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Update on CA Private Fund Advisers' Registration

On February 6th the California Department of Corporations announced a 45-day extension of the comment period for its proposed rule aligning California's exemption for private fund advisers to the federal exemption. Interested parties now have until 5 p.m. March 26, 2012 to provide commentary on the proposed rulemaking. As reported by Core Compliance and Legal Services, Inc.,  on December 21, 2011, the DOC released its initial notice of proposed rulemaking concerning private fund adviser exemption. The overhaul of federal financial services and securities laws resulting from Dodd-Frank included the elimination of the "private adviser" exemption set forth in Section 203(b)(3) of the Investment Adviser Act of 1940 and the creation of a new regulatory regime for advisers to private funds. The new provisions adopted by the SEC under Dodd-Frank exempt advisers to private funds from registration if they (1) exclusively advise venture capital funds or (2) manage less than $150 million of assets. The proposed California rule would likewise exempt advisers from state registration if they advise only "qualifying private funds" (defined by SEC Rule 203(m)-1). The California rule also includes several investor protection safeguards, including requiring that the exempt adviser not be subject to statutory disqualifications (also known as "bad boy" provisions) and requiring the adviser to file periodic reports on Form ADV containing the information required by exempt reporting advisers under SEC Rule 204-4. If the proposal is adopted, California firms that solely manage qualifying funds (and meet the additional requirements) with under $150M in AUM may not be required to register with any regulatory agency. For additional information on the proposed regulation, please contact Sarah Weber at (619) 298-2880 or sarah.weber@jackolg.com.

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