The SEC’s recently-adopted changes to Form ADV and Rule 204-2 of the Investment Advisers Act of 1940, as amended (the so-called “books and records rule”), raise important considerations for many private fund advisers – particularly those that also advise separately managed accounts or that manage multiple funds through affiliated entities.

In particular, the amendments will: (1) call for the collection of more specific information about advisers’ separately managed accounts (“SMAs”), (2) permit so-called umbrella registration on a single Form ADV for affiliated advisers that participate in a single advisory business, and (3) impose several new disclosure and recordkeeping obligations on advisers.

The SMA-related amendments include the following additional disclosure items:

  • Approximate percentage of SMA regulatory assets under management (“RAUM”) that are invested in 12 broad asset categories;
  • For advisors with at least $500 million in RAUM attributable to SMAs, the amount of RAUM attributable to SMAs and the dollar amount of borrowings attributable to those assets; and
  • Certain information about custodians that account for 10 percent or more of the adviser’s aggregate RAUM attributable to SMAs.

The umbrella registration-related amendments essentially modernize Form ADV to accommodate this form of registration and streamline the registration process consistent with the SEC’s position in the recent American Bar Association, Business Law Section, SEC Staff Letter (Jan. 18, 2012).  Note that these amendments do not extend to exempt reporting advisers and that certain conditions must be met in order for registered advisers to utilize umbrella registration, including:

  • The filing adviser and each relying adviser must advise only private funds and separately managed accounts in which the clients are “qualified clients”;
  • The relying advisers must be subject to examination by the SEC; and
  • The filing adviser and the relying advisers must operate under a single code of ethics and a single set of written compliance policies, and the procedures must be administered by a single CCO.

Separately, the amendments to Form ADV will call for new disclosures about advisers’ social media accounts, offices, and outsourced chief compliance officers (an area of recent focus by the SEC), among other things.

In conjunction with the amendments to Form ADV, the SEC also revised the books and records rule to require that advisers retain materials that demonstrate the calculation of performance or rates of return in any communications distributed to any person, as well as to maintain originals of all written communications received or copies of all written communications sent that relate to the performance or rate of return of managed accounts or securities recommendations.  Note that emails constitute “written communications” for these purposes.

Although the amendments to Form ADV and the revisions to the books and records rule do not go into effect until October 1, 2017, private fund advisers should consider what steps they should be taking now in order to be in a position to comply with these new requirements before the time comes.

The final rules are available here.

Earlier this month, the Securities and Exchange Commission approved amendments to, among other things, revise the rules related to the thresholds for registration, termination of registration, and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”).

The amendments, include establishing:

  • a higher threshold of (1) a minimum of $10 million in assets; and (2) 2,000 holders of record or 500 holders of record that are not “accredited investors” for an issuer to be required to register a class of equity pursuant to Rules 12(g)(1);
  • a higher threshold of 300 holders of record (or 500 holders of record, if total assets have not exceeded $10 million) below which an issuer may terminate registration under Rule 12g-4(a);
  • a higher threshold of 300 holders of record (or 500 holders of record, where if the issuer’s total assets have not exceeded $10 million) below which an issuer may suspend Exchange Act reporting under Rule 12h-3; and
  • flexibility in calculating securities “held of record” for purposes of determining registration requirements under Exchange Act Section 12(g) by permitting the exclusion of certain securities held by employees and other persons who receive them under employee compensation plans exempt from Section 5 of the Securities Act and establishing a non-exclusive safe harbor for determining securities “held of record” for purposes of Rule 12g5-1.

Thresholds were also amended for banks and savings and loan holding companies.

These amendments implement provisions of the Jumpstart Our Business Startups Act (JOBS Act) and the Fixing America’s Surface Transportation Act and completes the rulemaking mandated by the JOBS Act. These rules generally harmonize the SEC rules with the statutory changes to the Exchange Act.

The amendments will become effective on June 9. 2016. The final rules are available here.

With the battle over data privacy between Apple and the Department of Justice at the forefront of the news cycle, business owners across the country are likely asking themselves: what responsibilities do I have in protecting sensitive customer data?

Firstly, the government has enacted a number of statutes and regulations to further their interest in ensuring that business owners protect sensitive customer data. From the Gramm-Leach-Bliley Act, to HIPAA, to Sarbanes Oxley, there are numerous laws which give the government the ability, in certain circumstances, to impose monetary fines and legal costs if a business fails to safeguard this information.

Additionally, consumers expect their data to be protected. A Pew Research Center survey found that over half of internet users believe – incorrectly – that the mere existence of a privacy policy means that a business will keep their personal information confidential¹. Customers may feel betrayed and stop doing business with a company if they learn of a cybersecurity breach. For example, one study found that as many as 36% of retail customers will shop less frequently at a retailer that has experienced a security breach².

Finally, in addition to potential penalties that may be imposed by the government and a loss of business, a breach of customer data will bring about other costs. A business will likely experience increased expenses for IT professionals, public relations efforts, insurance premiums, and legal assistance as it seeks to mitigate the damages caused by the breach. Aside from the monetary expenditures, a business’s reputation will also be at stake.

