SOME STANFORD GROUP COMPANY MAY GET SIPA PROTECTION

The following is from the Sec Website:

If you invest in securities many times you are covered by SIPA which insures that if you invest your money with a crooked broker then you will be held harmless should that broker default on it's accounts. In the following case the SEC believes that some defrauded investors in the Stanford Group Company might be able to receive some recovery.

"Washington, D.C., June 15, 2011 – The Securities and Exchange Commission today concluded that certain individuals who invested money through the Stanford Group Company – a U.S. broker-dealer owned and used by Allen Stanford to perpetrate a massive Ponzi scheme – are entitled to the protections of the Securities Investor Protection Act of 1970 (SIPA).
In exercising its discretionary authority under SIPA and based on the totality of the facts and circumstances of the case, the Commission asked the Securities Investor Protection Corporation (SIPC) to initiate a court proceeding under SIPA to liquidate the broker-dealer.
According to its 2009 complaint, the SEC alleged that Allen Stanford operated a Ponzi scheme in which certain investors were sold certificates of deposit (CDs) issued by Stanford International Bank Ltd. (SIBL) through the Stanford Group Company (SGC). SGC is a SIPC Member.
In an analysis provided to SIPC, the SEC explains that, on the specific facts of this case, investors with brokerage accounts at SGC who purchased the CDs through the broker-dealer qualify for protected “customer” status under SIPA.
In reaching its determination, the SEC cited the conclusions in the report of the court appointed-receiver for SGC, who noted that the many companies controlled and directly or indirectly owned by Stanford “were operated in a highly interconnected fashion, with a core objective of selling” the CDs.
Among other things, the receiver also noted that “[c]orporate separateness was not respected within the Stanford empire. ... Money was transferred from entity to entity as needed, irrespective of legitimate business need. Ultimately, all of the fund transfers supported the Ponzi scheme in one way or another, or benefitted Allen Stanford personally.”
The Commission further determined that, in light of all of the facts and circumstances in this case, the customers’ claims should be based on their net investment in the fraudulent CDs used to carry out the Ponzi scheme.
A SIPA liquidation proceeding would allow investors with accounts at SGC to file claims with a trustee selected by SIPC. The trustee would decide whether the investors have “customer” claims that are protected by the statute. An investor who disagreed with the trustee’s determination could seek court review.
The Commission has authorized its staff to file an action in federal district court under SIPA to compel SIPC to initiate a liquidation proceeding in the event SIPC does not do so.”

OPENING STATEMENT BY MARY SCHAPIRO AT SEC OPEN MEETING

The following is from the SEC website:

