Investment Adviser Compliance and Reporting: Latest Developments and OCIE Exam Hot Buttons

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Investment Adviser Compliance and Reporting: Latest Developments and OCIE Exam Hot Buttons Navigating Form ADV Amendments and Preparing for OCIE Examination Priorities, Including New Scrutiny on ERAs WEDNESDAY, FEBRUARY 17, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Cary J. Meer, Partner, K&L Gates, Washington, D.C. Beth Clark, Of Counsel, K&L Gates, Washington, D.C. Alan K. Halfenger, Partner, ACA Compliance Group, Boston The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Investment Adviser Compliance and Reporting: Latest Developments and OCIE Exam Hot Buttons February 17, 2016 Cary J. Meer K&L Gates LLP, Washington, DC and New York City Beth Clark K&L Gates LLP, Washington, DC Alan Halfenger ACA Compliance Group, Boston DC v.5

6 CURRENT OCIE HOT BUTTONS FOR REGISTERED INVESTMENT ADVISERS AND EXEMPT REPORTING ADVISERS

7 Examination Trends: From OCIE s Mouth to Your Ears We collect information on everyone. We analyze information on everyone. I think people assume, if they re not the 9%, the other 91% are out there doing things off the radar screen. But the SEC has gotten very proficient through hiring and staffing and resourcing of financial engineers Drew Bowden, Former Director, OCIE Source: Exams Not the Only Scrutiny, OCIE Official Warns, Compliance Reporter, October 31,

8 Examination Trends 11,438 advisers 2,693 ERAs 16,000 mutual funds 37,000 private funds Source: U.S. Securities and Exchange Commission, SEC Fiscal Year 2014 Agency Financial Report, November 17,

9 Examination Trends: Cycle although the staff examined 10 percent of investment advisers in FY 2014, these advisers represented more than 30 percent of the overall assets under management. Source: U.S. Securities and Exchange Commission, FY 2014 Annual Performance Report, February 2,

10 Examination Trends: Observations 45% of respondents have undergone an SEC Exam 50% of private equity managers that registered as a result of Dodd-Frank have had an SEC Exam 28% of hedge fund managers that registered as a result of Dodd-Frank have had an SEC Exam Source: 2015 Alternative Fund Manager Compliance Survey, ACA Compliance Group, August

11 Examination Trends: Results Percentage that identifies deficiencies 72% 82% 80% 80% 76% Percentage with significant finding 1 42% 42% 42% 35% 30% Percentage referred to Enforcement 13% 12% Source: SEC s FY 2016 Congressional Budget Justification 1 A significant finding is one that may cause harm to customers or clients of a firm, have a high potential to cause harm, or reflect recidivist misconduct 11

12 Examination Trends: Significant Findings Examiners find a wide range of deficiencies during examinations. Some of the deficiencies are more technical in nature, such as failing to include all information that is required to be in a record. However, other deficiencies may cause harm to customers or clients of a firm, have a high potential to cause harm, or reflect recidivist misconduct. The latter deficiencies are among those categorized as significant. ~ 30% of exams result in significant findings Source: U.S. Securities and Exchange Commission, FY 2014 Annual Performance Report, February 2,

13 SEC Examination Priorities OCIE s 2016 focus on three thematic areas: Retail Investors Assessing Marketwide Risks Use of Data Analytics to identify signs of potential illegal activity Thematic areas are identical to

14 Examination Priorities Retail Investors 2016 ReTIRE Initiative Exchange-Traded Funds compliance with exemptive relief, sales strategies, trading practices, etc. Supervision of branch office staff Fee selection and reverse churning Variable annuity sales suitability Public pension advisers and potential conflicts of interest 2015 Fee selection and reverse churning Sales practices used with regard to the movement and supervision of retirement assets Suitability of recommendations to invest retirement assets Supervision of branch office staff Alternative investment companies Fixed-income investment companies 14

15 Examination Priorities Marketwide Risks 2016 Cybersecurity Regulation Systems Compliance and Integrity entities policies and procedures Liquidity controls of mutual funds, ETFs, and private funds with exposure to illiquid fixed-income securities Annual examinations of all systematically important clearing agencies 2015 Monitoring the largest U.S. broker-dealers and asset managers to assess individual firm risks and maintain early awareness of developments industrywide Annual examinations of all systematically important clearing agencies Cybersecurity Potential equity order routing conflicts 15

