engages or intends to engage in business; the name of the State or other sovereign power under which such investment adviser is organized; the location of his or its principal office, principal place of business, and branch offices, if any; the names and addresses of his or its partners, officers, directors, and persons performing similar functions or, if such an investment adviser be an individual, of such individual; and the number of his or its employees;

(B)  the education, the business affiliations for the past ten years, and the present business affiliations of such investment adviser and of his or its partners, officers, directors, and persons performing similar functions and of any controlling person thereof;

(C)  the nature of the business of such investment adviser, including the manner of giving advice and rendering analyses or reports;

(D)  a balance sheet certified by an independent public accountant and other financial statements (which shall, as the Commission specifies, be certified);

(E)  the nature and scope of the authority of such investment adviser with respect to clients' funds and accounts;

(F)  the basis or bases upon which such investment adviser is compensated;

(G)  whether such investment adviser, or any person associated with such investment adviser, is subject to any disqualification which would be a basis for denial, suspension, or revocation or registration of such investment adviser under the provision of subsection (e) of this section; and

(H)  a statement as to whether the principal business of such investment adviser consists or is to consist of acting as investment adviser and a statement as to whether a substantial part of the business of such investment adviser, consists or is to consist of rendering investment supervisory services.

(2)  Within forty-five days of the date of the filing of such application (or within such longer period as to which the applicant consents) the Commission shall--

(A)  by order grant such registration; or

(B)  institute proceedings to determine whether registration should be denied. Such proceedings shall include notice of the grounds for denial under consideration and opportunity for hearing and shall be concluded within one hundred twenty days of the date of the filing of the application for registration. At the conclusion of such proceedings the Commission, by order, shall grant or deny such registration. The Commission may extend the time for conclusion of such proceedings for up to ninety days if it finds good cause for such extension and publishes its reasons for so finding or for such longer period as to which the applicant consents.

The Commission shall grant such registration if the Commission finds that the requirements of this section are satisfied and that the applicant is not prohibited from registering as an investment adviser under section 203A. The Commission shall deny such registration if it does not make such a finding or if it finds that if the applicant were so registered, its registration would be subject to suspension or revocation under subsection (e) of this section.

(d)  Any provision of this title (other than subsection (a) of this section) which prohibits any act, practice, or course of business if the mails or any means or instrumentality of interstate commerce are used in connection therewith shall also prohibit any such act, practice, or course of business by any investment adviser registered pursuant to this section or any person acting on behalf of such an investment adviser, irrespective of any use of the mails or any means or instrumentality of interstate commerce in connection therewith.

(e)  The Commission, by order, shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding twelve months, or revoke the registration of any investment adviser if it finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is in the public interest and that such investment adviser, or any person associated with such investment adviser, whether prior to or subsequent to becoming so associated--

(1)  has willfully made or caused to be made in any application for registration or report required to be filed with the Commission under this title, or in any proceeding before the Commission with respect to registration, any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to state in any such application or report any material fact which is required to be stated therein.

(2)  has been convicted within ten years preceding the filing of any application for registration or at any time thereafter of any felony or misdemeanor or of a substantially equivalent crime by a foreign court of competent jurisdiction which the Commission finds--

(A)  involves the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, any substantially equivalent activity however denominated by the laws of the relevant foreign government, or conspiracy to commit any such offense;

(B)  arises out of the conduct of the business of a broker, dealer, municipal securities dealer, investment adviser, bank, insurance company, government securities broker, government securities dealer, fiduciary, transfer agent, credit rating agency, foreign person performing a function substantially equivalent to any of the above, or entity or person required to be registered under the Commodity Exchange Act or any substantially equivalent statute or regulation;

(C)  involves the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or securities or substantially equivalent activity however denominated by the laws of the relevant foreign government; or

(D)  involves the violation of section 152, 1341, 1342, or 1343 or chapter 25 or 47 of title 18, United States Code, or a violation of substantially equivalent foreign statute.