Speech by SEC Chairman:
Opening Statement at SEC Open Meeting: Proposals to Amend Rule 17a-5
by
Chairman Mary Schapiro
U.S. Securities and Exchange Commission
Washington, D.C.
June 15, 2011
Good morning. This is an open meeting of the United States Securities and Exchange Commission on June 15, 2011.
Today, we will consider a proposal that is designed to strengthen the audits that broker-dealers must undergo, and enhance the ability of regulators to oversee the ways in which broker-dealers maintain custody of their customers’ assets.
This proposal builds upon the rules we adopted two years ago that strengthened the protections provided to investors who turn their assets over to investment advisers.
As with the investment adviser rules, the proposal under consideration today grew out of the Madoff Ponzi scheme and other frauds in which investor assets were misappropriated.
The fact is that when investors hand their assets over to a broker-dealer, they trust that their broker-dealer will hold and invest the assets as directed. But when a broker-dealer violates that trust and misuses the assets, that broker not only harms the investor but also erodes confidence broadly in the financial system. This in turn undermines the ability of legitimate businesses to raise capital.
To protect investors and help maintain confidence in the market, I believe we must take strong steps to help safeguard the assets held by broker-dealers.
Strengthening Broker-Dealer Audits
The proposals under consideration would strengthen the annual audits of broker-dealers by requiring those audits to have increased focus on the custody activities of broker-dealers. While current rules require broker-dealers to protect and account for customer assets, today’s proposal would mandate an audit of the controls that the broker-dealer has put in place to ensure compliance with those rules.
While not directly mandated by the Dodd-Frank Act, today’s proposals would facilitate the PCAOB’s new responsibility established by that Act to oversee the registered public accounting firms that audit broker-dealers.
Strengthening Oversight of Broker-Dealer Custody
Additionally, the proposals would strengthen oversight of broker-dealer custody practices. First, the proposals would require broker-dealers that maintain custody of customer assets – or that self-clear transactions – to allow staff of the Commission and the relevant designated examining authority (DEA) to review work papers of the public accounting firm that audits the broker-dealer and to discuss any findings with the accounting firm. The goal would be to enhance the Commission’s or DEA’s examination of the broker-dealer by building on the work performed by the accounting firm, particularly in the area of verifying the custody of customer assets.
Second, the proposed amendments would require all broker-dealers to file, on a quarterly basis, a proposed new form that would elicit information about the custody practices of the broker-dealer. This would create a profile of the broker-dealer’s custody practices to be used as a starting point for examinations by regulators.
I strongly encourage public comment on the proposals to assist the Commission in formulating sound rules and regulations. I look forward to reviewing the public comment.
Before I turn to Robert Cook and John Ramsay, I would like to thank them and other Commission staff including Mike Macchiaroli, Tom McGowan, Nathaniel Stankard, Randall Roy, Rose Wells, and Mark Attar from the Division of Trading and Markets for the long hours and hard work they have devoted to preparing the recommendations before us.
Additionally, I would like to thank Brian Croteau, Jeffrey Minton, and John Offenbacher from the Office of the Chief Accountant and Norm Champ, Julius Leiman-Carbia, and Robert Sollazo from the Office of Compliance Inspections and Examinations for their valuable assistance in developing these proposals.
I also appreciate the contributions from Meredith Mitchell, David Blass, Paula Jenson, Cynthia Ginsberg, Janice Mitnick, and Lynn Taylor from the Office of the General Counsel; Jennifer Marietta-Westberg, Tiago Requeijo, and Chuck Dale from the Division of Risk, Strategy, and Financial Innovation; and Dan Kahl, Jaime Eichen, and Brian Johnson from the Division of Investment Management.
I’d also like to thank my fellow Commissioners and their staff for their work on this proposal.
Now I will ask Robert and John to provide us with additional details about the Division’s recommendations.”

MORGAN KEEGAN TO PAY $200 MILLION TO SETTLE FRAUD CHARGES

The “false valuation of sub-prime mortgage backed securities” is now playing out with civil and sometimes criminal charges being settled. In the case against Morgan Keegan the SEC alleged that certain persons at the firm manipulated the valuation of sub-prime mortgages. The following excerpt is from the SEC website:


“Washington, D.C., June 22, 2011 – The Securities and Exchange Commission, state regulators, and the Financial Industry Regulatory Authority (FINRA) announced today that Morgan Keegan & Company and Morgan Asset Management have agreed to pay $200 million to settle fraud charges related to subprime mortgage-backed securities. Two Morgan Keegan employees also agreed to pay penalties for their alleged misconduct, including one who is now barred from the securities industry.
The Memphis-based firms, former portfolio manager James C. Kelsoe Jr., and comptroller Joseph Thompson Weller were accused in an administrative proceeding last year of causing the false valuation of subprime mortgage-backed securities in five funds managed by Morgan Asset Management from January 2007 to July 2007. The SEC’s order issued today in settling the charges also finds that Morgan Keegan failed to employ reasonable pricing procedures and consequently did not calculate accurate “net asset values” for the funds. Morgan Keegan nevertheless published the inaccurate daily NAVs and sold shares to investors based on the inflated prices.

