Monday, July 18, 2011

Connecticut Releases Three Dodd-Frank Related Orders

Three administrative orders related to the Dodd-Frank Wall Street Reform and Consumer Protection Act were issued by the Connecticut Department of Banking, effective July 11, 2011, to time with the July 21st effectiveness of SEC advisory rules coordinating with Title IV of the Dodd-Frank Act on Private Fund Advisers.

The first order establishes a timetable for certain investment advisers affected by the Dodd-Frank Act.

* SEC-registered investment advisers on or after the July 11, 2011 effective date of this Connecticut administrative order whose assets under management are less than $90 million on March 30, 2012 will have until either the effective date of their SEC-registration withdrawal or June 28, 2012, whichever date occurs first, to register as investment advisers in Connecticut.

* Investment advisers relying on the Rule 203-1(e) transition provision of the Investment Advisers Act of 1940 may defer filing a notice under Connecticut Securities Act Section 36b-6(e) until March 30, 2012, provided the advisers would otherwise have to register with the SEC and file a notice in Connecticut because of: (1) the repeal of the 1940 Act's section 203(b)(3) private adviser exemption; and (2) the unavailability of another Section 203 exemption. NOTE: Investment advisers qualifying for the deferral are not required to register as investment advisers in Connecticut under Ct. Securities Act Section 36b-6(c) during the deferment.

* Investment advisers who as of July 20, 2011: (1) rely on the July 21st-repealed private adviser (de minimis) exemption at 1940-Act Section 203(b)(3); (2) are ineligible to register as SEC investment advisers because their assets under managment do not meet the July 21st-effective SEC threshold amount; and (3) are ineligible for another Section 203 exemption, including the Section 203A(c) exemption from the prohibition on SEC registration, will have until March 30, 2012 to register as investment advisers in Connecticut.

CAUTION: Other than those investment advisers able to claim one of the above deferrals, investment advisers including those starting advisory business on or after July 21, 2011 who are ineligible for SEC registration, MUST continue to comply with applicable Connecticut registration and notice filing requirements.

NOTE 1: This first administrative order does not address investment advisers who would be exempt from federal registration under 1940-Act Section 203 as amended by the Dodd-Frank Act; the Connecticut Banking Commissioner may address these advisers in a subsequent administrative order.

NOTE 2: Investment advisers eligible for an above deferral may opt instead to voluntarily register as investment advisers in Connecticut.

The second order concerns certain investment advisers exempt from federal registration following passage of the Dodd-Frank Act. NOTE: A previous Connecticut administrative order from October 14, 1997 granting the de minimis exemption under Section 203(b)(3) of the Investment Advisers Act of 1940 for certain investment advisers is repealed, effective July 21, 2011 because the federal de minimis exemption under Section 203(b)(3) is, itself, repealed by the Dodd-Frank Act on July 21.

The following investment advisers are exempt from registration in Connecticut under Ct. Securities Act Section 36b-6(c)(1):

* Foreign private advisers as defined in 1940-Act Sections 202(a)(3) , 203(b)(3) and corresponding 1940-Act rules.

* Investment advisers registered with the Commodity Futures Trading Commission as commodity trading advisors that meet the exemption conditions of 1940-Act Section 203(b)(6), as well as the requirement (for "commodity trading advisors advising about private funds" defined in 1940-Act Section 202(a)(29)) that the commodity trading advisor's business not predominately consist of providing securities-related advice. CAUTION: Commodity trading advisors required to register with the SEC by not meeting the Section 203(b)(3) exemption conditions are subject to Connecticut Securities Act Section 36b-6(e) notice filing requirements if they transact business in Connecticut.

* Investment advisers qualified for the small business investment companies exemption in 1940-Act Section 203(b)(7).

* Investment advisers qualified for the venture capital funds exemption under 1940-Act Section 203(l) that comply with SEC Rule 204-4 reporting requirements. NOTE: This exemption from state registration incorporates by reference the "grandfather" provision in subsection (b) of SEC rule 203(l)-1. CAUTION: Investment advisers relying on the venture capital funds exemption from state registration must make the SEC Rule 204-4 required reports available to the Connecticut Banking Commissioner electronically through the IARD once the IARD is updated to accept the reports and relay them to the affected states.

* Investment advisers qualified for the private fund advisers exemption under 1940-Act Section 203(m) [advisers who act solely to private funds defined in 1940-Act Section 202(29)]. To be qualified for this exemption, the private fund advisers must: (1) make the SEC Rule 204-4 required reports available to the Connecticut Banking Commissioner electronically through the IARD once the IARD is updated to accept the reports and relay them to the affected states; (2) not be subject to an administrative, civil or criminal sanction described in Connecticut Securities Act Section 36b-15(a)(2); this subsection (2) also applies to the private fund advisors' supervised persons defined in 1940-Act Section 202(a)(25), as well as to person the private fund advisors control or are controlled by; and (3) be in compliance with SEC rules created to coordinate with 1940-Act Section 203(m), including Rule 203(m)-1.

NOTE: Investment advisers eligible for any of the above exemptions from state registration may opt instead to voluntarily register as investment advisers in Connecticut.


The third order restates a March 4, 1999 Connecticut administrative order defining a "client" for purposes of the Connecticut de minimis exemption for investment advisers.

* Investment advisers may continue to rely on the 1999 Connecticut administrative order until Rule 203(b)(3)-1 under the Investment Advisers Act of 1940 is repealed and the SEC Rule 222-2 amendments take effect.

* The term "client" in Connecticut Securities Act Section 36b-6(e)(3) will be defined in accordance with SEC Rule 202(a)(30)-1 without giving any consideration to paragraph (b)(4) of that Section, when the SEC Rule 222-2 amendments take effect simulaneously with the SEC Rule 202(b)(3)-1 repeal.

* The term "client" in Connecticut Securities Act Section 36b-6(e)(3) will be interpreted to incorporate any amendments or modifications to the term "client" contained in SEC Rules 222-2 and 202(a)(30)-1.

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