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Do you love investing? Ever thought about turning that passion into a business? Listen up to learn to navigate the legal loopholes in forming, launching, and running a private investment fund, including considerations unique to digital asset/crypto funds. Dave Rothschild is a partner at Cole-Frieman & Mallon, one of the country's premier boutique investment management law firms with deep experience in traditional assets, as well as esoteric asset classes like digital assets. For questions or comments, email tow@colefrieman.com. Visit our website: https://colefrieman.com
37 Episodes
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Today’s episode is all about the government’s attempts to jam the square peg of crypto mixers Tornado Cash and Samourai Wallet into the round hole of unlicensed “money transmitters”.But to grasp the full story, we need to understand some basic terms. Like “money transmitter”.Key Points From This Episode:What are (were?) Tornado Cash and Samourai Wallet?What is a “money transmitter”?The regulatory area where crypto guidance from the federal government has been relatively clear and proactive.Wh...
Last episode we dissected the SEC’s “venture capital fund” definition and discussed how, if an adviser manages only VC funds, there is no AUM ceiling on its ability to remain exempt from registration. If that same adviser manages money for any non-Venture capital fund, it has to register as an investment adviser once AUM hits $150mm. This can lead some less scrupulous investment advisers to try to “game” the system by forming new adviser entities, thinking they can skirt regulation by forming...
Like I mentioned back in Episode 2, there are some down sides to relying on the private fund exemption – at the SEC level, the only “down” side is an AUM ceiling after which you have register (150mm…see ep 32). But many states require extra stuff if you’re managing any 3c1 funds: this varies by state, but many impose annual audit requirements and either increased investor accreditation thresholds, restrictions on who can pay performance-based comp, or both. EXCEPT those restrictions don’t app...
One of the underappreciated tasks a new fund manager needs to complete is its management company operating agreement. This is the agreement among the principals of the management company that controls how the entity is governed, how economics are split among the principals, etc.Key Points From This Episode:Why is it important to paper these agreements?Why they sometimes get put on the back burner.Brief discussion of the four primary areas to consider:Economics;Corporate governance;Exit provis...
Recently, it seems like tokenizing things is all the rage. Everybody wants to talk about tokenizing real estate or art or securities or any other “real world asset”. Heck, even “RWA” has become a commonly understood acronym to describe things that exist in tangible form, as opposed to just digitally. Well, private investment funds are no different, and I’ve noticed an uptick recently in managers inquiring about tokenizing their fund offerings. Today’s episode is all about tokenized funds.Key ...
March Madness means something different for compliance professionals and investment management lawyers: it means a crush of ADV Amendments! Tune in to today’s episode for some nice bedtime listening about the ins and outs of one of the world’s least interesting regulatory filings. Key Points From This Episode:Who files a Form ADV?When are regular amendments due?What kinds of information typically change?How this amendment relates to a investment adviser registration obligations.Why is th...
What does My Cousin Vinny have to do with third party marketers? Tune in to today’s episode to find out! Hint: nothing. Key Points From This Episode:What makes My Cousin Vinny such a great movie?How can I pay my cousin commissions for selling interests in my fund?Why your cousin is unlikely to be moonlighting as a broker-dealer. Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, p...
A couple months ago, I did an episode discussing the Corporate Transparency and concluded that, while it’s annoying and kinda stinks, it’s not that big of a deal. Well, we’re now a couple weeks into the reign of the CTA and I’m back to tell you….I was wrong (kinda).Key Points From This Episode:Why CTA compliance might be annoying for your typical fund manager.Examples of the kinds of CTA amendments that might be necessary on an ongoing basis.Multiple analogies of questionable effectivene...
Christmas is right around the corner, and that can only mean one thing: Dave’s year-end podcast episode!! As we say goodbye to 2023 and its rock-bottom crypto prices, let’s raise a glass to the future, and open an ear to a quick rundown of the year’s most significant crypto and fund storylines. Key Points From This Episode:Turning 2022’s frown upside down.BTC price action.A walk down memory lane, from bank runs to bull runs. Happy New Year!!Disclaimer:This show is for informational ...