The SEC brought its enforcement action in coordination with FINRA and a task force of state regulators from Alabama, Kentucky, Mississippi, Tennessee and South Carolina.
“The falsification of fund values misrepresented critical information exactly when investors needed it most – when the subprime mortgage meltdown was impacting the funds,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Such misconduct does grievous harm to investors.”
William Hicks, Associate Director for the SEC’s Atlanta Regional Office, added, “This enforcement action makes clear that the SEC will deal firmly with those who abuse their responsibility to assign accurate values to securities or other assets held by funds.”
The SEC’s order finds that Kelsoe instructed Morgan Keegan’s fund accounting department to make arbitrary “price adjustments” to the fair values of certain portfolio securities. The price adjustments ignored lower values for those same securities provided by outside broker-dealers as part of the pricing process, and often lacked a reasonable basis. In some instances, when price information was received that was substantially lower than current portfolio values, fund accounting personnel acted at the direction of Kelsoe and lowered values of bonds over a period of days in a series of pre-planned reductions to values at or closer to the price confirmations. As a result, during the interim days, the Morgan Keegan did not price those bonds at their current fair value.
The SEC’s order further finds that Kelsoe screened and influenced the price confirmations obtained from at least one broker-dealer. Among other things, the broker-dealer was induced to provide interim price confirmations that were lower than the values at which the funds were valuing certain bonds, but higher than the initial confirmations that the broker-dealer had intended to provide. The interim price confirmations enabled the funds to avoid marking down the value of securities to reflect current fair value. In some instances, Kelsoe induced the broker-dealer to withhold price confirmations, where those price confirmations would have been significantly lower than the funds’ current valuations of the relevant bonds.
According to the SEC’s order, through his actions Kelsoe fraudulently prevented a reduction in the NAVs of the funds that should otherwise have occurred as a result of the deterioration in the subprime securities market in 2007. His misconduct occurred in the context of a nearly complete failure by Morgan Keegan to employ the fair valuation policies and procedures adopted by the funds’ boards of directors to fair value the funds’ portfolio securities.
Under the settlement, Morgan Keegan is required to pay $25 million in disgorgement and interest and a $75 million penalty to the SEC to be placed into a Fair Fund for the benefit of investors harmed by the violations. Morgan Keegan will pay $100 million into a state fund that also will be distributed to investors. The firms are additionally required to abstain from involvement in valuing fair valued securities on behalf of investment companies for three years. Kelsoe agreed to pay $500,000 in penalties and be barred from the securities industry by the SEC, and Weller agreed to pay a penalty of $50,000.

The SEC’s case originated from an SEC examination by Barbara Martin, Glen Richards and Christopher Ray. The matter was investigated by Stephen Donahue, Jack Westrick, and Edward Saunders. The case was litigated by Graham Loomis, Robert Gordon, John O'Halloran, Shawn Murnahan, Jerome Dewitt, Deborah Moore, and Eunita Holton with the assistance of valuation specialist Rick Mayfield. The case was brought under the supervision of Atlanta Regional Director Rhea Dignam and Associate Regional Director William Hicks.”

Morgan Keegan was a big player in the sub-prime mortgage industry and the people involved in the investigation and litigation of the case are certainly deserving of congratulations from their fellow Americans. Fraud seems to many people to be a harmless crime but, just look at the destruction the mortgage fraud debacle has done to this country.

SEC CHARGES FORMER COLONIAL BANK EXECUTIVES WITH FRAUD IN TARP SCHEME

The following is an excerpt from the SEC web site:

