You are on page 1of 4

Hedge Fund Transparency Act - The Hedge Fund Transparency Act of 2009

Page 1

► Anti-Algorithmic Trading (!) ► Hedge Funds Compliance Training ► Regulatory Arbitrage Strategy ► Hedge Funds Portal ► Alternative Investments Portal ► Contact Us ► Member Benefits ► Hedge Funds Portal ► How to Become a Member ► Alternative Investments Portal ► Order Your Certificate Of Membership ► Contact Us ► Become a Certified Hedge Fund Compliance Expert (CHFCE)

The Hedge Fund Transparency Act of 2009 from the International Association of Hedge Funds Professionals (IAHFP)

January 29, 2009 Grassley and Levin Introduce the The Hedge Fund Transparency Bill
On January 29, 2009 - Senators Chuck Grassley (R-Iowa) and Carl Levin (D-Michigan) introduced the Hedge Fund Transparency Act of 2009 ("Transparency Bill""HFTA" - S. 334 of the 111th Congress).

Primarily affected: Funds having more than $50 million in assets ("large" investment companies) that meet the
requirements of Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940 to avoid being an "investment company" The bill addresses what the two Senators describe as a loophole in securities law that allows hedge funds to operate under a cloak of secrecy. According to Senator Chuck Grassley: "There wasn’t much of an appetite for this sort of legislation before the financial crisis. I hope attitudes have changed and that Congress takes up this important legislation without delay. A
http://www.hedge-fund-transparency-act.com/ 6/10/2009 3:55:56 PM

Hedge Fund Transparency Act - The Hedge Fund Transparency Act of 2009

Page 2

major cause of the current crisis is a lack of transparency. The wizards on Wall Street figured out a million clever ways to avoid the transparency sought by the securities regulations adopted during the 1930s. Instead of the free flow of reliable information that markets need to function properly, today we have confusion and uncertainty fueling an economic crisis". According to Senator Carl Levin: "Hedge funds control massive sums of money, and although they can cause serious damage to investors, other financial firms, and to the entire U.S. financial market, they are largely unregulated. If the events of the last year have taught us anything, it’s that we need to regulate firms that are big enough to destabilize our economy if they fail. It’s time to subject financial heavyweights like hedge funds to federal regulation and oversight to protect our investors, markets, and financial system". The bill will have a significant effect on hedge funds, private equity buyout funds, venture capital funds, structured finance vehicles, and some real estate funds. Before the Hedge Fund Transparency Act of 2009 most hedge funds, private equity funds, venture capital funds, and structured finance vehicles relied upon exceptions under Section 3(c)(1) (funds with fewer than 100 beneficial owners) or Section 3(c)(7) (funds made up solely of "qualified purchasers") of the Investment Company Act. The Hedge Fund Transparency Act of 2009 has replaced Sections 3(c)(1) and 3(c)(7) with Sections 6(a)(6) and 6(a)(7) , that change something important - from exceptions to the definition of investment company into exemptions from certain requirements of the Investment Company Act. The Hedge Fund Transparency Act of 2009 would clarify current law to remove any doubt that the Securities and Exchange Commission has the authority to require hedge funds to register, "so the US government knows who they are and what they’re doing".

Hedge Fund Transparency Act of 2009
This bill is a revised version of S. 1402, which Sen. Grassley introduced in the 110th Congress. While the previous bill amended the Investment Advisers Act of 1940, this bill amends the Investment Company Act of 1940 (“ICA”). However, the purpose is the same: to make it clear that the Securities and Exchange Commission has the authority to require hedge fund registration. This version also adds a provision authored by Sen. Levin to require hedge funds to establish anti-money laundering programs and report suspicious transactions.

Hedge Fund Registration Requirements
Definition of an Investment Company: Hedge Funds typically avoid regulatory requirements by claiming the exceptions to the definition of an investment company contained in §3(c)(1) or §3(c)(7) of the ICA. This bill removes those exceptions to the definition, transforming them to exemptions by moving the provisions, without substantive change, to new sections §6(a)(6) and §6(a)(7) of the ICA.

Requirements for Exemptions: An investment company that satisfies either §6(a)(6) or §6(a)(7) will be exempted
from the normal registration and filing requirements of the ICA. Instead, a company that meets the criteria in §6(a)(6) or §6(a)(7) but has assets under management 50,000,000 or more, must meet several requirements in order to maintain its exemption. These requirements include: 1. Registering with the SEC. 2. Maintaining books and records that the SEC may require.

of $

http://www.hedge-fund-transparency-act.com/

6/10/2009 3:55:56 PM

Hedge Fund Transparency Act - The Hedge Fund Transparency Act of 2009

Page 3

3. Cooperating with any request by the SEC for information or examination. 4. Filing an information form with the SEC electronically, at least once a year. This form must be made freely available to the public in an electronic, searchable format. The form must include: a. The name and current address of each individual who is a beneficial owner of the investment company. b. The name and current address of any company with an ownership interest in the investment company. c. An explanation of the structure of ownership interests in the investment company. d. Information on any affiliation with another financial institution. e. The name and current address of the investment company’s primary accountant and primary broker. f. A statement of any minimum investment commitment required of a limited partner, member, or investor. g. The total number of any limited partners, members, or other investors. h. The current value of the assets of the company and the assets under management by the company.

Anti-Money Laundering Obligations:
An investment company exempt under §6(a)(6) or §6(a)(7) must establish an anti-money laundering program and report suspicious transactions under 31 U.S.C.A 5318(g) and (h). Exempted investment companies will "use risk-based due diligence policies, procedures, and controls that are reasonably designed to ascertain the identity of and evaluate any foreign person that supplies funds or plans to supply funds to be invested with the advice or assistance of such investment company."

Join the International Association of Hedge Funds Professionals Today Membership is Free Member Benefits

http://www.hedge-fund-transparency-act.com/

6/10/2009 3:55:56 PM

Hedge Fund Transparency Act - The Hedge Fund Transparency Act of 2009

Page 4

Excellent Courses, Exceptional Venues
The role that the environment plays in learning, solving problems and thinking out of the box is often ignored. In terms of aesthetics and comfort, our venues are second to none. Click here to see our venues

Our Web Sites Links Download Our Consulting and Training Services Catalog Download Our Consulting and Training Services Catalog for Banks Privacy/Legal

Distance Learning and Online Certification Program
www.hedge-funds-association.com/Distance_Learning_and_Certification.htm
Become a Certified Hedge Fund Compliance Expert (CHFCE)

Distance Learning and Online Certification Program To learn more www.hedge-funds-association.com/Distance_Learning_and_Certification.htm

http://www.hedge-fund-transparency-act.com/

6/10/2009 3:55:56 PM