A business owner should consider taking the following steps to protect their business:

  • Delegate responsibility now to individuals who are likely to be involved in a response effort. Do you have the necessary personnel within your business to respond, or will you need to seek outside assistance?
  • Create a plan for how you will notify customers. While the relevant laws do specify how customers should be notified, you will want to produce a notice which is both legally compliant and also customer-friendly.
  • Follow the FTC’s “10 Practical Lessons” for businesses³.
  • Consult an attorney to gain an understanding of what legal and regulatory duties apply to your specific industry.

¹ Aaron Smith, Half of Online Americans Don’t Know What a Privacy Policy Is, PEW RESEARCH CTR. (Dec. 4, 2014),

² Interactions Finds 45 Percent of Shoppers Don’t Trust Retailers to Keep Information Safe, PR NEWSWIRE (Jul. 1, 2014),

³ Start with Security: A Guide for Business, FEDERAL TRADE COMMISSION (Jun. 2015),

Each year state, local and federal agencies award billions of dollars in contracts to private businesses and of those contracts awarded, government agencies set aside a percentage of business opportunities or contacts for certified Women Business Enterprises (WBE).  These government set-asides are for businesses certified as a WBE and sometimes require additional certification as a small business, as such term is defined under federal or state applicable laws to be a Women Owned Small Business (WOSB) and/or industry specific requirements.  In addition to government work, many large private sector companies seek to have business relationships with women owned businesses.  If a business meets certain requirements, the business could certify as a WBE and reap the benefits of lucrative private sector contract initiatives.  For this reason alone, certification solely as a WBE could greatly benefit your business.

A business can be WBE certified by a state government, the Federal Government, a third party certifier such as the Women’s Business Enterprise National Council, or, on the federal and often private sector level, by self-certification.  While the WBE certification process may vary slightly depending on the applicable government agency or private company, the requirements are generally similar.  At least 51% of the business must be owned and controlled by women and the day-to-day operations managed by women.  For certain government contract set-asides, including the Federal Government, an entity must operate in approved industries and not exceed certain size and/or revenue limitations with respect to such industry to qualify as a small business under applicable law.

Certifiers take this process seriously and require, among other things, various organizational, governance and tax documents to vet the applicant.  Certifiers are particularly concerned with the “control” requirement and endeavor to look beyond the applicant’s ownership into the realities of decision-making and management.  Careful attention is required when there is ownership through other entities or estate planning trusts.  Furthermore, certifiers typically prefer applicants to be in existence and conducting business for at least a year prior to submitting an application for WBE status.  New York, for example, strongly recommends, but does not require, that businesses operate for at least one year prior to applying for WBE certification.  As such, an entity may apply for WBE status prior to operating for one year, but may face issues in collecting the necessary documentation.

While the application process can be scrutinizing in some respects, the benefits of being certified as a WBE can be well worth the process.  As a WBE, businesses are afforded improved access to government and private sector work and set-asides.  While WBE status does not guarantee more work by virtue of the status itself, WBE status places businesses in favorable positions as they bid for contracts or business relationships with those seeking to work with WBEs.  For a business looking to grow, becoming a WBE could be the key to greater revenues and connecting with new industry contacts.

There are similar certifications available for minority-owned businesses.

When you’re about to start a new business, you would be wise to give your new entity’s name more than just a lot of thought.

As an entrepreneur, of course you want a distinctive name to set your new business apart from the crowd.  You probably realize the importance of building your business and growing your brand by selecting a name – and perhaps a logo – which represents your company’s product line, style, or type of business.  But you must consider the “marketplace” in which your business will operate.  There are myriads of companies and brands in existence and exponentially more names on the Internet, since many companies use “alternate” or “doing business as” names and have multiple domain names linked to their websites.

If your company’s name, no matter how unusual, infringes another company’s trademark, you could face a lawsuit.  Certainly that is not an ideal way to get off the ground!  Since your new business will likely have a web presence, the physical location of your business becomes less important.  The test typically used by courts is whether there is a likelihood of confusion of the two names in the marketplace.  The larger the marketplace you enter, the greater the chance that your company name or logo might infringe someone else’s protected name or logo (and vice versa).

Here are a few tips to keep you on the path to success:

  • Think of several potential names for your new company before spending serious time or money on your entity.
  • Google those potential names to see if others — regardless of location – are using those names or other names which are similarly spelled or sound like them.
  • Check the Secretary of State website of the state in which you plan to form your entity to see if those or similar names have been filed.
  • Check the United States Patent and Trademark Office website to see if those or similar names are registered or pending registration.
  • Verify that your names could be registered as domain names and in social media.
  • Obtain a report from a nationally-known trademark search firm to identify potential conflicts with other protected or unprotected names.
  • Once all of the foregoing steps have been completed, conduct a “cost-benefit risk analysis” when a name or logo cannot be used risk-free.

For an entrepreneur with sky-high optimism and unlimited potential, these are critical first steps in the launch of your successful start-up.