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. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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 dictated by a complicated cascading mechanism in the fund’s offering documents. That cascading mechanism is called: The Waterfall!

Key Points From This Episode:

• Background on the Waterfall concept and an elegant analogy to help you visualize it.
• Examples of the waterfall in action – from simple to more complex.
• Descriptions of “preferred return” and “GP catchup” provisions.
• Ways to make the Waterfall even more complex.
• American vs European waterfalls.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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 Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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 constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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 might cause them to run for the hills? Listen up to find out! Hint: they don’t want to pay for your super yacht. 

Key Points From This Episode:

• Expenses typically borne by fund vehicles.
• Expenses typically borne by the management company.
• What expense provisions are often negotiated?

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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 action against NFT issuer Impact Theory.
• Terraform Labs Order.
• Industry groups sue the SEC to block implementation of the private fund adviser rule.
• Celebrating circles.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Grayscale win: https://www.reuters.com/legal/us-court-says-sec-wrong-deny-grayscales-spot-bitcoin-etf-proposal-2023-08-29/

FASB Fair Value Accounting: https://www.coindesk.com/policy/2023/09/06/fasb-says-crypto-assets-should-be-marked-at-current-values/#:~:text=The%20first%20U.S.%20accounting%20rule,Accounting%20Standards%20Board%20(FASB).

Treasury Department Proposal: https://dailyhodl.com/2023/09/08/u-s-treasury-and-irs-propose-new-rules-that-broaden-client-information-crypto-businesses-are-required-to-file/

Impact Theory Settlement: https://www.sec.gov/files/litigation/admin/2023/33-11226.pdf

Terraform Labs Order: https://storage.courtlistener.com/recap/gov.uscourts.nysd.594150/gov.uscourts.nysd.594150.51.0.pdf

Lawsuit vs Private Fund Adviser Rule: https://nvca.org/press_releases/nvca-asset-management-associations-file-lawsuit-to-set-aside-secs-new-private-fund-adviser-rule/

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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 significant aspects of the 660-page rule.

Key Points From This Episode:

• Summary of key provisions in the new rule – some of which only apply to registered investment advisers, and others of which apply regardless of registration status.
• When does the new rule become effective and when do managers have to comply with its various provisions?
• Dave’s quick take on the new rule.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

SEC Release adopting the rule: https://www.sec.gov/files/rules/final/2023/ia-6383.pdf

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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 manager – are acting as an investment adviser (and you need to comply with the Investment Advisers Act). If that sounds familiar, you’ve been listening to your Tokens of Wisdom! Back in episodes 1 and 2 we laid out the regulatory regime that applies to these businesses in the United States, and that same regime applies to non-U.S. based managers selling interests to U.S. investors. There are some key distinctions though, primarily in the Investment Advisers Act analysis, which we dig into today.

Key Points From This Episode:

• Refresher on the “legislative triangle” from episode 1.
• The three levels of investment adviser regulation that might apply to your business: foreign private adviser exemption; private fund exemption; and investment adviser registration.
• How to determine which level applies to you.

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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: 
• Is XRP a security? No. Did Ripple sell a security when it sold XRP? Sometimes.
• Difference between an asset, and an investment contract in respect of that asset.
• Why comparing this analysis to shares of Apple stock misses a key distinction.
• More of your favorite Supreme Court case from 1946 (Howey!).
• Why this order makes the SEC’s case against Coinbase (and others) harder.
• What’s head-scratchy in the order?
• Could this make actual crypto legislation more likely?

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Link to final order - https://www.nysd.uscourts.gov/sites/default/files/2023-07/SEC%20vs%20Ripple%207-13-23.pdf  

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]

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 apply in the context of digital assets?
• Why Prometheum can’t fulfill its mission to protect investors (hint: because it has none…because it has no tokens to list).

Disclaimer:

This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/

Links Mentioned in Today’s Episode:

Unchained from June 27 - https://unchainedcrypto.com/prometheum-and-paradigm-in-debate-can-the-status-quo-work-for-crypto/. 

Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/

Cole-Frieman & Mallon LLP - https://colefrieman.com/

Music by Joe Ginsberg - https://www.instagram.com/thejoeginsberg

For any questions or comments, email: [email protected]