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SECs Final Rules - Venture Capital Exemption

SECs Final Rules - Venture Capital Exemption

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07/10/2013

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SECURITIES AND EXCHANGE COMMISSION
 
17 CFR Part 275
 
Release No. IA-3222; File No. S7-37-10RIN 3235-AK81Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than$150 Million in Assets Under Management, and Foreign Private AdvisersAGENCY:
Securities and Exchange Commission.
ACTION:
Final rule.
SUMMARY:
 
The Securities and Exchange Commission (the ―Commission‖) is adopting rules
to implement new exemptions from the registration requirements of the Investment Advisers Actof 1940 for advisers to certain privately offered investment funds; these exemptions wereenacted as part of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ―Dodd
-Frank Ac
t‖). As required by Title IV of the Dodd
-Frank Act
 – 
the Private Fund InvestmentAdvisers Registration Act of 2010
 – 
 
the new rules define ―venture capital fund‖ and provide an
exemption from registration for advisers with less than $150 million in private fund assets undermanagement in the United States. The new rules also clarify the meaning of certain termsincluded in a new exemption from registration for
foreign private advisers.
 
DATES:
Effective Date: July 21, 2011.
FOR FURTHER INFORMATION CONTACT:
Brian McLaughlin Johnson, Tram
 
N.Nguyen or David A. Vaughan, at (202) 551-6787 or <IArules@sec.gov>, Division of InvestmentManagement, U.S. Securities and Exchange Commission, 100 F Street, NE, Washington, DC20549-8549.
SUPPLEMENTARY INFORMATION:
The Commission is adopting rules 203(l)-1,203(m)-1 and 202(a)(30)-1 (17 CFR 275.203(l)-1, 275.203(m)-1 and 275.202(a)(30)-1) under the
 
- 2 -
Investment Advisers Act of 1940 (15 U.S.C. 80b) (the ―Advisers Act‖).
1
 
Table of Contents
TEXT OF RULES
I.
 
BACKGROUND
On July 21, 2010, President Obama signed into law the Dodd-Frank Act,
2
which, among
1
Unless otherwise noted, all references to rules under the Advisers Act will be to Title 17, Part 275of the Code of Federal Regulations (17 CFR 275).
2
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat.1376 (2010).
 
- 3 -other things, repeals section 203(b)(3) of the Advisers Act.
3
Section 203(b)(3) exempted anyinvestment adviser from registration if the investment adviser (i) had fewer than 15 clients in thepreceding 12 months, (ii) did not hold itself out to the public as an investment adviser and(iii) did not act as an investment adviser to a registered investment company or a company that
has elected to be a business development company (the ―private adviser exemption‖).
4
Advisersspecifically exempt under section 203(b) are not subject to reporting or recordkeeping provisionsunder the Advisers Act, and are not subject to examination by our staff.
5
 The primary purpose of Congress in repealing section 203(b)(3) was to require advisers
to ―private funds‖ to register under 
the Advisers Act.
6
Private funds include hedge funds, privateequity funds and other types of pooled investment vehicles that are excluded from the definition
of ―investment company‖ under the Investment Company Act of 1940
7
 
(―Investment Company
3
 
In this Release, when we refer to the ―Advisers Act,‖ we refer to the Advisers Act as in effect on
July 21, 2011.
4
15 U.S.C. 80b-3(b)(3) as in effect before July 21, 2011.
5
Under section 204(a) of the Advisers Act, the Commission has the authority to require aninvestment adviser to maintain records and provide reports, as well as the authority to examine
such adviser‘s records, unless the adviser is ―specifically exempted‖ from the requirem
ent toregister pursuant to section 203(b) of the Advisers Act. Investment advisers that are exempt fromregistration in reliance on other sections of the Advisers Act (such as sections 203(l) or 203(m)
which we discuss below) are not ―specifically exempted‖ from the requirement to register 
pursuant to section 203(b), and thus the Commission has authority under section 204(a) of theAdvisers Act to require those advisers to maintain records and provide reports and has authority
to examine such advisers‘ re
cords.
6
See
S. Rep. No. 111-176, at 71-
3 (2010) (―S. Rep. No. 111
-
176‖); H. Rep. No. 111
-517, at 866
(2010) (―H. Rep. No. 111
-
517‖). H. Rep. No. 111
-517 contains the conference reportaccompanying the version of H.R. 4173 that was debated in conference. While the Senate votedto exempt private equity fund advisers in addition to venture capital fund advisers from therequirement to register under the Advisers Act, the Dodd-Frank Act exempts only venture capitalfund advisers.
Compare
Restoring American Financial Stability Act of 2010, S. 3217, 111thCong. § 408 (2010) (as passed by the Senate)
with
The Wall Street Reform and Consumer
Protection Act of 2009, H.R. 4173, 111th Cong. (2009) (as passed by the House) (―H.R. 4173‖)
and 
Dodd-Frank Act (2010),
supra
note2. 
7
15 U.S.C. 80a.

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