(3)  has been convicted during the 10-year period preceding the date of filing of any application for registration, or at any time thereafter, of--

(A)  any crime that is punishable by imprisonment for 1 or more years, and that is not described in paragraph (2); or

(B)  a substantially equivalent crime by a foreign court of competent jurisdiction.

(4)  is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction, including any foreign court of competent jurisdiction, from acting as an investment adviser, underwriter, broker, dealer, municipal securities dealer, government securities broker, government securities dealer, transfer agent, credit rating agency, foreign person performing a function substantially equivalent to any of the above, or entity or person required to be registered under the Commodity Exchange Act or any substantially equivalent statute or regulation, or as an affiliated person or employee of any investment company, bank, insurance company, foreign entity substantially equivalent to any of the above, or entity or person required to be registered under the Commodity Exchange Act or any substantially equivalent statute or regulation, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with the purchase or sale of any security.

(5)  has willfully violated any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, this title, the Commodity Exchange Act, or the rules or regulations under any such statutes or any rule of the Municipal Securities Rulemaking Board, or is unable to comply with any such provision.

(6)  has willfully aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, this title, the Commodity Exchange Act, the rules or regulations under any of such statutes, or the rules of the Municipal Securities Rulemaking Board, or has failed reasonably to supervise, with a view to preventing violations of the provisions of such statutes, rules, and regulations, another person who commits such a violation, if such other person is subject to his supervision. For the purposes of this paragraph no person shall be deemed to have failed reasonably to supervise any person, if--

(A)  there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and

(B)  such person has reasonably discharged the duties and obligations incumbent upon him by reason of such procedures and system without reasonable cause to believe that such procedures and system were not being complied with.

(7)  is subject to any order of the Commission barring or suspending the right of the person to be associated with an investment adviser;

(8)  has been found by a foreign financial regulatory authority to have--

(A)  made or caused to be made in any application for registration or report required to be filed with a foreign securities authority, or in any proceeding before a foreign securities authority with respect to registration, any statement that was at the time and in light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to state in any application or report to a foreign securities authority any material fact that is required to be stated therein;

(B)  violated any foreign statute or regulation regarding transactions in securities or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any board or trade; or

(C)  aided, abetted, counseled, commanded, induced, or procured the violation by any other person of any foreign statute or regulation regarding transactions in securities or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any board of trade, or has been found, by the foreign financial regulatory authority, to have failed reasonably to supervise, with a view to preventing violations of statutory provisions, and rules and regulations promulgated thereunder, another person who commits such a violation, if such other person is subject to his supervision; or

(9)  is subject to any final order of a State securities commission (or any agency or officer performing like functions), State authority that supervises or examines banks, savings associations, or credit unions, State insurance commission (or any agency or office performing like functions), an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))), or the National Credit Union Administration, that--

(A)  bars such person from association with an entity regulated by such commission, authority, agency, or officer, or from engaging in the business of securities, insurance, banking, savings association activities, or credit union activities; or

(B)  constitutes a final order based on violations of any laws or regulations that prohibit fraudulent, manipulative, or deceptive conduct.

(f)  The Commission, by order, shall censure or place limitations on the activities of any person seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated with an investment adviser, or suspend for a period not exceeding 12 months or bar any such person from being associated with an investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, if the Commission finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such person has committed or omitted any act or omission enumerated in paragraph (1), (5), (6), (8) or 9 of subsection (e) of this section or has been convicted of any offense specified in paragraph (2) or 3 of subsection (e) within ten years of the commencement of the proceedings under this subsection, or is enjoined from any action, conduct, or practice specified in paragraph (4) of subsection (e). It shall be unlawful for any person as to whom such an order suspending or barring him from being associated with an investment adviser is in effect willfully to become, or to be, associated with an investment adviser without the consent of the Commission, and it shall be unlawful for any investment adviser to permit such a person to become, or remain, a person associated with him without the consent of the Commission, if such investment adviser knew, or in the exercise of reasonable care, should have known, of such order.