16 Examination Priorities Data Analytics 2016 Identify individuals with a track record of misconduct and examine the firms that employ them Pump-and-dump schemes or market manipulation of microcap stocks Identify and examine introducing brokers and registered representatives that appear to be engaged in excessive trading Broker-dealer anti-money laundering programs Suitability issues and breaches of fiduciary obligations in promotion of new, complex, and high-risk products 2015 Identify individuals with a track record of misconduct and examine the firms that employ them Pump-and-dump schemes or market manipulation of microcap stocks Identify and examine introducing brokers and registered representatives that appear to be engaged in excessive trading Broker-dealer anti-money laundering programs 16

17 Examination Priorities Other Initiatives 2016 Examinations of newly registered municipal advisors Private placement due diligence, disclosure, and suitability Never-before-examined investment advisers and investment companies Private fund adviser fees and expenses and side-by-side management practices Transfer agents safeguarding of securityholder funds Reviews of exempt reporting advisers 2015 Examinations of newly registered municipal advisors Examinations of proxy advisory service firms Never-before-examined investment companies Private equity fees and expenses Examinations of transfer agents, especially those involved with microcap securities and private offerings 17

18 OVERVIEW OF KEY 2015 INVESTMENT ADVISER ENFORCEMENT CASES

19 Chair White on Enforcement Vigorous and comprehensive enforcement protects investors and reassures them that our financial markets operate with integrity and transparency, and the Commission continues that enforcement approach by bringing innovative cases holding executives and companies accountable for their wrongdoing sending clear warnings to would-be violators. Source: SEC Announces Enforcement Results for FY 2015, SEC Press Release, (October 22, 2015) 19

20 Enforcement Update: Results Fiscal Year enforcement actions 507 for violations of Federal Securities Laws 300 were either against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil junctions, or other orders Approximately $4.2 billion in disgorgement and penalties Fiscal Year enforcement actions 413 for violations of Federal Securities Laws 342 were either against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil junctions, or other orders $4.16 billion in disgorgement and penalties 20

21 Enforcement Update: Results (continued) FY15 First-ever cases involving: Private equity adviser for misallocating broken-deal expenses Failure to report a material compliance matter to a fund board Distribution-in-guise FCPA action against a financial institution SEC rule prohibiting the use of confidentiality agreements to impede whistleblower communication with the SEC FY14 First-ever pay-to-play case 21

22 Enforcement Update: Penalties,, Source: The Wall Street Journal 22

23 Enforcement Update: Asset Management Unit 2015 Priorities Advisers to Registered Investment Companies Valuation Performance advertising Investment guideline compliance or undisclosed strategies Fund governance Fund distribution Advisers to Separately Managed Accounts and/or Retail Accounts Conflicts of interest Fee arrangements Compliance under Enforcement Division s Compliance Program Initiative Advisers to Hedge Funds and Private Funds Conflicts of interest Valuation Compliance and controls Undisclosed and misallocated fees and undisclosed conflicts Performance advertising All Advisers Recidivism Source: IA Watch 17th Annual IA Compliance Conference, SEC Speech, Julie M. Riewe, Head of the AMU within the Enforcement Division (February 26, 2015) 23

24 Receipt of Unauthorized or Inadequately Disclosed Fees In re Blackstone Management Partners LLC et al., Investment Advisers Act of 1940 ( IAA ) Rel. No (Oct. 7, 2015) $39 million in disgorgement and civil money penalties settlement by investment adviser to private equity funds because (1) inadequate disclosure of accelerated monitoring fees and (2) the adviser negotiated fees for legal services for which the adviser received a greater discount than did the funds Key Takeaway: Full transparency of fees and conflicts of interest is critical 24

25 Receipt of Unauthorized or Inadequately Disclosed Fees (continued) In re Taberna Capital Management, LLC et al., Securities Exchange Act of 1934 ( SEA ) Rel. No (Sept. 2, 2015) Settlement involving the payment of $21 million in disgorgement and civil money penalties by adviser responsible for managing CDOs because the adviser received exchange fees that were not contractually authorized. The fees were inaccurately characterized as compensation for third-party costs Key Takeaway: An adviser may only receive fees to which it is contractually entitled, and fees must be accurately characterized 25

