December 8, 2015

Guidance for funds investing in NYC real estate, the SEC's focus on the "custody rule," and more in this issue of Fund Forum

4 min

This issue of the Venable Fund Forum provides guidance to funds investing in NYC real estate on property tax exemptions and clarifies the important securities law distinctions between being classified as a finder and a broker-dealer. On the compliance front, we look at renewed regulatory interest in fee and expense allocation and the SEC's continued focus on the "custody rule." We also are happy to introduce our readers to our new partner and former Bessemer Trust CCO, Don Andrews. Happy holidays and best wishes for a successful 2016.

Real Estate Funds and Investors: Update on NYC's 421-a Property Tax Exemption Statute

Legal and regulatory developments frequently affect funds that invest in real estate projects (and their returns on investment), particularly with respect to the tax treatment of such projects. New residential projects in New York City that seek to minimize their property taxes must begin construction by December 31, 2015 (among other eligibility requirements) to qualify for property tax exemption benefits under the current 421-a statute. Funds investing in NYC new residential projects commencing construction January 1, 2016 or after should be aware of looming changes to the 421-a property tax exemption statute.

Click here to learn about changes to the 421-a statute and other relevant requirements.

Finders and Unregistered Broker-Dealers

In the last few years, we have seen a number of important developments in the securities laws related to finders and broker-dealer registration requirements. The distinction between being classified as a finder and a broker-dealer can have significant consequences. An unregistered broker-dealer may face sanctions from the Securities and Exchange Commission (SEC), and it may be unable to enforce payment for its services. In addition, transactions involving an unregistered broker-dealer may create a right of rescission in favor of the investors, allowing the investors the right to require the issuer to return the money invested.

Continue reading for an overview of the securities laws relating to finders and broker-dealer registration requirements.

Fund Fees and Expenses – Potential Pitfalls

Fee and expense allocation between funds and their managers has been the subject of renewed scrutiny by regulators and investors. The allocation of such fees and expenses directly impacts the performance of the fund and the manager. In particular, the SEC's Office of Compliance Inspections and Examinations (OCIE) is focusing on the allocation policies, procedures, and practices of fund managers and, in some cases, is levying penalties ranging from thousands to millions of dollars.

Click here to learn about potential pitfalls when allocating fees and expenses.

SEC Continues to Focus on Custody Rule Enforcement

On November 19, the SEC announced the settlement of charges against an investment adviser arising from alleged violations of the SEC's "custody rule" under the Investment Advisers Act of 1940. The SEC alleged the firm was repeatedly late in providing investors with audited financial statements of its private funds. The firm's co-founders will pay a $1,000,000 fine, will be suspended from raising money for one year, and will be overseen by a compliance monitor for three years. In addition, the former CCO will pay a $60,000 fine and will be suspended from acting as a CCO for one year.

Continue reading to see why custody rule compliance will continue to be an important consideration for investment advisers.

Don Andrews, former Chief Compliance Officer for Bessemer Trust, Joins Venable as Partner in New York Corporate Group

Venable has made a prominent addition to its Corporate Group with the arrival of Don Andrews, a leading compliance and risk management attorney with senior experience in both regulatory enforcement and the corporate suite at some of the country's leading financial and wealth management firms. He joins the firm as a partner in the New York office.

Upcoming Event:

Save the Date: Private Equity Webinar – Emerging Deal Structures for Private Equity Companies

Thursday, February 4, 2016

Details coming soon!

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Click here to read the November 2015 issue of Venable's Fund Forum.