New Virginia Initiative to Deal With Continuing Dodd-Frank Developments
As regulatory changes mandated by the enactment of Dodd-Frank progress, state regulators are responding with initiatives of their own.
On July 25, 2011, the Virginia State Corporation Commission entered an Order to Take Notice, which provides interested persons an opportunity to comment on or before August 29, 2011, to the revisions proposed by the Division of Securities and Retail Franchising to certain rules established pursuant to the Virginia Securities Act, Va. Code §§ 13.1-501 et seq.
The proposed rules permit a continuing exemption from the registration provisions of the act for certain exempted investment advisers, who would otherwise have to register in Virginia due to the expiration of a federal exemption resulting from the enactment of Dodd-Frank. The proposed revisions follow on the heels of the Division of Securities’ Statement of Policy Regarding Regulation of Certain Investment Advisers Managing Private Equity and Venture Capital Funds issued on July 19, 2011.
Virginia joins a number of other states in proposing or granting a continuing exemption until such time as the U.S. Securities and Exchange Commission is prepared to register these previously exempt advisers, currently scheduled to occur on or after March 30, 2012. Without formal action by the State Corporation Commission, these advisers operating in Virginia faced the choice of: (i) registering with the Division of Securities, or (ii) risking enforcement action in Virginia during the interim period until the SEC is prepared to register these advisers at the federal level.
When Congress enacted Dodd-Frank in 2010, it repealed Section 203(b)(3) of the Investment Advisers Act of 1940, which allowed certain investment advisers who had fewer than 15 clients and did not hold themselves out to the general public as investment advisers to avoid having to register with the SEC. These investment advisers manage hedge funds, private equity funds, venture capital funds, or other private funds exempt from registration under the federal Investment Company Act of 1940. While these funds remain exempt from registration, these investment advisers will now have to register with the SEC, but they have been given an extension until March 30, 2012, pursuant to 17 C.F.R. § 275.203-1(e).
In Virginia, such investment advisers were exempt from having to register with the Division of Securities, pursuant to an exemption in Rule 21 VAC 5-80-210(A)(7). The State Corporation Commission has proposed to continue such exemption until the investment advisers can register with the SEC. The Division of Securities’ policy statement and proposed revisions to the State Corporation Commission’s rules governing investment advisers are a good stopgap response to the fluid landscape facing certain investment advisers.
For more information, review the Order to Take Notice, which also contains the Division of Securities’ policy statement.