26 Use of Registered Fund Assets to Pay for Expenses the Adviser Should Have Borne In re First Eagle Investment Management LLC and FEF Distributors LLC, IAA Rel. No (Sept. 21, 2015) In the first case brought under the SEC s Distribution-in-guise Initiative (focusing on whether advisers are being reimbursed for distribution expenses in the guise of something else), an adviser to mutual funds and its wholly owned broker-dealer, acting as fund distributor, agreed to pay nearly $40 million to settle SEC charges that they unlawfully caused their funds to pay nearly $25 million for distribution-related services. Although the payments were characterized as payments for sub-ta services, the SEC concluded that they were payments for distribution expenses Key Takeaway: Unless part of a 12b-1 plan, the adviser has to bear the costs associated with marketing the funds 26

27 Use of Registered Fund Assets to Pay for Expenses the Adviser Should Have Borne (continued) In re Kohlberg Kravis Roberts & Co., LP, IAA Rel. No (June 29, 2015) In the first SEC case to charge a private equity adviser with misallocating broken-deal expenses, a private equity firm that specializes in buyouts and other transactions agreed to pay $28.5 million because the funds had reimbursed a large portion of broken-deal expenses, but other co-investors had not contributed to those expenses Key Takeaway: Funds should not be required to shoulder the cost for nearly all of the expenses incurred to explore potential investment opportunities if those opportunities also benefit co-investors who do not share those costs 27

28 Improper Trade Allocations by Cherry-Picking Favorable Trades In re Welhouse & Associates, Inc. and Mark P. Welhouse, SEA Rel. No (June 29, 2015) In a case that relied heavily on the Commission s data-driven initiative to identify potentially fraudulent trade allocations, the Commission charged that the sole owner of an adviser to 72 separately managed accounts purchased options in an omnibus account and then delayed allocation of the purchases until he saw whether the securities appreciated in value. The matter is in litigation Key Takeaway: The Commission s data-driven initiative is highly focused on aberrational trading 28

29 Overvaluation of Illiquid Assets In re Alphabridge Capital Management LLC et al., IAA Rel. No (July 1, 2015) In a case that settled for $5 million, the SEC charged an adviser to hedge funds with using inflated, internally derived valuations for unlisted, thinly traded residential mortgage-backed securities, even though it claimed to be using independent price quotes from broker-dealers. The SEC charged that the adviser supplied its own prices for broker-dealers to pass off as their own and scripted the broker-dealers conversation with the auditor Key Takeaway: The integrity of the portfolio valuation process is critical, especially for illiquid securities. An adviser cannot claim to use market-grounded prices if it is using something else 29

30 Overvaluation of Illiquid Assets (continued) In re Lynn Tilton et al., IAA Rel. No (Mar. 30, 2015) In a valuation case that is being contested, the Commission charged that an adviser to three CLO funds with more than $2.5 billion in assets, much of which was invested in distressed loans, valued nearly all the loan assets at their price of acquisition even though many of the borrowers had made only partial or no interest payments Key Takeaway: The Commission will carefully scrutinize whether valuations of illiquid assets are updated to reflect current conditions 30

31 Violation of Public Clients Investment Restrictions In re Gray Financial Group, Inc. et al., Securities Act of 1933 ( SA ) Rel. No (May 21, 2015) In a case that is currently being litigated, the SEC charged that an adviser that provided consulting services to pension and profit sharing plans, endowments, and other entities steered its public pension fund clients to invest in alternative investment fund products that did not comply with state law investment restrictions for public pension funds. The Commission charged that the adviser knowingly violated its fiduciary duty Key Takeaway: Advisers need to be particularly focused on state law investment restrictions that may apply to public-entity clients 31

32 Failure to Disclose Conflicts of Interest In her February 26, 2015, remarks to the 17th Annual Investment Advisers Compliance Conference, Julie Riewe stated that, in nearly every matter in the Asset Management Unit, the unit is exploring whether the adviser discharged its fiduciary obligation to identify conflicts and (1) either eliminate them or (2) mitigate them and disclose them to boards or investors. She said, Over and over again we see advisers failing to properly identify and then address their conflicts In re Guggenheim Partners Investment Management LLC, IAA Rel. No (Aug. 10, 2015) In an action alleging that an adviser to institutional clients, high-net-worth clients, and private funds failed to disclose a $50 million loan that a senior executive of the adviser had received from an advisory client, the adviser settled by paying a $20 million penalty. The Commission alleged that the adviser did not disclose the loan to the compliance department or clients Key Takeaway: Advisers must be vigilant in disclosing conflicts 32