(g)  Any successor to the business of an investment adviser registered under this section shall be deemed likewise registered hereunder, if within thirty days from its succession to such business it shall file an application for registration under this section, unless and until the Commission, pursuant to subsection (c) or subsection (e) of this section, shall deny registration to or revoke or suspend the registration of such successor.

(h)  Any person registered under this section may, upon such terms and conditions as the Commission finds necessary in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the Commission. If the Commission finds that any person registered under this section, or who has pending an application for registration filed under this section, is no longer in existence, is not engaged in business as an investment adviser, or is prohibited from registering as an investment adviser under section 203A, the Commission shall by order cancel the registration of such person.

(i)  MONEY PENALTIES IN ADMINISTRATIVE PROCEEDINGS.--

(1)  AUTHORITY OF COMMISSION.--(A) IN GENERAL.--In any proceeding instituted pur- suant to subsection (e) or (f) against any person, the Commission may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such penalty is in the public interest and that such person--

(i)  has willfully violated any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, or this title, or the rules or regulations thereunder;

(ii)  has willfully aided, abetted, counseled, commanded, induced, or procured such a violation by any other person;

(iii)  has willfully made or caused to be made in any application for registration or report required to be filed with the Commission under this title, or in any proceeding before the Commission with respect to registration, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to state in any such application or report any material fact which was required to be stated therein; or

(iv)  has failed reasonably to supervise, within the meaning of subsection (e)(6), with a view to preventing violations of the provisions of this title and the rules and regulations thereunder, another person who commits such a violation, if such other person is subject to his supervision;

(B)  CEASE-AND-DESIST PROCEEDINGS.--In any proceeding instituted pursuant to subsection (k) against any person, the Commission may impose a civil penalty if the Commission finds, on the record, after notice and opportunity for hearing, that such person--

(i)  is violating or has violated any provision of this title, or any rule or regulation issued under this title; or

(ii)  is or was a cause of the violation of any provision of this title, or any rule or regulation issued under this title.

(2)  MAXIMUM AMOUNT OF PENALTY.--

(A)  FIRST TIER.--The maximum amount of penalty for each act or omission described in paragraph (1) shall be $5,000 for a natural person or $50,000 for any other person.

(B)  SECOND TIER.--Notwithstanding subparagraph (A), the maximum amount of penalty for each such act or omission shall be $50,000 for a natural person or $250,000 for any other person if the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement.

(C)  THIRD TIER.--Notwithstanding subparagraphs (A) and (B), the maximum amount of penalty for each such act or omission shall be $100,000 for a natural person or $500,000 for any other person if--

(i)  the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and

(ii)  such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission.

(3)  DETERMINATION OF PUBLIC INTEREST.--In considering under this section whether a penalty is in the public interest, the Commission may consider--

(A)  whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement;

(B)  the harm to other persons resulting either directly or indirectly from such act or omission;

(C)  the extent to which any person was unjustly enriched, taking into account any restitution made to persons injured by such behavior;

(D)  whether such person previously has been found by the Commission, another appropriate regulatory agency, or a self-regulatory organization to have violated the Federal securities laws, State securities laws, or the rules of a self-regulatory organization, has been enjoined by a court of competent jurisdiction from violations of such laws or rules, or has been convicted by a court of competent jurisdiction of violations of such laws or of any felony or misdemeanor described in section 203(e)(2) of this title;

(E)  the need to deter such person and other persons from committing such acts or omissions; and

(F)  such other matters as justice may require.

(4)  EVIDENCE CONCERNING ABILITY TO PAY.--In any proceeding in which the Commission may impose a penalty under this section, a respondent may present evidence of the respondent's ability to pay such penalty. The Commission may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of such person's ability to continue in business and the collectability of a penalty, taking into account any other claims of the United States or third parties upon such person's assets and the amount of such person's assets.

(j)  AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT.--In any proceeding in which the Commission may impose a penalty under this section, the Commission may enter an order requiring accounting and disgorgement, including reasonable interest. The Commission is authorized to adopt rules, regulations, and orders concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection.

