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November 2

BANKING

& FINANCE

TIGHTENING THE VISE GRIP ON PRIVATE FUNDS: THE PRIVATE FUND INVESTMENT

ADVISERS REGISTRATION ACT OF 2010

By: Milton A. Vescovacci, Esq. & Jarred Leibner*

The recent fnancial reorm legislation passed by Congress and

signed into law by President Obama on July 21, 2010, entitled the

Private Fund Investment Advisers Registration Act o 2010 (the

Act), includes various provisions that will impact the current

registration and reporting requirements o private und investment

advisers. Compliance with this new legislation is likely to be costly and

challenging or private und advisers.

Prior to the Act, only investment advisers

that have ewer than 15 U.S. clients during

the immediately preceding 12 months arerequired to register with the U.S. Securities

and Exchange Commission (SEC) pursuant

to the private adviser exemption under Section

203(b)(3) o the Investment Advisers Act o

1940 (the Advisers Act).

Under the Act, the private adviser exemption

is eliminated in its entirety. In its stead, private

und investment advisers will be required

to register with the SEC and conorm to the

various rules and regulations pertaining to

registered investment advisers i the assets

under management in the U.S. in excess o

$150,000,000. Those advisers who have lessassets under management may still need to register with their state

securities regulators, unless exempted by applicable law. The Act

requires all private und investment advisers to ollow new rules

regarding: (1) reporting, (2) recordkeeping, and (3) SEC examination.

The new rules are required to be issued by the SEC within one year o

enactment o the Act.

The Act contains exemptions rom the registration requirements

or investment advisers who act as advisers to amily ofces,

private unds and venture capital unds. The new rules to

be issued by the SEC will defne what a venture capital und is.

Those rules will also provide or exemptions or amily ofces that

are consistent with current narrow exemptive orders, taking into

account the range o organization, management, and employmen

structures and arrangements employed by amily ofces. The Act

also contains a limited exemption rom the registration requirement

or oreign private advisers that: (1) do not have a place o business

in the U.S., (2) have ewer than 15 clients and investors who are

domiciled or residents o the U.S., (3) have assets under managemen

or U.S. clients and investors o less than

$25,000,000, and (4) does not hold itsel

out to the general public in the U.S. as an

investment adviser nor acts as an investment

adviser to an investment company registered

under the Investment Company Act o 1940

or a business development company under the

Investment Company Act o 1940 and has not

withdrawn its election. By adding the word

and investors to the 15 clients as a criteria

or exemption rom registration or oreign

private unds, the Act now limits oreign

private advisers and their unds to no more

than 15 U.S. investors. This raises a question

about the client counting rules which the U.S

Court o Appeals decision in Goldstein v. SEC

451 F.3d 873 (D.C. Cir. 2006) unanimouslystruck down. This nuance in the Act could have an adverse eect on

oreign private investment advisers that provide investment advisory

services to a single und client which has more than 15 U.S. investors

Such oreign investment advisers will either have to register in the

U.S. or the unds to which they serve as advisers will need to replace

such adviser with an adviser that is exempt rom registration.

In addition, the Act provides that the SEC will adjust the accredited

investor defnition under the Securities Act o 1933 and update the

defnition based on ination adjusted dollar amounts. The SEC i

required to exclude the value o an individuals primary residence or

the purpose o determining such individuals net worth rom the date

continued on page 3


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November 2010

BANKING

& FINANCE

2

HOW ATTORNEYS FEES PROVISIONS CAN AFFECT THE ENFORCEABILITY OF

ARBITRATION CLAUSES

By: David S. Hendrix, Esq. & Alissa M. Ellison, Esq.

Certain arbitration provisions that award prevailing party attorneys

ees or a party who was orced to compel arbitration have been

ound to be unenorceable. For example, in Holt v. OBrien Imports,

862 So. 2d 87, 90 (Fla. 2d DCA 2003), the Second District Court o

Appeal ound that an arbitration agreement

was unenorceable because it contained an

attorneys ees provision contrary to the

remedial provisions o the Floridas Deceptive

and Unair Trade Practices Act (FDUPTA)

and the Truth in Lending Act (TILA), in thatit awarded attorneys ees to any party who was

orced to compel arbitration, despite the act

that FDUPTA and TILA are remedial in nature

and provide or the award o attorneys ees to

a prevailing Plainti. The specifc arbitration

provision at issue in Holt provided:

Any party to this agreement who ails

or reuses to arbitrate in accordance

with the terms o this predispute binding

arbitration agreement shall, in addition

to any other relie awarded through

arbitration, be taxed by the arbitrator or

arbitrators with all o the costs, including

reasonable attorney[']s ees, o any other

party who had to resort to judicial or

other relie in compelling arbitration

in accordance with the terms herein

contained.