On June 16, 2010 the Securities and Exchange Commission (SEC) charged Lee B. Farkas, the former chairman and majority owner of Taylor, Bean and Whitaker Mortgage Corp. (TBW), which was once the nation's largest non-depository mortgage lender, with orchestrating a large-scale securities fraud scheme and attempting to scam the U.S. Treasury's Troubled Asset Relief Program (TARP).
On February 24, 2011, the SEC charged Desiree E. Brown, TBW’s former treasurer, with aiding and abetting Farkas’ securities fraud and TARP related schemes.
On March 2, 2011, the SEC charged Catherine L. Kissick, a former vice president at Colonial Bank and the head of its mortgage warehouse lending division (MWLD) with being an active participant in Farkas’ securities fraud scheme.
On March 16, 2011, the SEC charged Teresa A. Kelly, a former operations supervisor at Colonial Bank’s MWLD with being an active participant in Farkas and Kissick’s securities fraud scheme.
In the comprehensive scheme, the SEC alleged that Farkas, Kissick, Brown and Kelly (collectively, Defendants) conspired together to sell more than $1.5 billion worth of fabricated or impaired mortgage loans and securities from TBW to Colonial Bank. Those loans and securities were falsely reported to the investing public as high-quality, liquid assets. Farkas and Brown were also responsible for a bogus equity investment that caused Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for TARP funds. When Colonial Bank's parent company — The Colonial BancGroup, Inc. — issued a press release announcing it had obtained preliminary approval to receive $550 million in TARP funds, its stock price jumped 54 percent in the remaining two hours of trading, representing its largest one-day price increase since 1983.
According to the SEC's complaints, each filed in U.S. District Court for the Eastern District of Virginia, Defendants executed the fraudulent scheme from March 2002 until August 2009, when TBW — a privately-held company headquartered in Ocala, Florida — filed for bankruptcy. TBW was the largest customer of Colonial Bank's MWLD. Because TBW generally did not have sufficient capital to internally fund the mortgage loans it originated, it relied on financing arrangements primarily through Colonial Bank's MWLD to fund such mortgage loans.
According to the SEC's complaints, TBW began to experience liquidity problems and overdrew its then-limited warehouse line of credit with Colonial Bank by approximately $15 million each day. The SEC alleges that Farkas pressured Kissick and Kelly to assist in concealing TBW's overdraws through a pattern of "kiting" whereby certain debits to TBW's warehouse line of credit were not entered until after credits due to the warehouse line of credit for the following day were entered. As this kiting activity increased in scope, TBW was overdrawing its accounts with Colonial Bank by approximately $150 million per day.
The SEC alleges that in order to conceal this initial fraudulent conduct, Defendants jointly devised a plan for TBW to create and submit fictitious loan information to Colonial Bank. Defendants also directed the creation of fictitious mortgage-backed securities assembled from the fraudulent loans. By the end of 2007, the scheme consisted of approximately $500 million in fake residential mortgage loans and approximately $1 billion in severely impaired residential mortgage loans and securities. As a direct result of Defendants' misconduct, these fictitious and impaired loans were misrepresented as high-quality assets on Colonial BancGroup's financial statements.
The SEC alleges that in addition to causing Colonial BancGroup to misrepresent its assets, Farkas and Brown caused BancGroup to misstate publicly that it had obtained commitments for a $300 million capital infusion, which would qualify Colonial Bank for TARP funding. Farkas falsely told BancGroup that a foreign-held investment bank had committed to financing TBW's equity investment in Colonial Bank. Farkas also issued a press release on behalf of TBW announcing that TBW had secured the necessary financing for BancGroup. Contrary to his representations to BancGroup and to the investing public, Farkas never secured financing or sufficient investors to fund the capital infusion. When BancGroup and TBW later mutually announced the termination of their stock purchase agreement, essentially signaling the end of Colonial Bank's pursuit of TARP funds, BancGroup's stock declined 20 percent.
The SEC's complaint against Farkas charges him with violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder and aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against Farkas. The SEC also seeks an officer-and-director bar against Farkas as well as an equitable order prohibiting him from serving in a senior management or control position at any mortgage-related company or other financial institution and from holding any position involving financial reporting or disclosure at a public company. On November 5, 2010, at the request of Farkas, the court stayed the SEC’s action against him pending resolution of the criminal case filed against him in the same district by the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of Virginia.
The SEC’s complaint against Kissick charges her with violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. Without admitting or denying the SEC’s allegations, Kissick consented to the entry of a judgment permanently enjoining her from violation of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. Kissick also consented to an order barring her from acting as an officer or director of any public company that has securities registered with the SEC pursuant to Section 12 of the Exchange Act. Kissick also consented to an order prohibiting her from serving in a senior management or control position at any mortgage-related company or other financial institution or from holding any position involving financial reporting or disclosure at a public company. The proposed preliminary settlement, under which the SEC’s requests for financial penalties against Kissick would remain pending, is subject to court approval.
The SEC's complaint against Brown charges her with violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. Without admitting or denying the SEC's allegations, Brown consented to the entry of a judgment permanently enjoining her from violation of Rule 13b2-1 of the Exchange Act and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The proposed preliminary settlement, under which the SEC's requests for financial penalties against Brown would remain pending, is subject to court approval.
The SEC’s complaint against Kelly charges her with violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. Without admitting or denying the SEC's allegations, Brown consented to the entry of a judgment permanently enjoining her from violation of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The preliminary settlement, under which the SEC's requests for financial penalties against Brown remain pending, was entered by the court on May 4, 2011.
The SEC's investigation is ongoing. The SEC acknowledges the assistance of the Fraud Section of the U.S. Department of Justice's Criminal Division, the Federal Bureau of Investigation, the Office of the Special Inspector General for the TARP, the Federal Housing Finance Agency's Office of the Inspector General, the Federal Deposit Insurance Corporation's Office of the Inspector General, and the Office of the Inspector General for the U.S. Department of Housing and Urban Development.”