33 Failure to Disclose Conflicts of Interest (continued) In re BlackRock Advisors LLC and Bartholomew Battista, IAA Rel. No (Apr. 20, 2015) In the first SEC case to charge a violation of Rule 38a-1 under the Investment Company Act (requiring the disclosure of each material compliance matter to the board), the Commission charged that an adviser to registered funds, private funds, and separately managed accounts should have disclosed to the registered fund s board that one of the adviser s portfolio managers had founded a company that formed a joint venture with a publicly owned company in which the fund had a significant interest. The Commission also charged the chief compliance officer with causing certain violations, which led to a dissent by Commissioner Gallagher. The adviser paid $12 million to settle the matter Key Takeaway: Conflicts of interest created by outside business activities must either be eliminated or be disclosed to the board and advisory clients 33

34 Failure to Disclose Conflicts of Interest (continued) SEC v. Lee D. Weiss et al. (D. Mass., filed Sept. 29, 2015) In a case that is being litigated, the SEC charged that an adviser to individual clients and hedge funds, without adequate disclosure of conflicts, caused clients to invest more than $40 million in companies in which the owner of the adviser had a significant interest Key Takeaway: Material conflicts have to be eliminated or disclosed In re Fenway Partners, LLC et al., IAA Rel. No (Nov. 3, 2015) In a case that settled for $10.2 million, the SEC charged that an adviser to a private equity fund, as well as four executives, steered portfolio company management fees to an affiliate without adequate disclosure or offsetting those fees against the advisory fee paid by the fund, and that employees of the adviser or an affiliate received $15 million from the proceeds of the sale of one of the portfolio companies Key Takeaway: Private equity advisers have to be particularly vigilant when entering into arrangements with affiliates or when receiving payments from portfolio companies 34

35 Violation of the Custody Rule The IAA Custody Rule (Rule 206(4)-2) requires that advisers who have custody of client assets put in place a set of procedural safeguards to prevent loss of those assets. The Commission frequently brings enforcement actions for failure to comply with the Custody Rule In re Water Island Capital LLC, Investment Company Act of 1940 ( ICA ) Rel. No (Feb. 12, 2015) An investment adviser to mutual funds paid a $50,000 civil money penalty to settle an action charging that the adviser failed to implement policies and procedures to ensure that all cash collateral was held in the custody of the funds bank. Instead, for a nine-month period, cash collateral was held by broker-dealer counterparties Key Takeaway: Section 17(f)(5) of the ICA generally requires that if an investment company maintains securities in the custody of a qualified bank, the cash proceeds from the sale of those securities should also be kept in the custody of the bank 35

36 Violation of the Custody Rule (continued) In re Sands Brothers Asset Management LLC et al., IAA Rel. No (Nov. 19, 2015) The Commission brought an action against an investment advisory firm to pooled investment vehicles, as well as against two owners and a former CCO, because the firm violated the Custody Rule after being reprimanded for violations a few years before. In particular, the firm took no action in response to a 2010 order requiring it, among other things, to submit to a surprise examination and distribute audited financials within the time periods imposed by the Custody Rule. The respondents agreed to pay a $1 million penalty and be suspended for a year from raising money from new or existing investors. The former CCO agreed to pay a $60,000 penalty and be suspended for one year from acting as a CCO or appearing or practicing before the SEC as an attorney Key Takeaway: Recidivists can expect harsh treatment from the Commission 36

37 Misrepresentation of Investment Strategy In re UBS Willow Management LLC et al., SA Rel (Oct. 19, 2015) The Commission charged that the adviser to a fund changed strategy from a long-credit investment strategy (investing in distressed debt) to a short-credit investment strategy (investing in credit default swaps) without updating the fund s offering memorandum to reflect the change. The adviser agreed to settle by paying $20.5 million in disgorgement, compensation, and civil money penalties Key Takeaway: Advisers must provide investors and boards with accurate information about a fund s investment strategy 37

38 Misrepresentations Regarding a Fund s Performance In re Virtus Investment Advisers, Inc., IAA Rel. No (Nov. 16, 2015) An adviser to mutual funds agreed to pay $16.5 million to settle charges that it misled mutual fund investors and others regarding the performance of its AlphaSector rotation strategy by stating that the strategy had been used since April 2001 and that its track record had significantly outperformed the S&P 500 Index from April 2001 to September In addition, the sub-adviser inflated the historical performance of the strategy by incorrectly implementing signals in advance of when such signals actually could have occurred Key Takeaway: Advisers need to take steps to verify claims of the subadviser before they incorporate those claims into their advertising materials 38