The Second District Court o Appeal ound, in part, that this remedial

limitation rendered the arbitration agreement unenorceable because,

even i the consumers prevailed on their claims, they could still be

taxed attorneys ees resulting rom a deendant obtaining a court

order compelling arbitration, thereby deeating the remedial purpose

o FDUPTA and TILA.1 Other cases have held, generally, that when

an arbitration clause deeats the remedial purpose o a statute, the

arbitration clause is not enorceable. Paladino v. Avnet Computer

Technologies, Inc., 134 F.3d 1054 (11th Cir. 1998); Blankfeld v

Richmond Health Care, Inc., 902 So. 2d 296 (Fla. 4th DCA), review

denied, 917 So. 2d 195 (Fla. 2005); Lacey v. Healthcare & Ret. Corp

of Am., 918 So. 2d 333 (Fla. 4th DCA 2005). Thereore, partie

opposing arbitration in Florida may attemp

to argue that to the extent an arbitration

clause attempts to shit attorney's ees to th

plainti in contradiction o certain remedia

consumer statutes, the arbitration clause i

unenorceable.

However, while Holt v. OBrien Imports di

not consider the issue o severability o th

remedial limitations rom the contract as

whole, the Second District Court o Appea

recently addressed this issue. Specifcally, in

ManorCare Health Services, Inc. v. Stiehl

22 So. 3d 96, 99-100 (Fla. 2d DCA 2009), th

Second District Court o Appeal held that i

the remedial limitation is severable rom th

arbitration agreement, the validity o remedia

limitations may be considered by the arbitrato

and, i the limitations are ound invalid

severed rom the agreement by the arbitrator

Thus, the Second District Court o Appea

determined that, where the limitations ar

severable rom the agreement to arbitrate, th

validity o such remedial limitations is beyond

the initial gateway determinations. Accordingly, when aced wit

the argument that an arbitration agreement is unenorceable due t

remedial limitations, i the oending clause is severable, a party can

argue that arbitration should still be compelled because an arbitrator

as opposed to a court, should determine the issue o the enorceabilit

o the remedial limitation.

1 It should also be noted that the Holt decision also stated that the arbitratio

clause at issue penalized buyers from exercising their rights under the Florid

Arbitration Code which allows courts to determine certain gateway issuedealing with whether the agreement is unconscionable.


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November 2

BANKING

& FINANCE

3

o enactment o the Act and requires the SEC to revisit the defnition

o accredited investor periodically ater the enactment o the Act

to determine i an adjustment to the dollar amounts is necessary.

Investors that seek to rely on the accredited investor status will not be

allowed to include their homes in the net worth determination. This

could have the eect o reducing the pool o qualiying investors and

reduce the number and viability o transactions that come to market.

What is unclear is the eect o the Act on investors who qualifed as

accredited investors prior to the adoption o the Act in transactions

with oering periods that remain open. Will these investors have

to determine their qualifcations under the new accredited investor

standards and recertiy as to their accredit investor status in

such transactions or will they be allowed to rely on their prior

qualiying status?

The Act has certainly changed the landscape o the private und

investment world and, consequently, investment advisers and issuers

seeking unding rom accredited investors should understand the

ramifcations o this new legislation and prepare to comply with

its provisions.

*Jarred Leibner, summer associate at GrayRobinson in Fort Lauderdale and

a JD/MBA candidate at the University of Miami, contributed to this article.

TIGHTENING THE VISE GRIP ON PRIVATE FUNDS: THE PRIVATE FUND INVESTMENT

ADVISERS REGISTRATION ACT OF 2010CONTINUED FROM PAGE 1

LOANDOCUMENTATIONANDREVIEW

File review, essential documentation review such as notice,

waiver, deault, acceleration, attorneys ees, jury waiver,

adequacy o signatures, documents, flings, guarantees,

securitization o collateral when you contact your attorney,

strategy o loan modifcation vs. litigation, early settlement

oers and settlement privilege issues, set o and reezing

accounts.

