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Purpose To inform readers of the challenges that fintech companies can have regarding investment company status, using two recent examples. Design/methodology/approach The article provides an introduction to the subject, discusses two examples of fintech companies that had investment company status challenges, and provides concluding remarks regarding each. Findings Navigating investment company status can be challenging for fintech companies, and in some cases, as was the case with the two companies discussed in the article, it may be necessary, or at least advisable, to seek to obtain an order from the SEC. Practical implications It is important for fintech companies to evaluate their investment company status in early stages and continue to monitor their status thereafter, particularly if they are considering a public offering. Originality/value Technical guidance from experienced investment company status lawyers.

Purpose This article provides an overview of the US Securities and Exchange Commission’s (SEC) recent approval of a package of rulemakings and interpretations designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers. Design/Methodology/Approach The article provides legal analysis for and historical context of the requirements of the SEC’s adopted rules, Regulation Best Interest and Form CRS in addition to the two separate interpretations under the Investment Advisers Act of 1940, the Standard of Conduct for Investment Advisers; and the Broker-Dealer Exclusion from the Definition of Investment Adviser. Findings The SEC’s adopted regulatory package does not adopt a uniform fiduciary standard for broker-dealers and investment advisers but instead promulgates legal requirements and mandated disclosures in order to conform to the SEC’s perceived expectations for reasonable investors. Practical implications Investment advisers and broker-dealers should consult with their legal counsel in assessing how and to what extent the new regulatory package is applicable to them. Originality/Value This article provides practical guidance from lawyers who have extensive experience with the Investment Company Act, Investment Advisers Act, and the Securities Acts.

Purpose This paper aims to provide an overview of recent US Securities and Exchange Commission (SEC) Division of Investment Management staff (“Staff”) guidance related to investment funds registered under the Investment Company Act of 1940 that seeks to provide exposure to cryptocurrencies or cryptocurrency-related products. Design/methodology/approach This paper provides analysis regarding the Staff’s view on registered investment companies that intend to invest in cryptocurrencies or cryptocurrency-related products, including an overview of the questions posed by the Staff with respect to registered investment companies that seek to hold cryptocurrencies or cryptocurrency-related products, which are divided into five categories: valuation, liquidity, custody, arbitrage (for exchange-traded funds) and potential manipulation and other risks. Findings The Staff is asking for additional information from industry participants to fully analyze and evaluate registered investment companies that seek to invest in cryptocurrencies. Practical implications The industry should continue to provide information to the Staff with the short-term goal of fostering an open dialogue and with the long-term goal of launching a registered investment company that invests in cryptocurrencies or cryptocurrency-related products. Originality/value This paper provides practical guidance from experienced lawyers of the Investment Company Act and Securities Act.

Purpose To analyze the June 9, 2017 Financial Industry Regulatory Authority, Inc. (“FINRA”) interpretive letter permitting the use of Related Performance Information in continuously offered closed-end registered investment company sales materials distributed solely to institutional investors. Design/methodology/approach Provides background, including the application of FINRA Rule 2210, and explains the conditions under which fund marketing materials may contain Related Performance Information. Findings While the interpretive letter will not result in a fundamental shift in the Industry’s approach to providing Related Performance Information of open- and closed-end funds to institutional investors, it also represents FINRA’s ongoing recognition that communications provided solely to institutional investors do not raise the same investor protection concerns as communications provided to retail investors. Originality/value Expert guidance from experienced investment management and investment fund lawyers.

Purpose – To explain proposed rules recently issued by the US Securities and Exchange Commission (SEC) that would dramatically expand both public and non-public reporting of portfolios and other data by US registered investment companies. A companion article covers new reports proposed at the same time for investment advisers that file Form ADV with the SEC. Design/methodology/approach – Explains how the proposed rules intend to rescind Form N-Q and adopt a new portfolio holding form, Form N-PORT, which would require expansive monthly portfolio and risk reporting; describes amendments to Regulation S-X which would both enhance and standardize derivatives disclosures in fund financial statements; and details the reporting requirements for a new annual ‘census-style’ reporting form, Form N-CEN, which would replace an obsolete existing SEC form, Form N-SAR. Findings – While it still remains to be seen how the final rules will be written, it is clear that US registered investment companies will be subject to broader reporting requirements. Investment companies are likely to incur increased costs due to the detailed nature of the information being requested and the frequency with which they will be required to file. Access to additional and enhanced information will have consequences for investment companies with respect to SEC examinations and enforcement activity. Practical implications – Senior management and boards of investment companies should understand the basic framework of the proposed requirements. An operations and finance working group may need to be established by companies in order to coordinate the planning and preparation process for the requirements. Firms also should determine whether their service providers have the necessary resources to assist in complying with the proposed filing requirements. Originality/value – Practical guidance from experienced investment funds lawyer.

