The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Websites

  • From Vol. 7 No.30 (Aug. 7, 2014)

    Can Private Fund Marketing Be Automated?

    The Hedge Fund Law Report recently interviewed Alon Goren, CEO of INVST, an online platform for connecting private funds and investors.  The intent of the interview was to determine whether private fund marketing, or parts of it, can be automated, or at least facilitated, by technology.  In pursuit of an answer to this question, we discussed the following topics with Goren: what INVST does and its revenue model; how INVST confirms the accredited and qualified status of investors on the platform; compliance with the Lamp Technologies no-action letter and the JOBS Act; segments of the investor market on the platform; size and other characteristics of funds and managers on the platform; INVST’s interaction with third-party marketers and its place in the hedge fund marketing ecosystem; and whether INVST handles secondary market transactions in private fund interests.

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  • From Vol. 6 No.10 (Mar. 7, 2013)

    How Can Hedge Fund Managers Identify and Navigate Pitfalls Associated with the JOBS Act’s Rollback of the Ban on General Solicitation and Advertising?

    The Jumpstart Our Business Startups Act (JOBS Act) provisions allowing general solicitation and general advertising in private offerings (JOBS Act Marketing Provisions), upon becoming effective, will profoundly change how hedge fund managers can market their funds.  Before taking advantage of the JOBS Act Marketing Provisions, however, hedge fund managers should be aware of a number of potential pitfalls.  First, hedge fund managers may be prohibited from engaging in general solicitation and general advertising if they rely on exemptions from registration under certain Commodity Futures Trading Commission rules, or under certain state and federal investment adviser laws.  Second, hedge fund managers that are able to take advantage of the provisions need to be aware of several potential compliance issues under the Investment Advisers Act of 1940, including issues that arise when using social media, publicly available websites and publicly advertised performance history.  In a guest article, Adam Gale, a Member in the New York office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., identifies potential regulatory pitfalls associated with reliance on the JOBS Act Marketing Provisions and provides some recommendations to address compliance issues in connection with reliance on the JOBS Act Marketing Provisions.

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  • From Vol. 5 No.14 (Apr. 5, 2012)

    Implications of the JOBS Act for Hedge Fund Managers

    The President is expected to sign into law today the Jumpstart Our Business Startups (JOBS) Act, which could represent a positive development for many small businesses, including hedge funds, that generally seek to raise their profile within the capital markets and specifically seek to raise capital.  While it may still be premature to prognosticate the impact that the JOBS Act will have on hedge fund marketing and advertising because the SEC has not provided details regarding its anticipated rulemaking, hedge fund managers and their compliance staff should nonetheless be cognizant of the potential implications of this legislation on their businesses.  This article surveys some of these potential implications.

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  • From Vol. 5 No.6 (Feb. 9, 2012)

    Does Social Media Have a Place in the Hedge Fund Industry?

    While social media has captivated society and propelled it deeper into the communication age, the hedge fund industry has not yet embraced it on a meaningful scale.  See “Legal Considerations for Hedge Fund Managers that Use Social Media,” The Hedge Fund Law Report, Vol. 4, No. 14 (Apr. 29, 2011).  In fact, a recent survey of hedge fund managers found that the vast majority of hedge fund managers are simply not using social media.  On the one hand, it is surprising that hedge fund managers have been slow to explore social media given the otherwise cutting edge nature of the hedge fund industry.  On the other hand, many compliance professionals are simply stretched too thin by the introduction of new regulatory challenges arising from the Dodd-Frank Act, and thus are unable to devote resources to exploring this new frontier.  In reality, there appears to be very little dialogue regarding whether social media could be used effectively in the hedge fund industry, and if so, how to do so in compliance with applicable laws and regulations.  Therefore, in a guest article, John Herbert Roth, Counsel and Chief Compliance Officer of Venor Capital Management LP, initiates that dialogue by asking whether social media can have a place in the hedge fund industry, and then proposing a comprehensive framework within which hedge fund managers may think about social media and its compliance implications.  See also “SEC Enforcement Action and Bulletins Shine Spotlight on Use of Social Media by Investment Advisers,” The Hedge Fund Law Report, Vol. 5, No. 2 (Jan. 12, 2012).