LITIGATIONDemand letters, attorney client privilege, oreclosure

complaints, afdavits o indebtedness, guarantee actions,

service (in person and substitute service), motions to dismiss,

summary judgment, trial (jury and non-jury), arbitration

clauses (when to consider and when not to), motions or

rehearing eect on sale date, oreclosure sales, bidding

instructions, use o attorney or agent at sale, alternates to

litigation such as deed in lieu, environmental studies, surveys,

jurisdiction (state and ederal).

BANKRUPTCY

Suggestion o bankruptcy and banks duties and obligations,

creditors meeting, motions to lit stay, adequate protection

issues, class o claims (secured, unsecured, split claims),

Chapter 7, 11, 13 and the dierences,trustees, receiverships,

plan confrmation, cram down, adversarial actions, collection

o judgments (writs, garnishments and replevins) both in and

out o bankruptcy.

SHOWCAUSEFORECLOSURESFlorida Statute Section 702.10 Deenses AND advanced

litigation Techniques designed to speed up the litigation

process.

FORECLOSURESALES

For more inormation about this webinar or other in-house

specialized training webinars, please contact:

DavidS.Hendrix

Chairman, Banking & Finance

800-338-3381

[email protected]

The GrayRobinson Banking & Finance Group oers a Special

Assets Webinar to our valued clients which can be specifcally

tailored to your needs. This Webinar was designed and is presented

by some o our most seasoned Banking & Finance Group attorneys

and includes in-depth discussion on:


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November 2010

BANKING

& FINANCE

4

FORTLAUDERDALE

James D. "Jim" Barnett [email protected]

Scott L. Cagan [email protected] R. Kaiserman [email protected]

Jerey T. Kuntz [email protected] A. Lessne [email protected] H. Loredo [email protected]

Ivan J. Reich [email protected] E. Schwartz [email protected] S. Scott [email protected]

Jason Burnett [email protected] Stathis Haramis [email protected] B. Jacobs [email protected]

Cynthia M. Montgomery [email protected] A. Moore [email protected]

LAKELAND

David D. Hallock, Jr. [email protected] M. Morgan, Jr. [email protected]

Stephen C. Watson [email protected]

MELBOURNE

Patrick F. Healy [email protected] A. Nohrr [email protected]

MIAMI

Leyza F. Blanco [email protected] M. Carman [email protected] M. Espinosa

Christianson [email protected] F. Danese [email protected]

Veronica A. Meza [email protected]

Robert A. Schatzman [email protected] J. Solomon [email protected]

Frank P. Terzo [email protected] A. Vescovacci [email protected] J. Watkins [email protected]

Mark S. Weinberg [email protected] W. Zelkowitz [email protected]

ORLANDO

William H. Beaver, II [email protected]

John M. "Jay" Brennan [email protected] "Terry" J.

Delahunty, Jr. [email protected] R. Finch [email protected] R. Lehrer [email protected]

Frederick W. Leonhardt [email protected] F. "Bi" Marshall, Jr. [email protected] J. Owen, Jr. [email protected]

Paul S. Quinn, Jr. [email protected] S. Salzman [email protected]

Jason W. Searl [email protected]. Gene Shipley [email protected] E. Traver [email protected]

Chair - David S. Hendrix [email protected] P. Covelli [email protected]

Thomas W. Danaher [email protected] de Alejo [email protected] McKee Ellison [email protected] J. Fender [email protected]

Jeanette M. Flores [email protected] L. Kussner [email protected]

Scott R. Lilly [email protected] A. Mann II [email protected] Schellhase [email protected]

Aaron J. Silberman [email protected] L. Smith [email protected] I. Van Voris [email protected]

Kim Hernandez Vance [email protected] M. Zabak [email protected]

GRAYROBINSON BANKING & FINANCE GROUPABOUTTHEAUTHORS

AlissaMcKeeEllison

Tampa

813-273-5000

alissa.ellison@

gray-robinson.com

DavidS.Hendrix

Tampa

813-273-5000

david.hendrix@

gray-robinson.com

MiltonA.Vescovacci

Miami

305-416-6880

milton.vescovacci@

gray-robinson.com

GRAYROBINSONBANKING&FINANCEGROUP

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