Purpose – To explain proposed rules and amendments recently issued by the USA Securities and Exchange Commission (SEC) that would impose more detailed reporting requirements for investment advisers that file Form ADV. A companion article describes the SEC’s proposed registered investment company reporting rules which were issued simultaneously. Design/methodology/approach – Describes the SEC’s reasoning for collecting more detailed data, introduces the proposed separate account reporting requirements for SEC-registered investment advisers, explains proposed amendments to Part 1A of Form ADV, describes a proposed codification of SEC staff positions that provide for so-called “umbrella registrations” by closely related advisory firms, and details two proposed amendments to Advisers Act Rule 204-2, the books and records rule, which would require investment advisers to maintain additional materials related to the calculation and distribution of performance information. Findings – Many questions still remain as to how the final rules will eventually take shape; however, it is evident that investment advisers will be subject to a wider array of reporting requirements. Investment advisors are likely to incur increased costs as a result of the proposed rules and amendments, and production of the reports could necessitate a revamp of their various internal procedures. Also, access to additional and enhanced information will have consequences for investment companies with respect to SEC examinations and enforcement activity. Practical implications – Investment advisers should understand that detailed new regulatory reporting is coming and, more specifically, separately managed account clients of investment advisers should be made aware of the proposed reporting requirements. Originality/value – Practical guidance from experienced investment funds lawyer.

PurposeThe purpose of this paper is to remind investment company compliance professionals of common traps for unwary investors, to emphasize the importance of detecting and preventing fraud in the marketplace that may affect individual investors, and to review basic investor rights and the importance of suitability for investment company clients.Design/methodology/approachThe paper explains the constant danger of investment fraud, lists the North American Securities Administrators Association's (NASAA's) top ten investor traps for 2007, reviews questions investment sales professionals should ask themselves concerning the suitability of every investment for a given client, and lists rights to which investors should be entitled before they make every investment.FindingsThe paper finds that the path to safe investing is littered with pitfalls likely to catch unwary investors. Investment fraud is on the rise. Before offering any investment, sales professionals should ask themselves several key questions. Investors can avoid becoming trapped in a fraudulent or unsuitable investment by recognizing that they have certain rights and demanding that these rights be upheld before they invest.Practical implicationsCompliance professionals should remember that the underlying purpose of most state and federal regulations governing investment companies is centered on investor protection and concerned with investment suitability and fraud prevention.Originality/valueThe paper provides useful information with regard to the pitfalls likely to catch investors who want to make successful investments.

PurposeThe purpose of this paper is to assess the history, current use, and possible future of Rule 12b‐1 of the Investment Company Act of 1940.Design/methodology/approachThis paper briefly reviews the history behind the original adoption of Rule 12b‐1, then discusses the ways in which 12b‐1 fees are used today, some of the issues surrounding the Rule, and finally, briefly explores where we might be heading in the future.FindingsThe paper finds that, first adopted in 1980 in an effort to prop up a then ailing industry, Rule 12b‐1 and Rule 12b‐1 fees have been a staple for many mutual funds for almost 30 years. Over this time, the ways in which 12b‐1 fees are used has evolved significantly such that some people now wonder whether the Rule continues to serve the purpose for which it was designed.Originality/valueThe paper provides a comprehensive evaluation of how mutual funds' use of Rule 12b‐1 has changed, what the underlying issues are, and the prospects for reexamination of the Rule.

Purpose – This paper seeks to describe how Sarbanes‐Oxley controls can be integrated into an investment company's overall corporate governance framework.Design/methodology/approach – Outlines the elements of an effective corporate governance framework, describes the benefits of integrating Sarbanes‐Oxley controls and adopting an effective corporate governance framework, and recommends how to go about that integration processFindings – Sarbanes‐Oxley controls put in place by many firms are disconnected from other governance controls designed for compliance with federal, state, and self‐regulatory‐organization regulations. Many firms are taking a holistic view of mitigating financial reporting risk by integrating Sarbanes‐Oxley controls into their distributed governance frameworks.Originality/value – Provides useful advice on how to integrate Sarbanes‐Oxley controls into an overall corporate governance framework.