NEW SEC RULES INCLUDE REQUIREMENT THAT HEDGE FUND ADVISORS REGISTER WITH THE SEC

The following is an excerpt from the SEC website:

"Washington, D.C., June 22, 2011 – The Securities and Exchange Commission today adopted rules that require advisers to hedge funds and other private funds to register with the SEC, establish new exemptions from SEC registration and reporting requirements for certain advisers, and reallocate regulatory responsibility for advisers between the SEC and states.

The rules adopted by the Commission implement core provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding investment advisers, including those that advise hedge funds.

“These rules will fill a key gap in the regulatory landscape,” said SEC Chairman Mary L. Schapiro. “In particular, our proposal will give the Commission, and the public, insight into hedge fund and other private fund managers who previously conducted their work under the radar and outside the vision of regulators.”

In addition, the Commission amended rules to expand disclosure by investment advisers, particularly about the private funds they manage, and revised the Commission’s pay-to-play rule.

The rules implement a transitional exemption period so that private advisers, including hedge fund and private equity fund advisers, newly required to register do not have to do so until March 30, 2012. The rules regarding exemptions for venture capital fund and certain private fund advisers are effective July 21, 2011.

# # #

FACT SHEET
Dodd-Frank Act Amendments to the Investment Advisers Act
Background
A large number of individuals and institutions invest a significant amount of assets in private funds, such as hedge funds and private equity funds. However, until the passage of the Dodd-Frank Act, advisers managing those assets were subject to little regulatory oversight.

With the Dodd-Frank Act, Congress closed this regulatory gap by generally extending the registration requirements under the Investment Advisers Act to the advisers of these funds. The new law also provided the Commission with the ability to require the limited number of advisers to private funds that will not have to register to file reports about their business activities.

Further, in acknowledging the Commission's limited examination resources – and in light of the new responsibilities for private fund advisers – the Dodd-Frank Act reallocated regulatory responsibility for certain mid-sized investment advisers to the state securities authorities.

Private Fund Advisers and Commission Registration
For many years, advisers to private funds have been able to avoid registering with the Commission because of an exemption that applies to advisers with fewer than 15 clients – an exemption that counted each fund as a client, as opposed to each investor in a fund. As a result, some advisers to hedge funds and other private funds have remained outside of the Commission's regulatory oversight even though those advisers could be managing large sums of money for the benefit of hundreds of investors.

Title IV of the Dodd-Frank Act eliminated this private adviser exemption. Consequently, many previously unregistered advisers, particularly those to hedge funds and private equity funds, will have to register with the Commission and be subject to its regulatory oversight, rules and examination.

These advisers will be subject to the same registration requirements, regulatory oversight, and other requirements that apply to other SEC-registered investment advisers. To provide these advisers with a window to meet their new obligations, the transition provisions the Commission is adopting today will require these advisers to be registered with the Commission by March 30, 2012.

Reporting Requirements for Hedge Fund and Other Investment Advisers
Background
When investment advisers register with the Commission, they provide information in their registration form that is not only used for registration purposes, but that is used by the Commission in its regulatory program to support its mission to protect investors.

To enhance its ability to oversee investment advisers to private funds, the Commission is requiring advisers to provide additional information about the private funds they manage. The information obtained as a result of these amendments will assist the Commission in fulfilling its increased responsibility for private fund advisers arising from the Dodd-Frank Act.

The Form
Under the amended adviser registration form, advisers to private funds will have to provide:

Basic organizational and operational information about each fund they manage, such as the type of private fund that it is (e.g., hedge fund, private equity fund, or liquidity fund), general information about the size and ownership of the fund, general fund data, and the adviser's services to the fund.
Identification of five categories of “gatekeepers” that perform critical roles for advisers and the private funds they manage (i.e., auditors, prime brokers, custodians, administrators and marketers).
These reporting requirements are designed to help identify practices that may harm investors, deter advisers' fraud, and facilitate earlier discovery of potential misconduct. And this information will provide for the first time a census of this important area of the asset management industry.

In addition, the Commission is adopting other amendments to the adviser registration form to improve its regulatory program. These amendments will require all registered advisers to provide more information about their advisory business, including information about:

The types of clients they advise, their employees, and their advisory activities.
Their business practices that may present significant conflicts of interest (such as the use of affiliated brokers, soft dollar arrangements and compensation for client referrals).
The rules also will require advisers to provide additional information about their non-advisory activities and their financial industry affiliations.