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  • From Vol. 4 No.41 (Nov. 17, 2011)

    SEC Commences Fraud Action against a Purported Hedge Fund Manager for Providing False Background Information and Including False Information on a Website

    On October 26, 2011, the Securities and Exchange Commission (SEC) filed suit against Andrey Hicks and the hedge fund manager he ran, Locust Offshore Management, LLC (LOM), alleging that they defrauded investors by fabricating the existence of a British Virgin Islands-incorporated pooled investment fund.  The SEC’s complaint (Complaint) also names the purported fund, Locust Offshore Fund, Ltd. (LOF), as a relief defendant.  The Complaint, among other things, sheds new light on an old due diligence verity – the imperative of thorough background checks.  See “In Conducting Background Checks of Hedge Fund Managers, What Specific Categories of Information Should Investors Check, and How Frequently Should Checks be Performed?,” The Hedge Fund Law Report, Vol. 2, No. 36 (Sep. 9, 2009).

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  • From Vol. 4 No.35 (Oct. 6, 2011)

    How Much Information Can a Hedge Fund Manager Include On a Public Website?

    On September 22, 2011, the Massachusetts Supreme Court issued an important decision dealing with how much information hedge fund managers may include on their public websites.  The answer seeks to balance the right on the part of individuals and entities to free speech with the right on the part of government to limit commercial speech.  The decision is important to hedge fund managers because the Internet is becoming a more central channel of hedge fund marketing.  Conveying the right amount of information in the right way can enhance marketing, but saying too much or saying it in the wrong way can lead to liability.  This decision helps establish parameters.  Our article provides an extensive analysis of the decision, the factual background and prior relevant decisions.

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  • From Vol. 3 No.35 (Sep. 10, 2010)

    Hedge Fund Manager Elliott Management Withdraws Petition Seeking Discovery from Absolute Return + Alpha Regarding Identity of Source of Leaked Investor Letter

    On August 31, 2010, hedge fund manager Elliott Management Corporation, along with its managed hedge funds Elliott Associates, L.P. and Elliott International, L.P. (collectively, Elliott), withdrew their petition seeking pre-litigation discovery from hedge fund industry publication Absolute Return + Alpha (Publisher).  Elliott had sought discovery regarding, among other things, the identity of a source that provided Elliott’s June 30, 2010 investor letter to the Publisher.  That copyrighted investor letter contained confidential information regarding Elliott’s investments, trading positions and performance, and Elliott argued in court papers that public disclosure of the information would undermine its negotiations with trading counterparties.  Accordingly, when the Publisher told Elliott that it was going to publish the letter, Elliott sought an emergency order permitting it to take a deposition of the Publisher and conduct other pre-action discovery to find the source of the disclosure.  In an unfiled affidavit, the Publisher argued, among other things, that the New York Reporter’s Shield Law provided it with an absolute privilege to report information obtained from a confidential source without revealing the identity of the source, even if the information was copyrighted and confidential. Although Elliott withdrew its petition before the court had an opportunity to issue a substantive opinion, the petition itself is noteworthy for various reasons.  First, it details five measures taken by a sophisticated hedge fund manager to protect the confidentiality of position and performance information in an investor letter.  (Those five measures are detailed in this article.)  Second, it illustrates the challenge faced by a manager in the event of an unauthorized disclosure of an investor letter.  Had the matter proceeded and had Elliott obtained the identity of the source, Elliott presumably would have faced the unpalatable option of suing one of its own investors for damages arising out of this disclosure (though any such damages would be hard to quantify) or an injunction against further disclosures of information in the June 30 letter or future letters.  Alternatively, or in addition, Elliott might have brought an action against the Publisher, though in the absence of a confidentiality agreement or any other relevant contract between Elliott and the Publisher, the basis of any such claim is not immediately apparent.  This article details the thorough and rigorous process that Elliott used to ensure the confidentiality of its investor letters, and the legal steps it undertook to maintain that confidentiality when, despite those efforts, the content of one of those letters leaked.