(k)  CEASE-AND-DESIST PROCEEDINGS.--

(1)  AUTHORITY OF THE COMMISSION.--If the Commission finds, after notice and opportunity for hearing, that any person is violating, has violated, or is about to violate any provision of this title, or any rule or regulation thereunder, the Commission may publish its findings and enter an order requiring such person, and any other person that is, was, or would be a cause of the violation, due to an act or omission the person knew or should have known would contribute to such violation, to cease and desist from committing or causing such violation and any future violation of the same provision, rule, or regulation. Such order may, in addition to requiring a person to cease and desist from committing or causing a violation, require such person to comply, or to take steps to effect compliance, with such provision, rule, or regulation, upon such terms and conditions and within such time as the Commission may specify in such order. Any such order may, as the Commission deems appropriate, require future compliance or steps to effect future compliance, either permanently or for such period of time as the Commission may specify, with such provision, rule, or regulation with respect to any security, any issuer, or any other person.

(2)  HEARING.--The notice instituting proceedings pursuant to paragraph (1) shall fix a hearing date not earlier than 30 days nor later than 60 days after service of the notice unless an earlier or a later date is set by the Commission with the consent of any respondent so served.

(3)  TEMPORARY ORDER.--

(A)  IN GENERAL.--Whenever the Commission determines that the alleged violation or threatened violation specified in the notice instituting proceedings pursuant to paragraph (1), or the continuation thereof, is likely to result in significant dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest, including, but not limited to, losses to the Securities Investor Protection Corporation, prior to the completion of the proceedings, the Commission may enter a temporary order requiring the respondent to cease and desist from the violation or threatened violation and to take such action to prevent the violation or threatened violation and to prevent dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest as the Commission deems appropriate pending completion of such proceedings. Such an order shall be entered only after notice and opportunity for a hearing, unless the Commission, notwithstanding section 211(c) of this title, determines that notice and hearing prior to entry would be impracticable or contrary to the public interest. A temporary order shall become effective upon service upon the respondent and, unless set aside, limited, or suspended by the Commission or a court of competent jurisdiction, shall remain effective and enforceable pending the completion of the proceedings.

(B)  APPLICABILITY.--This paragraph shall apply only to a respondent that acts, or, at the time of the alleged misconduct acted, as a broker, dealer, investment adviser, investment company, municipal securities dealer, government securities broker, government securities dealer, or transfer agent, or is, or was at the time of the alleged misconduct, an associated person of, or a person seeking to become associated with, any of the foregoing.

(4)  REVIEW OF TEMPORARY ORDERS.--

(A)  COMMISSION REVIEW.--At any time after the respondent has been served with a temporary cease-and-desist order pursuant to paragraph (3), the respondent may apply to the Commission to have the order set aside, limited, or suspended. If the respondent has been served with a temporary cease-and-desist order entered without a prior Commission hearing, the respondent may, within 10 days after the date on which the order was served, request a hearing on such application and the Commission shall hold a hearing and render a decision on such application at the earliest possible time.

(B)  JUDICIAL REVIEW.--Within--

(i)  10 days after the date the respondent was served with a temporary cease-and-desist order entered with a prior Commission hearing, or

(ii)  10 days after the Commission renders a decision on an application and hearing under subparagraph (A), with respect to any temporary cease-and-desist order entered without a prior Commission hearing, the respondent may apply to the United States district court for the district in which the respondent resides or has its principal office or principal place of business, or for the District of Columbia, for an order setting aside, limiting, or suspending the effectiveness or enforcement of the order, and the court shall have jurisdiction to enter such an order. A respondent served with a temporary cease-and-desist order entered without a prior Commission hearing may not apply to the court except after hearing and decision by the Commission on the respondent's application under subparagraph (A) of this paragraph.

(C)  NO AUTOMATIC STAY OF TEMPORARY ORDER.--The commencement of proceedings under subparagraph (B) of this paragraph shall not, unless specifically ordered by the court, operate as a stay of the Commission's order.

(D)  EXCLUSIVE REVIEW.--Section 213 of this title shall not apply to a temporary order entered pursuant to this section.

