Tags: Dodd-Frank Act, regulation d, SEC
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By: Jeffrey Somers
Dodd-Frank recently amended the $1 million net worth accredited investor test for individuals under Regulation D (Reg D) to exclude the value of the investor’s primary residence. Dodd-Frank required the U.S. Securities and Exchange Commission (SEC) to adopt rule amendments to effect this change, which the SEC did on December 21, 2011. The rule amendments are effective February 27, 2012. You can find the final rule here.
Under the amended definition the value of an investor’s primary residence may not be included in calculating the investor’s net worth for purposes of Reg D. Likewise, debt (any mortgages and home equity loans) secured by an investor’s primary residence is ignored unless the debt exceeds the estimated fair value of the residence (an underwater mortgage), in which case excess of the mortgage debt over the fair value is included as a liability in calculating net worth. In addition, any increase in the amount of an investor’s mortgage debt within 60 days prior to the investor making the investment in question must be treated as a liability for purposes of calculating net worth (the theory being that the investor has taken value out of the residence, which is supposed to excluded, to raise cash to make the investment). This latter provision is not part of Dodd-Frank.
The amended rule does not define “primary residence” but the SEC adopting release refers to the common understanding that it is the home where the investor lives most of the time.
There is limited grandfathering for an investor’s exercise of rights to acquire securities provided (i) the right was held by the investor on July 20, 2010 (the enactment date of Dodd-Frank), (ii) the investor was an accredited investor at the time the rights were acquired, and (iii) the investor held securities of the same issuer, other than the rights, on July 21, 2010.
A capital call on a commitment made prior to July 21, 2010, is generally not subject to the amended definition. However, the definition would apply in the case of new purchases in a private fund unless the grandfathering provision applies.
Unless they have been already in response to Dodd-Frank, all subscription agreements that we use should be appropriately modified to reflect the new definition.
For more information, please contact Jeffrey Somers.
Tags: Dodd-Frank Act, proxy access, SEC
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On July 22, 2011, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously struck down Securities and Exchange Commission Rule 14a-11, also known as the Proxy Access Rule. The court vacated the Proxy Access Rule holding that the SEC failed to adequately consider the rule’s effect on efficiency, competition and capital formation as required by both the Securities Exchange Act of 1934 and the Investment Company Act of 1940.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (enacted July 2010), the SEC was authorized but not required to establish rules governing access to proxy statements. On August 25, 2010 the Proxy Access Rule was adopted by the SEC. The proposed Proxy Access Rule would have required a company, subject to proxy rules under the Securities Exchange Act of 1934, to include in its proxy materials, the name of a person or persons nominated by a qualifying shareholder or group of shareholders for election to the board of directors.
To learn more, please see the full article.
Tags: Dodd-Frank Act, Sarbanes-Oxley, whistleblower
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MBBP Attorneys Joseph Marrow and Mark Tarallo offer two articles discussing recent provisions to the Dodd-Frank Wall Street Reform and Consumer Protection Act:
- “Enhanced Whistleblower Provisions Under Dodd-Frank Act” written by Joe Marrow, discusses the expansion of protections for whistleblowers originally created under the Sarbanes-Oxley Act (SOX) under Dodd-Frank. Joe provides information on the new private right of action, the expansion of whistleblowers liability under SOX, and responses to the provisions.
- Mark Tarallo’s “Non-Mandatory Provisions of the Dodd-Frank Act as Guidance for Small Companies,” describes certain provisions of the Dodd-Frank Act that are applicable only to larger “financial services” companies but may also be adopted by all public companies who are interested in applying “best practices” for corporate governance.
For more information, please visit our resources page.
Tags: Dodd-Frank Act, investment funds
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On July 21, 2010, the Senate passed a financial reform bill called the Dodd-Frank Act. MBBP attorney Jeffrey Somers describes the new act and its impact on private investment funds in a recent client alert.
For more information on the Dodd-Frank Act and its implications, please contact Jeffrey Somers.