Purpose – This paper sets out to assess the role of the chief compliance officer (“CCO”), how the CCO performs his/her duties, and how the CCO interacts with the fund's board three years after the adoption of Rule 38a‐1 under the Investment Company Act of 1940.Design/methodology/approach – Reviews the CCO's responsibilities under Rule 38a‐1, discusses how the CCO role has evolved since the rule was promulgated, and focuses on key issues such as oversight versus supervision, the annual review process, risk assessement, testing methodologies, and the annual report to the fund board on the adequacy and operation of the fund's compliance program.Findings – Properly conducted compliance requires the support of a wide range of the advisory/administrative team with the CCO playing the role of conductor of the orchestra. More and more CCOs seek to distance themselves from approving the day‐to‐day actions of other employees, so they cannot be considered to have assumed supervisory responsibility for those employee...

PurposeTo provide guidance to investment companies on document retention policies based on Section 802 of the Sarbanes‐Oxley Act of 2002, codified as Section 1519 of the United States Code.Design/methodology/approachReviews the conviction of Arthur Andersen for obstruction of justice based on the way the firm implemented its document retention/destruction policy as Enron was collapsing, and the Supreme Court reversal of that conviction. Explains why the Supreme Court decision should no longer guide an investment company's document retention/destruction policy in light of more recently enacted Section 1519, which imposes stiff penalties on anyone who knowingly alters, destroys, mutilates, conceals, or covers up any record or document with the intent to impede, obstruct, or influence any federal investigation, or in contemplation of such a proceeding.FindingsSuggests a few straightforward rules for an investment company's document retention/destruction policy with a warning to err on the side of caution.Originality/valueIn light of Section 1519, every investment company needs to review its document retention/destruction policy. This article provides useful guidelines for doing so.

Under the new Compliance Program Rules, each U.S. registered investment adviser and U.S. registered investment company was required to designate a Chief Compliance Officer (“CCO)” by October 5, 2004. The CCO title is expected to carry supervisory responsibility for many of the newly appointed officers, which may lead to personal liability if they are charged with a failure of the duty to supervise. As a result, there is renewed interest in the standard of care applicable to supervisory personnel of investment advisers and the manner in which they may be insulated from regulatory liability for claims of failure to supervise persons under their control who violate certain federal securities laws (“Federal Securities Laws)”.

In Spring 2002, Jeff Skilling (the former CEO of Enron Corporation) incredulously testified before lawmakers that he thought Enron was in great shape the day he left and that he knew next to nothing about the off‐balance‐sheet transactions that ultimately brought down his company. As we watched the train derail that day, it became clear that lawmakers convened the hearing not only to assure the public that Congress too was angry, but also to look for a solution to the problem that a CEO didn’t know some pretty important things about his company, its operations and performance, and that the company’s independent auditors appeared compromised and may have acted accordingly.

College savings plans established and maintained by states as “qualified tuition programs” under Section 529 of the Internal Revenue Code, as amended, are increasingly popular vehicles for accumulating savings on a tax‐advantaged basis to pay college expenses. All states and the District of Columbia currently offer, or soon will offer, these so‐called 529 college savings plans. Although structurally quite similar to registered mutual funds or “funds of funds” subject to the Investment Company Act of 1940, as amended (the “Investment Company Act”), 529 college savings plans raise unique securities law issues as a result of their being state investment programs. This article outlines the general framework of the federal securities law treatment of investments in 529 college savings plans and then explores in greater depth the basic disclosure issues that broker‐dealers face when marketing 529 college savings plans to customers.

In a much anticipated letter to the Investment Company Institute (ICI) the Securities and Exchange Commission (SEC) on April 30, 2001, set out its position on certain portfolio valuation matters applicable to all registered investment companies. The letter, issued by Douglas Scheidt, Associate Director and Chief Counsel of the Division of Investment Management, follows the same tone and tenor of a similar letter to the ICI dated December 8, 1999, which also addressed investment company portfolio valuation (with specific emphasis on board responsibilities and oversight).