On November 19, 2010 the Securities and Exchange Commission ("SEC") issued a release proposing new rules and rule amendments under the Investment Advisers Act of 1940 ("Advisers Act") to give effect to the provisions of Title IV of the Dodd-Frank Act (a/k/a, the "Private Fund Investment Adviser Registration Act of 2010") (See Release No. IA-3110). Among other changes, these amendments include reallocating oversight of certain mid-sized investment advisers to the states, repealing the "private adviser exemption" currently included in the Advisers Act, and amending the SEC's "pay-to-play" rules.
Eligibility of Advisers for SEC Registration
The Advisers Act currently prohibits an adviser from registering with the SEC if such adviser is regulated by the state in which it has its principal office and place of business, unless it has assets under management of at least $25 million. Dodd-Frank provides for a new group of "mid-sized advisers," and prohibits an adviser that is registered in the state in which it has its principal office and place of business, and has between $25 million and $100 million in assets under management, from registering with the SEC. The Dodd-Frank provision effectively raises the threshold for SEC registration from $25 million to $100 million.
Dodd-Frank provides for three exemptions to the prohibition on SEC registration: (1) if the adviser is not required to register as an adviser in the state in which it maintains its principal office and place of business; (2) if the adviser was registered, it would not be subject to an examination by the state regulator; and (3) if the adviser is required to register in 15 states or more. The SEC previously adopted six exemptions from the prohibition, and is proposing amendments to three of those exemptions as discussed in more detail below.
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