(5)  AUTHORITY TO ENTER AN ORDER REQUIRING AN ACCOUNTING AND DISGORGEMENT.--In any cease-and-desist proceeding under paragraph (1), the Commission may enter an order requiring accounting and disgorgement, including reasonable interest. The Commission is authorized to adopt rules, regulations, and orders concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection.

(l)  EXEMPTION OF VENTURE CAPITAL FUND ADVISERS.--No investment adviser that acts as an investment adviser solely to 1 or more venture capital funds shall be subject to the registration requirements of this title with respect to the provision of investment advice relating to a venture capital fund. Not later than 1 year after the date of enactment of this subsection, the Commission shall issue final rules to define the term venture capital fund' for purposes of this subsection. The Commission shall require such advisers to maintain such records and provide to the Commission such annual or other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors.

(m)  EXEMPTION OF AND REPORTING BY CERTAIN PRIVATE FUND ADVISERS.--

(1)  IN GENERAL.--The Commission shall provide an exemption from the registration requirements under this section to any investment adviser of private funds, if each of such investment adviser acts solely as an adviser to private funds and has assets under management in the United States of less than $150,000,000.

(2)  REPORTING.--The Commission shall require investment advisers exempted by reason of this subsection to maintain such records and provide to the Commission such annual or other reports as the Commission determines necessary or appropriate in the public interest or for the protection of investors.

(n)  REGISTRATION AND EXAMINATION OF MID-SIZED PRIVATE FUND ADVISERS.--In prescribing regulations to carry out the requirements of this section with respect to investment advisers acting as investment advisers to mid-sized private funds, the Commission shall take into account the size, governance, and investment strategy of such funds to determine whether they pose systemic risk, and shall provide for registration and examination procedures with respect to the investment advisers of such funds which reflect the level of systemic risk posed by such funds.

[Codified to 15 U.S.C. 80b--3]

[Source: Section 203 of title II of the Act of August 22, 1940 (Pub. L. No. 768; 54 Stat. 850), effective November 1, 1940, as amended by sections 2--5 of the Act of September 13, 1960 (Pub. L. No. 86--750; 74 Stat. 885, 886), effective September 13, 1960; section 24 of the Act of December 14, 1970 (Pub. L. No. 91--547; 84 Stat. 1430), effective December 14, 1970, except section 203(b) which effective date is December 14, 1971; section 29(1)--(4) of the Act of June 4, 1975 (Pub. L. No. 94--29; 89 Stat. 166--169), effective June 4, 1975; section 202 of title II of the Act of October 21, 1980 (Pub. L. No. 96--477; 94 Stat. 2290), effective October 21, 1980; section 102(m) of title I of the Act of October 28, 1986 (Pub. L. No. 99--571; 100 Stat. 3220), effective July 25, 1987; section 702 of title VII of of the Act of December 4, 1987 (Pub. L. No. 100--181; 101 Stat. 1263), effective December 4, 1987; and section 401 of title IV of the Act of October 15, 1990 (Pub. L. No. 101--429; 104 Stat. 946), effective October 15, 1990; sections 205(b) and (c) of title II of the Act of November 15, 1990 (Pub. L. No. 101--550; 104 Stat. 2719), effective November 15, 1990; section 5 of the Act of December 8, 1995 (Pub. L. No. 104--62; 109 Stat. 685), effective December 8, 1995; sections 303(b) and (d) and 305 of title III and section 508(d) of title V of the Act of October 11, 1996 (Pub. L. No. 104--290; 110 Stat. 3438 and 3448, respectively), effective April 9, 1997, except that the amendments made to subsection (b)(3)--(5) by section 508(d) are effective October 11, 1996; section 301(d)(1) of title III of the Act of November 3, 1998 (Pub. L. No. 105--353; 112 Stat. 3237), effective November 3, 1998; section 209(b) of title II of the Act of December 21, 2000 (Pub. L. No. 106--554; 114 Stat. 2763A--436), effective December 21, 2000; sections 604(b) and 604(c)(2) of title VI of the Act of July 30, 2002 (Pub. L. No. 107--204; 116 Stat. 796), effective July 30, 2002; section 4(b)(3)(C) of the Act of September 29, 2006 (Pub. L. No. 109--291; 120 Stat. 1337), September 29, 2006; sections 403, 407, and 408 of title IV of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1571, 1574, and 1575), effective July 21, 2011; sections 925(b), 929(p)(A)(4), and 985(e)(1) of title IX of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1851, 1864, and 1935), effective July 21, 2010]

SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.