I talk to a lot of 1st time fund managers and one common mistake I hear is that they think the fund entity is their business. But it’s not. The fund is a passive investment vehicle. It might be the focus of your business; it might be your business’s only revenue source; it might take up almost all of your time; but your management company – not your fund – is your business. In today’s episode we’re talking all about management company structuring considerations. Scintillating stuff!Key P...
Exciting (?) new law hits the books that will affect almost every business entity formed or operating in the United States! It’s the Corporate Transparency Act!Key Points From This Episode:What business entities are captured by the new law?What does the new law require?What is FinCEN?What kinds of entities are exempt from the CTA (hint, registered CTAs are among them)?What are the deadlines?What if I don’t do it?Why should I care?Disclaimer:This show is for informational purposes only. Nothin...
Today we’re keeping the performance-based comp discussion going and looking at “Carried Interest” or “Carry” for short: performance-based compensation for closed-end funds – VC, PE, etc. One big structural difference from open-ended funds is that the GP typically doesn’t get performance-based comp on paper (i.e., unrealized) gains. For a refresher on closed-end vs open-end funds, listen to Episode 9.Instead, proceeds from monetization events get distributed among the partners in proportions d...
Building off our last episode’s discussion of performance allocations and high water marks, today we’re tackling hurdle rates. If you need more background on today’s topic, listen to Episode 24 first.Key Points From This Episode:What is a Hurdle Rate and how does it work?(Not so) surprising fact about Olympic gold medals.Hard hurdle rate vs Soft hurdle rate.Illustrative examples.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of...
Today we’re talking all about High Water Marks in a hedge fund-style vehicle. Of course, to understand HWMs, first you need a basic understanding of how performance allocations work, so we start there.Key Points From This Episode:Basic performance allocation mechanics.What is a High Water Mark and how does it work?A few ways to make it more complicated.Illustrative examples with math simple enough even I can do it.Disclaimer:This show is for informational purposes only. Nothing presented here...
What’s a fund expense vs a manager expense? Fund managers are often curious about what expenses they will be responsible for, and what expenses the fund will cover itself. This is especially important for first-time managers forecasting cash needs for their new management company business.For the most part, if you accurately and fully disclose to fund investors what expenses the fund will bear, the fund is able to bear those expenses. But what’s typical? What will investors expect, and what m...
Feels like a lot has been happening in the crypto world lately, and while none of these stories/events is individually worthy of its own episode, everyone loves the occasional news roundup. So in this episode we take a quick ride through some recent newsworthy events affecting The Space. Key Points From This Episode:Grayscale’s court win.Financial Accounting Standards Board’s new fair value accounting rules for digital assets.New proposed Treasury Department rules.SEC’s enforcement actio...
Big news in Private Fund Land, as the SEC Commissioners on voted August 23rd to adopt one of the more significant new private fund-specific rules in recent memory. This one was about 18 months in the making (the rule was first proposed in early 2022), and while the final rule pared back the most overreaching aspects of the proposal, it still has far-reaching impacts that will alter how pretty much all private fund advisers do business. This episode is a high-level summary of the more signific...
If you’re a fund manager based outside the United States with no operations in the U.S., you may think American securities laws don’t extend to you. But if you’re seeking to raise capital from U.S. investors, you are wrong. As soon as you sell fund interests to even a single U.S. investor, you are selling securities in the United States (and you need to comply with the Securities Act), your fund is an investment company (and you need to comply with the Investment Company Act), and you – the m...
By now you’ve all heard the great news coming out of the Southern District of New York: Ripple defeated the SEC!! This is, no doubt, an enormous win for Ripple and the crypto community writ large, but it’s not the end of the fight. And and some of the hot takes you read on Twitter (or Threads?) are…less than accurate. Shocking, I know. On today’s episode, I share my brief summary of the order, what’s celebration-worthy, and what isn’t.Key Points From This Episode:Summary of the Ripple order:&...
If you want early fireworks before the 4th tomorrow, listen to last week’s Unchained Podcast where Laura Shin “interviewed” Aaron Kaplan, co-CEO of Prometheum, and Paradigm Special Counsel Rodrigo Seira. I put “interview” in quotes because it’s more like she refereed a prize fight. Listen to that before you listen to this, then come back here and hear why Aaron’s arguments don’t hold much water.Key Points From This Episode:Reg D is an issuer exemption.What’s Rule 144 and why is it hard to app...
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