39 Misrepresentations Regarding Investment Risks In re Arthur F. Jacob, CPA and Innovative Business Solutions, SEA Rel. No (Oct. 5, 2015) In addition to charging a number of other violations, the SEC charged that an adviser to 30 client households misrepresented to clients that his trading strategy was safe, involved little or no risk, and produced guaranteed, predictable profits. The Commission charged that, contrary to these representations, the investments included inverse exchange-traded funds and other securities known to be speculative and highly volatile. The matter is in litigation Key Takeaway: Advisers cannot understate the risks of their investment strategy 39

40 Failure to Adopt and Implement Adequate Cybersecurity Policies and Procedures Rule 30(a) of Regulation S-P requires every registered investment adviser (and others) to adopt policies and procedures reasonably designed to ensure the security and confidentiality of customer records, protect against any anticipated threats or hazards to such records and information, and protect against unauthorized access to or use of customer records or information In re R.T. Jones Capital Equities Management, Inc., IAA Rel. No (Sept. 22, 2015) The Commission fined an adviser with separately managed accounts $75,000 for failing to establish required policies and procedures in advance of a cybersecurity breach Key Takeaway: With the increasing barrage of cyberattacks on financial firms, firms must be vigilant in adopting and implementing policies and procedures to protect clients information from such attacks 40

41 Inadequate Compliance Procedures or Resources In re Pekin Singer Strauss Asset Management Inc. et al., IAA Rel. No (June 23, 2015) The SEC charged that an investment adviser to high-net-worth clients and a fund hired a CCO who had limited prior experience and training in compliance; the CEO at the time failed to provide the CCO with sufficient guidance regarding his duties and responsibilities and did not provide him with staff to assist with compliance; the CCO lacked experience, resources, and knowledge as to how to adopt and implement an effective compliance program; because of his other responsibilities, the CCO was only able to devote 10% 20% of his time on compliance matters; he failed to complete timely annual compliance program reviews; he told the CEO that he needed help, but the CEO delayed in providing additional resources; and the lack of resources contributed to delays in completing compliance reviews As part of the settlement, the Commission suspended the former CEO from association in a compliance and supervisory capacity for 12 months, ordered the firm to pay a civil money penalty of $150,000, and ordered the former CEO to pay a fine of $45,000 41

42 Inadequate Compliance Procedures or Resources (continued) In re Wolverine Trading LLC and Wolverine Asset Management LLC, SEA Rel. No (Oct. 8, 2015) The Commission charged that an investment adviser who provided discretionary investment services to high-net-worth clients violated Section 204A of the Investment Advisers Act, which requires policies and procedures reasonably designed to prevent the misuse of material nonpublic information, but did not charge an independent insider trading violation. In that case, an adviser and its affiliated broker-dealer shared information despite information barrier procedures that were intended to ensure that they conduct business as separate and distinct organizations Key Takeaway: Procedures must not only be established; they must also be vigorously maintained and enforced 42

43 CASES AGAINST CHIEF COMPLIANCE OFFICERS

44 CCO Cases IAA Rule 206(4)-7 requires investment advisers to adopt and implement written policies and procedures reasonably designed to prevent violations of the Act and to appoint a chief compliance officer responsible for administering the policies and procedures In re BlackRock Advisors, LLC, IAA Rel. No (Apr. 20, 2015): Charged CCO with causing compliance-related violations related to outside business activities because he allegedly knew or should have known that the violations were not reported to the funds boards in violation of Rule 38a- 1(a)(4)(iii)(B) The order states that, as CCO, he was responsible for the design and implementation of [the firm s] written policies and procedures, and did not recommend written policies and procedures to assess and monitor [certain] outside activities and to disclose conflicts of interest to the funds boards and to advisory clients The CCO was fined $60,000 and ordered to cease and desist from violating IAA 206(4), Rule 206(4)-7, and ICA Rule 38a-1 44

45 CCO Cases (continued) In re SFX Financial Advisory Management Enterprises, Inc., IAA Rel. No (June 15, 2015) In a case involving misappropriation of client assets, the Commission charged that the CCO failed to effectively implement a compliance policy requirement to review cash flows in client accounts and thereby caused the firm s violation of IAA Sections 206(4) and 206(4)-7 The compliance officer paid a fine of $25,000 and was ordered to cease and desist from violations of IAA Sections 206(4) and 207 and Rule 206(4)-7 On June 18, 2015, Commissioner Gallagher issued a statement on why he dissented from those two decisions. He stated that CCOs are responsible for administering compliance policies and procedures but that responsibility for implementation rests with the adviser itself On June 29, 2015, Commissioner Aguilar responded, stating that CCOs who do their jobs competently, diligently, and in good faith should not fear the SEC. He stated that between 2009 and 2014, the number of IAA cases brought against CCOs ranged from 6% 19% 45