(a)  ADVISERS SUBJECT TO STATE AUTHORITIES.--

(1)  IN GENERAL.--No investment adviser that is regulated or required to be regulated as an investment adviser in the State in which it maintains its principal office and place of business shall register under section 203, unless the investment adviser--

(A)  has assets under management of not less than $25,000,000, or such higher amount as the Commission may, by rule, deem appropriate in accordance with the purposes of this title; or

(B)  is an adviser to an investment company registered under title I of this Act.

(2)  TREATMENT OF MID-SIZED INVESTMENT ADVISERS.--

(A)  IN GENERAL.--No investment adviser described in subparagraph (B) shall register under section 203, unless the investment adviser is an adviser to an investment company registered under the Investment Company Act of 1940, or a company which has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940, and has not withdrawn the election, except that, if by effect of this paragraph an investment adviser would be required to register with 15 of more States, then the adviser may register under section 203.

(B)  COVERED PERSONS.--An investment adviser described in this subparagraph is an investment adviser that--

(i)  is required to be registered as an investment adviser with the securities commissioner (or any agency or office performing like functions) of the State in which it maintains its principal office and place of business and, if registered, would be subject to examination as an investment adviser by any such commissioner, agency, or office; and

(ii)  has assets under management between--

(I)  the amount specified under subparagraph (A) of paragraph (1), as such amount may have been adjusted by the Commission pursuant to that subparagraph; and

(II)  $100,000,000, or such higher amount as the Commission may, by rule, deem appropriate in accordance with the purposes of this title.

(3)  DEFINITION.--For purposes of this subsection, the term "assets under management" means the securities portfolios with respect to which an investment adviser provides continuous and regular supervisory or management services.

(b)  ADVISERS SUBJECT TO COMMISSION AUTHORITY.--

(1)  IN GENERAL.--No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser or supervised person of an investment adviser shall apply to any person--

(A)  that is registered under section 203 as an investment adviser, or that is a supervised person of such person, except that a State may license, register, or otherwise qualify any investment adviser representative who has a place of business located within that State; or

(B)  that is not registered under section 203 because that person is excepted from the definition of an investment adviser under section 202(a)(11).

(2)  LIMITATION.--Nothing in this subsection shall prohibit the securities commission (or any agency or office performing like functions) of any State from investigating and bringing enforcement actions with respect to fraud or deceit against an investment adviser or person associated with an investment adviser.

(c)  EXEMPTIONS.--Notwithstanding subsection (a), the Commission, by rule or regulation upon its own motion, or by order upon application, may permit the registration with the Commission of any person or class of persons to which the application of subsection (a) would be unfair, a burden on interstate commerce, or otherwise inconsistent with the purposes of this section.

(d)  STATE ASSISTANCE.--Upon request of the securities commissioner (or any agency or officer performing like functions) of any State, the Commission may provide such training, technical assistance, or other reasonable assistance in connection with the regulation of investment advisers by the State.