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  • From Vol. 3 No.33 (Aug. 20, 2010)

    From Philip Goldstein: Salem-Style Justice is Alive and Well in Massachusetts

    In social psychology, the “bystander effect” refers to the phenomenon in which no one person will help when a group of people witnesses a bad act.  And in economics, the free rider problem suggests that a person generally will avoid taking actions, even socially beneficial ones, where the person bears the cost of that action but the benefits are widely dispersed.  Both theories have been robustly proven in experiments and are generally applicable: most people are, quite rationally, bystanders and free riders.  But not Philip Goldstein.  The Principal of Bulldog Investors successfully challenged the 2004 hedge fund adviser registration rule, is currently challenging the constitutionality of Section 13(f) of the Securities Exchange Act of 1934 and is challenging an allegation by the Secretary of the Commonwealth of Massachusetts that the Bulldog website, together with an e-mail sent in response to an inquiry from a Massachusetts resident, constituted an illegal “offer” of unregistered securities.  On July 2, 2010, in the action brought by the Secretary, the Supreme Judicial Court (SJC) of Massachusetts ruled against Goldstein.  The Hedge Fund Law Report has published two articles on that decision.  See “Massachusetts High Court Rules that Website and Single E-Mail Communication to Massachusetts Resident Confer Personal Jurisdiction Over Philip Goldstein’s Hedge Fund Company in Administrative Proceeding,” The Hedge Fund Law Report, Vol. 3, No. 28 (Jul. 15, 2010); “The Bulldog Decision: Implications for Hedge Fund Managers and the Massachusetts Securities Division,” The Hedge Fund Law Report, Vol. 3, No. 32 (Aug. 13, 2010).  In this letter to the editor, Goldstein identifies and discusses shortcomings in the SJC’s legal analysis and in The Hedge Fund Law Report’s coverage of the case.

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  • From Vol. 3 No.32 (Aug. 13, 2010)

    The Bulldog Decision: Implications for Hedge Fund Managers and the Massachusetts Securities Division

    The Massachusetts Supreme Judicial Court’s recent decision in the case Bulldog Investors General Partnership, et al. v. Secretary of the Commonwealth has significant implications for hedge fund managers and the scope of authority of the Massachusetts Securities Division of the Secretary of the Commonwealth.  In Bulldog, the SJC found that: (1) Bulldog Investors General Partnership, a hedge fund manager, and its principals violated Massachusetts securities laws by offering unregistered securities to a Massachusetts resident via a single e-mail after he registered with Bulldog’s publicly accessible website; and (2) the Securities Division could exercise personal jurisdiction over non-residents Bulldog and its principals in administrative enforcement proceedings.  See “Massachusetts High Court Rules that Website and Single E-Mail Communication to Massachusetts Resident Confer Personal Jurisdiction Over Philip Goldstein’s Hedge Fund Company in Administrative Proceeding,” The Hedge Fund Law Report, Vol. 3, No. 28 (Jul. 15, 2010).  In a guest article, Michele Adelman and Catherine Karuga, Counsel and Associate, respectively, at Foley Hoag LLP, explain the factual background of the case and the court’s legal analysis, and offer several take-aways for hedge fund managers.

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  • From Vol. 3 No.28 (Jul. 15, 2010)

    Massachusetts High Court Rules that Website and Single E-Mail Communication to Massachusetts Resident Confer Personal Jurisdiction Over Philip Goldstein’s Hedge Fund Company in Administrative Proceeding

    Massachusetts’ highest court has dealt a blow to activist investor Philip Goldstein’s efforts to broaden the ability of hedge funds to disseminate information about their operations and performance.  Plaintiff Bulldog Investors General Partnership (Bulldog) had operated a website containing information about its investment products.  A visitor to the site could register and receive “more specific information” about Bulldog’s funds.  In November 2006, Massachusetts resident Brendan Hickey (Hickey) registered with the site.  A Bulldog employee then sent Hickey a single e-mail with detailed information about Bulldog’s funds and offered to discuss the funds by telephone.  As a result, in January 2007, the Securities Division of the office of the Secretary of the Commonwealth (Secretary) filed a complaint against Bulldog and certain employees and affiliates, accusing them of offering non-exempt, unregistered securities.  Bulldog contested the proceeding, arguing that the Secretary did not have personal jurisdiction over the named respondents, that the information provided did not constitute an “offer” under Massachusetts law and that the enforcement action violated the respondents’ rights to free speech.  The Supreme Judicial Court upheld the determination by the Secretary and lower court that jurisdiction was proper and that Bulldog’s e-mail to Hickey constituted an “offer” of unregistered securities under Massachusetts law.  Bulldog’s free speech claims are being heard in a separate proceeding.  We summarize the facts that gave rise to the administrative proceeding and the Court’s reasoning.

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