Reporting Requirements for Exempt Advisers
Background
While many private fund advisers will be required to register, some of those advisers may not need to if they are able to rely on one of three new exemptions from registration under the Dodd-Frank Act, including exemptions for:

Advisers solely to venture capital funds.
Advisers solely to private funds with less than $150 million in assets under management in the U.S.
Certain foreign advisers without a place of business in the U.S.
The Commission can still impose certain reporting requirements upon advisers relying upon either of the first two of these exemptions (“exempt reporting advisers”).

The Rules
Under the new rules, exempt reporting advisers will nonetheless be required to file, and periodically update, reports with the Commission, using the same registration form as registered advisers.

Rather than completing all of the items on the form, exempt reporting advisers will fill out a limited subset of items, including:

Basic identifying information for the adviser and the identity of its owners and affiliates.
Information about the private funds the adviser manages and about other business activities that the adviser and its affiliates are engaged in that present conflicts of interest that may suggest significant risk to clients.
The disciplinary history (if any) of the adviser and its employees that may reflect on the integrity of the firm. Exempt reporting advisers will file reports on the Commission’s investment adviser electronic filing system (IARD), and these reports will be publicly available on the Commission’s website. These advisers will be required to file their first reports in the first quarter of 2012.
Reallocation of Regulatory Responsibility
Background
Since 1996, regulatory responsibility for investment advisers has been divided between the Commission and the states, primarily based on the amount of money an adviser manages for its clients. Under existing law, advisers generally may not register with the Commission unless they manage at least $25 million for their clients.

The Dodd-Frank Act raises the threshold for Commission registration to $100 million by creating a new category of advisers called "mid-sized advisers." A mid-sized adviser, which generally may not register with the Commission and will be subject to state registration, is defined as an adviser that:

Manages between $25 million and $100 million for its clients.
Is required to be registered in the state where it maintains its principal office and place of business.
Would be subject to examination by that state, if required to register.
As a result of this amendment to the Investment Advisers Act, about 3,200 of the current 11,500 registered advisers will switch from registration with the Commission to registration with the states. These advisers will continue to be subject to the Advisers Act's general anti-fraud provisions.

The Rules
The Commission is adopting amendments to several of its current rules and forms to:

Reflect the higher threshold required for Commission registration.
Provide a buffer to prevent advisers from having to frequently switch between Commission and state registration.
Clarify when an adviser will be a mid-sized adviser.
Facilitate the transition of advisers between federal and state registration in accordance with the new requirements. Advisers registered with the Commission will have to declare that they are permitted to remain registered in a filing in the first quarter of 2012, and those no longer eligible for Commission registration will have until June 28, 2012 to complete the switch to state registration.
Pay-to-Play
The Rule
The Commission also is amending the investment adviser “pay-to-play” rule in response to changes made by the Dodd-Frank Act. The pay to play rule is designed to prevent an adviser from seeking to influence government officials’ awards of advisory contracts through political contributions.

Under the amendment, an adviser will be permitted to pay a registered municipal advisor to act as a placement agent to solicit government entities on its behalf, if the municipal advisor is subject to a pay-to-play rule adopted by the MSRB that is at least as stringent as the investment adviser pay-to-play rule. The MSRB received new authority over municipal advisors under the Dodd-Frank Act. Advisers will also continue to be permitted to hire as a placement agent an SEC registered investment adviser or a broker-dealer that is subject to a pay-to-play rule adopted by FINRA that is at least as stringent as the investment adviser pay-to-play rule.

* * *

Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers
Background
As previously described, the Dodd-Frank Act eliminated the private adviser exemption and created three new exemptions for:

Advisers solely to venture capital funds.
Advisers solely to private funds with less than $150 million in assets under management in the United States.
Certain foreign advisers without a place of business in the United States.
The Commission is adopting rules that would implement these exemptions and define various terms.

New Exemptions
Definition of Venture Capital Fund
The Dodd-Frank Act amended the Advisers Act to exempt from registration advisers that only manage venture capital funds, and directed the Commission to define the term “venture capital fund.” The Commission is adopting a definition of “venture capital fund” that is designed to effect Congress’ intent in enacting this exemption.