[Codified to 15 U.S.C. 80b--3a]

[Source:  Section 203A of title II of the Act of August 22, 1940 (Pub. L. No. 768; 54 Stat. 850), effective November 1, 1940, as added by section 303(a) of title III of the Act of October 11, 1996 (Pub. L. No. 104--290; 110 Stat. 3437), effective April 9, 1997; section 7(b)(1) of the Act of September 29, 2006 (Pub. L. No. 109--290; 120 Stat. 1321), effective September 29, 2006; as amended by section 410 of title IV of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1576), effective July 21, 2011]

Annual and Other Reports

SEC. 204.  (a)  IN GENERAL.--Every investment adviser who makes use of the mails or of any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser (other than one specifically exempted from registration pursuant to section 203(b) of this title), shall make and keep for prescribed periods such records (as defined in section 3(a) (37) of the Securities Exchange Act of 1934), furnish such copies thereof, and make and disseminate such reports as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. All records (as so defined) of such investment advisers are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the Commission as the Commission deems necessary or appropriate in the public interest or for the protection of investors.

(b)  RECORDS AND REPORTS OF PRIVATE FUNDS.--

(1)  IN GENERAL.--The Commission may require any investment adviser registered under this title--

(A)  to maintain such records of, and file with the Commission such reports regarding, private funds advised by the investment adviser, as necessary and appropriate in the public interest and for the protection of investors, or for the assessment of systemic risk by the Financial Stability Oversight Council (in this subsection referred to as the Council'); and

(B)  to provide or make available to the Council those reports or records or the information contained therein.

(2)  TREATMENT OF RECORDS.--The records and reports of any private fund to which an investment adviser registered under this title provides investment advice shall be deemed to be the records and reports of the investment adviser.

(3)  REQUIRED INFORMATION.--The records and reports required to be maintained by an investment adviser and subject to inspection by the Commission under this subsection shall include, for each private fund advised by the investment adviser, a description of--

(A)  the amount of assets under management and use of leverage, including off-balance-sheet leverage;

(B)  counterparty credit risk exposure;

(C)  trading and investment positions;

(D)  valuation policies and practices of the fund;

(E)  types of assets held;

(F)  side arrangements or side letters, whereby certain investors in a fund obtain more favorable rights or entitlements than other investors;

(G)  trading practices; and

(H)  such other information as the Commission, in consultation with the Council, determines is necessary and appropriate in the public interest and for the protection of investors or for the assessment of systemic risk, which may include the establishment of different reporting requirements for different classes of fund advisers, based on the type or size of private fund being advised.

(4)  MAINTENANCE OF RECORDS.--An investment adviser registered under this title shall maintain such records of private funds advised by the investment adviser for such period or periods as the Commission, by rule, may prescribe as necessary and appropriate in the public interest and for protection of investors, or for the assessment of systemic risk.

(5)  FILING OF RECORDS.--The Commission shall issue rules requiring each investment adviser to a private fun to file reports containing such information as the Commission deems necessary and appropriate in the public interest and for the protection of investors or for the assessment of systemic risk.

(6)  EXAMINATION OF RECORDS.--

(A)  PERIODIC AND SPECIAL EXAMINATIONS.--The Commission--

(i)  shall conduct periodic inspections of the records of private funds maintained by an investment adviser registered under this title in accordance with a schedule established by the Commission; and

(ii)  may conduct at any time and from time to time such additional, special, and other examinations as the Commission may prescribe as necessary and appropriate in the public interest and for the protection of investors, or for the assessment of systemic risk.

(B)  AVAILABILITY OF RECORDS.--An investment adviser registered under this title shall make available to the Commission any copies or extracts from such records as may be prepared without undue effort, expense, or delay, as the Commission or its representatives may reasonably request.

(7)  INFORMATION SHARING.--

(A)  IN GENERAL.--The Commission shall make available to the Council copies of all reports, documents, records, and information filed with or provided to the Commission by an investment adviser under this subsection as the Council may consider necessary for the purpose of assessing the systemic risk posed by a private fund.

(B)  CONFIDENTIALITY.--The Council shall maintain the confidentiality of information received under this paragraph in all such reports, documents, records, and information, in a manner consistent with the level of confidentiality established for the Commission pursuant to paragraph (8). The Council shall be exempt from section 552 of title 5, United States Code, with respect to any information in any report, document, record, or information made available, to the Council under this subsection.

