Tag: Rule 204(b)-1

Enforcement Actions for Failure to File Form PF

A mentioned two weeks ago that the Securities and Exchange Commission was looking at private fund managers who failed to Form PF. That is now official and the SEC announced enforcement actions against 13 private fund managers.

The SEC’s orders are against:

Each of the enforcement orders are cookie cutter and straight-forward:

  1. The private fund manager is registered with the SEC and manages private funds.
  2. Rule 204(b)-1 applies to the manager, requiring it file Form PF.
  3. The manager failed to file Form PF.
  4. The manager willful violated Rule 204(b)-1.
  5. The manager has to pay the SEC $75,000.

In each of the orders, the manager is noted as failing to file Form PF in multiple years.

As I said earlier, this is an easy violation for the SEC to catch. When filing Form ADV and listing a private fund, it gets a private fund identification number. It should be fairly easy for the SEC to search its database to see which funds in Form ADV filings were not in Form PF filings.

If you don’t want to file Form PF, you now know the result. You get subject to cease and desist, you get censured, and you pay $75,000. Since you get a cease and desist, you have to file Form PF or face even more serious consequences.

I’m not sure if the 13 orders surprises me because it’s a mistake that nobody should make (or that it’s too high and that there are many other firms out there not doing the filing). I know that there was a great deal of uncertainty about the definitions in Form PF with many funds being advised to file as hedge fund because of the poorly written definitions of the different fund types. These cases are all wholesale failures to file, not for filing the wrong form.

If you’re a private fund manager and haven’t filed a Form PF for one or more of your funds, the SEC has fired this shot across the bow. You’ve been warned. Be prepared to pay your $75,000.

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The SEC Wants to Know if You Are Systemically Important

The Securities and Exchange Commission proposed a new rule that would require advisers to private funds to report information for use by the Financial Stability Oversight Council in monitoring risk to the U.S. financial system. Sections 404 and 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC to gather this information.

The SEC is proposing a new Rule 204(b)-1 under the Investment Advisers Act that would require SEC-registered investment advisers to report systemic risk information on Form PF if they advise one or more private funds.

Each private fund adviser would report basic information about the operations of its private funds on Form PF once each year. Large Private Fund Advisers would be required to submit this basic information each quarter along with additional systemic risk related information required by Form PF concerning certain of their private funds.

“Large Private Fund Advisers” would be

  • Advisers managing hedge funds that collectively have at least $1 billion in assets as of the close of business on any day during the reporting period for the required report;
  • Advisers managing a liquidity fund and having combined liquidity fund and registered money market fund assets of at least $1 billion as of the close of business on any day during the reporting period for the required report; and
  • Advisers managing private equity funds that collectively have at least $1 billion in assets as of the close of business on the last day of the quarterly reporting period for the required report.

The SEC estimates that approximately 4,450 advisers would be required to file Form PF. Of those, approximately 3,920 would be smaller private fund advisers not meeting the thresholds for reporting as Large Private Fund Advisers.

It looks like the definition of private equity fund for purposes of the Large Private Fund Adviser reporting requirements will exclude real estate funds.

Private equity fund:

Any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund and does not provide investors with redemption rights in the ordinary course.

Under the proposed rule, real estate private equity funds will be subject to the annual reporting, but not subject to the more detailed quarterly reporting. This is just a proposed rule, so the final requirements and definitions may change in the final rule when it is issued. In the meantime, you can make comments.

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