46 CCO Cases (continued) On Oct. 24, 2015, Andrew ( Buddy ) Donohue, Chair White s Chief of Staff, addressed the liability of chief compliance officers He repeated that the Commission is not targeting CCOs He quoted earlier statements by Chair White that compliance officers who perform their responsibilities diligently need not fear enforcement action He stated that SEC actions against compliance officers tend to involve compliance officers who: Affirmatively participated in the underlying misconduct, Helped mislead regulators, or Had clear responsibility to implement compliance programs and wholly failed to carry out that responsibility Given the degree to which hindsight informs enforcement actions, the fact that the SEC says it is not targeting CCOs or charging CCOs who performed their responsibilities diligently may provide cold comfort 46

47 PROPOSED REVISIONS TO FORM ADV

48 SEC Proposal for Revisions to Form ADV Proposed May 20, 2015 Collection of Information on Separately Managed Accounts ( SMAs ) Applies to nonpooled investment vehicles Would need to report annually (or annually with semi-annual data for registered investment advisers ( RIAs ) with at least $10 billion of regulatory assets under management ( RAUM ) attributable to SMAs): Percentage of RAUM attributable to SMAs in 10 broad asset categories (exchange-traded equities, U.S. government/agency bonds) Percentage of SMA assets invested in derivatives (increased reporting for advisers with $10 billion or more of RAUM) Identify custodians that account for at least 10% of RAUM attributable to SMAs and identify amount of RAUM at each custodian 48

49 SEC Proposal for Revisions to Form ADV (continued) Information Regarding an Adviser s Business and Affiliations Includes: Disclose website addresses for social media platforms Total number of advisory offices and information about the 25 largest offices Whether CCO is employed by or compensated by someone other than the adviser (or a related person) If report RAUM differently in Part 2A than in Part 1A, would be required to check a box Percentage of RAUM attributable to non-u.s. clients Report RAUM of all parallel managed accounts Additional information regarding sponsors of wrap fee programs Require adviser to report percentage of private fund assets owned by qualified clients 49

50 SEC Proposal for Revisions to Form ADV (continued) Umbrella Registration (2012 ABA No-Action Letter): Proposal includes changes to Form ADV to clarify which questions must be answered by the filing adviser and which questions must be answered by relying advisers Reporting must be consistent with reporting on Form PF 50

51 Cary J. Meer, Partner K&L Gates, Washington, D.C. and New York City Ms. Meer has been structuring private funds as limited liability companies, limited partnerships, offshore corporations, common trust funds and business trusts, and preparing disclosure documents and organizational documents for such entities since the mid-1990s. Her clients include hedge fund and private equity fund sponsors, as well as sponsors of funds-of-funds and funds-of-one. Some of these manager are stand-alone entities and some are part of large financial institutions. She also advises investment advisers, private fund managers, and investment companies on compliance issues, including under the Investment Advisers Act of 1940 and whether their commodity interest-related trading or advice would require them to register as commodity pool operators or commodity trading advisors. She also advises institutional investors in connection with their investment in third-party private funds. 51

52 Beth Clark, Of Counsel K&L Gates, Washington, D.C Ms. Clark concentrates her practice in the investment management and securities areas, where she advises participants in the financial services industry. In particular, she focuses on creating and counseling U.S. and non-u.s. private funds, including hedge funds, private equity funds, and venture capital funds. She structures U.S. funds as limited liability companies, limited partnerships, and trusts and establishes offshore funds. She prepares and negotiates the necessary documentation associated with private securities offerings, including disclosure and organizational documents, service provider agreements, and filings and registrations. She advises as to obligations under federal securities laws, state laws and rules, and selfregulatory organization rules. 52

53 Mr. Halfenger has over 20 years of global compliance experience. Prior to joining his current firm he served as Global Chief Compliance Officer at Bain Capital in Boston. Previously, he held roles as a senior compliance officer and counsel at prominent hedge fund managers, private banks, and brokerage and investment banking firms. Alan K. Halfenger, Partner, ACA Compliance Group, Boston ahalfenger@acacompliancegroup.com 53