(8)  COMMISSION CONFIDENTIALITY OF REPORTS.--Notwithstanding any other provision of law, the Commission may not be compelled to disclose any report or information contained therein required to be filed with the Commission under this subsection, except that nothing in this subsection authorizes the Commission--

(A)  to withhold information from Congress, upon an agreement of confidentiality; or

(B)  prevent the commission from complying with--

(i)  a request for information from any other Federal department or agency or any self-regulatory organization requesting the report or information for purposes within the scope of its jurisdiction; or

(ii)  an order of a court of the United States in an action brought by the United States or the Commission

(9)  OTHER RECIPIENTS CONFIDENTIALITY.--Any department, agency, or self-regulatory organization that receives reports or information from the Commission under this subsection shall maintain the confidentiality of such reports, documents, records, and information in a manner consistent with the level of confidentiality established for the Commission under paragraph (8).

(10)  PUBLIC INFORMATION EXCEPTION.--

(1)  IN GENERAL.--The Commission, the Council, and any other department, agency, or self-regulatory organization that receives information, reports, documents, records, or information from the Commission under this subsection, shall be exempt from the provisions of section 552 of title 5, United States Code, with respect to any such report, document, record, or information. Any proprietary information of an investment adviser ascertained by the Commission from any report required to be filed with the Commission pursuant to this subsection shall be subject to the same limitations on public disclosure as any facts ascertained during an examination, as provided by section 210(b) of this title.

(B)  PROPRIETARY INFORMATION.--For purposes of this paragraph, proprietary information includes sensitive, non-public information regarding--

(i)  the investment or trading strategies of the investment adviser;

(ii)  analytical or research methodologies;

(iii)  trading data;

(iv)  computer hardware or software containing intellectual property; and

(v)  any additional information that the Commission determines to be proprietary.

(11)  ANNUAL REPORT TO CONGRESS.--The Commission shall report annually to Congress on how the Commission has used the data collected pursuant to this subsection to monitor the markets for the protection of investors and the integrity of the markets..

(c)  FILING DEPOSITORIES.--The Commission may, by rule, require an investment adviser--

(1)  to file with the Commission any fee, application, report, or notice required to be filed by this title or the rules issued under this title through any entity designated by the Commission for that purpose; and

(2)  to pay the reasonable costs associated with such filing and the establishment and maintenance of the systems required by subsection (c).

(3)  LIMITATION ON LIABILITY.--An entity designated by the Commission under subsection (b)(1) shall not have any liability to any person for any actions taken or omitted in good faith under this subsection.

(d)  RECORDS OF PERSONS WITH CUSTODY OR USE.--

(1)  IN GENERAL.--Records of persons having custody or use of the securities, deposits, or credits of a client, that relate to such custody or use, are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations and other information and document requests by representatives of the Commission, as the Commission deems necessary or appropriate in the public interest or for the protection of investors.

(2)  CERTAIN PERSONS SUBJECT TO OTHER REGULATION.--Any person that is subject to regulation and examination by a Federal financial institution regulatory agency (as such term is defined under section 212(c)(2) of title 18, United States Code) may satisfy any examination request, information request, or document request described under paragraph (1), by providing the Commission with a detailed listing, in writing, of the securities, deposits, or credits of the client within the custody or use of such person.

[Codified to 15 U.S.C. 80b--4]

[Source: Section 204 of title II of the Act of August 22, 1940 (Pub. L. No. 768; 54 Stat. 852), effective November 1, 1940, as amended by section 6 of the Act of September 13, 1960 (Pub. L. No. 86--750; 74 Stat. 886), effective September 13, 1960; and section 29(5) of the Act of June 4, 1975 (Pub. L. No. 94--29; 89 Stat. 169), effective June 4, 1975; section 7 of the Act of September 29, 2006 (Pub. L. No. 109--290; 120 Stat. 1321), effective September 29, 2006; section 404 of title IV of the Act of July 21, 2011 (Pub. L. No. 111--203; 124 Stat. 1571); section 929Q(b) of title IX of the Act of July 21, 2010 (Pub. L. No. 111--203; 124 Stat. 1866), effective July 21, 2010]


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