California Modifies Proposed Private Adviser Exemption

June 21, 2012 § 2 Comments

The California Department of Corporations has further modified its proposed rules exempting private fund managers from full investment adviser registration. The revised proposal makes the following changes to the previous version of the rule:

  • Requires that any financial audits be performed by CPAs subject to the PCAOB;
  • Expands the application of the exemption to certain funds exempt under Section 3(c)(5) (e.g., real estate funds);
  • Clarifies the disclosures to be provided to investors in the exempt private funds;
  • Expands the definition of “venture capital company” to include the new corresponding federal definition; and
  • Clarifies the scope of grandfathering provisions to permit existing funds to continue operating according to their formation terms.

See my previous posts on the scope of the proposed exemption and extension of the current exemption.

The Department is accepting comments on the new proposed rule until July 3, 2012. The rule, in whatever form it is ultimately adopted, will not be effective until final action by the Department.



Jack G. Martel is the author of Investment Adviser Law Blog which is devoted to providing information and discussion of interest to investment advisers, private fund managers and others in the financial management industry. Jack is a partner in Ragghianti | Freitas LLP. He has over fifteen years experience in general business and securities transactions with a focus on assisting investment advisers, fund sponsors and managers in all manner of legal, regulatory and compliance issues. Jack can be reached at 415.453.9433.

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