Under the definition, a venture capital fund is a private fund that:

Invests primarily in “qualifying investments” (generally, private, operating companies that do not distribute proceeds from debt financings in exchange for the fund’s investment in the company); may invest in a “basket” of non-qualifying investments of up to 20 percent of its committed capital; and may hold certain short-term investments.
Is not leveraged except for a minimal amount on a short-term basis.
Does not offer redemption rights to its investors.
Represents itself to investors as pursuing a venture capital strategy.
Under a grandfathering provision, funds that began raising capital by the end of 2010 and represented themselves as pursuing a venture capital strategy would generally be considered venture capital funds. The Commission is adopting this approach because it could be difficult or impossible for advisers to conform these pre-existing funds, which generally have terms in excess of 10 years, to the new definition.

Private Fund Advisers With Less Than $150 Million in Assets Under Management in U.S.
The Commission also is adopting a rule that would implement the new statutory exemption for private fund advisers with less than $150 million in assets under management in the United States. The rule largely tracks the provision of the statute.

Foreign Private Advisers
The Dodd-Frank Act also amended the Advisers Act to provide for an exemption from registration for foreign advisers that do not have a place of business in the United States, and have:

Less than $25 million in aggregate assets under management from U.S. clients and private fund investors.
Fewer than 15 U.S. clients and private fund investors.
The Commission is adopting rules to define certain terms included in the statutory definition of “foreign private adviser” in order to clarify the application of the foreign private adviser exemption and reduce the potential burdens for advisers that seek to rely on it. The rule incorporates definitions set forth in other Commission rules, all of which are likely to be familiar to foreign advisers active in the U.S. capital markets."

PUBLIC MEETING: CFTC COMMISSIONER DUNN MAKES OPENING STATEMENT ON DODD-FRANK ACT

The following excerpt of Commissioner Dunn's speech is from the CFTC web site:

"June 14, 2011

Thank you all for joining us today for another meeting regarding the Dodd-Frank Act.

To-date, the Commission has issued over 50 advance notices and notices of proposed rulemaking, two interim final rules, one final rule and one proposed interpretive rule. This has been the most transparent rulemaking process that I have been involved with in over 20 years of rule writing. The shear amount of information that staff has reviewed, the meetings they have had, and the questions they have answered regarding Dodd Frank could only be described as monumental. Yet staff has completed all this work while simultaneously continuing their pre-Dodd Frank duties. The quality of the rules we have seen so far and the fact that the markets we regulate have continued to operate efficiently and effectively is a testament to the quality of staff we have at the CFTC and I thank them for all the work they have done and are continuing to do.

Many have said that our agency is moving too fast to implement Dodd Frank. They claim we have not given them enough time to comment and that we have not given ourselves enough time to fully appreciate the effects the rules we are writing will have on the markets soon to be under our jurisdiction. An equal number of individuals are claiming that we are moving much too slow with the rulemaking process. They claim that anything less than strict adherence to the Congressionally imposed deadlines of Dodd Frank is a failure. Given our level of staffing, I believe that we are moving at a pace that ensures that rules we are writing follow the intent of Congress, are responsive to the comments of the American public, and based on sound and fundamental market principles. If we were to move slower, I fear that unnecessary delays may leave the country vulnerable to another financial crisis. If we were to move faster, I doubt the quality of the written rules would continue to remain at the high level I have become accustomed to receiving from the staff.

Regarding today’s meeting, once again I think it is a testament to Chairman Gensler, and the transparent nature of the process he has overseen, that staff, together with market participants and users, were able to identify issues with the July 16th date and develop an effective way to ensure that until our rules are completed, market users will continue to have the ability to effectively use derivatives as risk mitigation instruments.

The proposed exemptive relief has a sunset provision of December 31, 2011 that I strongly support. While others may argue that the market requires certainty and there is no way we will meet this date, I believe these fears are unfounded. The sunset provision sets an ambitious but achievable goal for completion of the Dodd Frank rulemakings, and I believe that the Commission and its staff should be held accountable for providing needed certainty to the markets and the public by that date. Should we not finish by December 31, it is nonetheless appropriate and prudent to periodically review the extent and scope of relief provided from the CEA and to tailor that relief to the Dodd Frank implementation schedule. We will know more about the full mosaic of the rules by December than we know now, and that knowledge will help us fashion additional exemptive relief if need be. A more personal reason is that it is likely I will no longer be a Commissioner by that date. I believe that my successor should have a voice in establishing the policy governing the CFTC at that time. Regardless, today’s proposed order will not affect the Commission’s ability to provide further relief to prevent undue disruption or costs to market participants.

I would like to once again thank the staff at the CFTC for all their hard work on these very important proposed rules, and I look forward to their presentations."