Category — Investment Funds

The financial crash has reminded many hedge funds of the importance of good legal counsel.  It’s a lesson some funds learned too late.   Camulos Capital LP, a Stamford, Connecticut-based hedge fund with approximately $2 billion in assets, was one of the lucky ones.  In late July, Camulos saw trouble looming…and reached out to Akin Gump Strauss Hauer & Feld partners Steve Vine and Eliot Raffkind for assistance.

Read the full article from the American Lawyer here.

What follows is an alert from Akin Gump’s investment funds practice.

If you have questions regarding this alert, please contact-

• Mark H. Barth, 212.872.1065, New York
• David M. Billings, 44.20.7012.9620, London
• Jan-Paul Bruynes, 212.872.7457, New York
• James A. Deeken, 214.969.4788, Dallas
• Patrick J. Dooley, 212.872.1080, New York
• Christopher M. Gorman-Evans, 44.20.7012.9656, London
• Barry Y. Greenberg, 214.969.2707, Dallas
• Ira P. Kustin, 212.872.1021, New York
• Arina Lekhel, 212.872.8018, New York
• Burke A. McDavid, 7.495.783.7835, Moscow
• Prakash H. Mehta, 202.887.4248, Washington, D.C.
• Lisa A. Peterson, 817.886.5070, Dallas
• Eliot D. Raffkind, 214.969.4667, Dallas
• Fadi G. Samman, 202.887.4317, Washington, D.C.
• William L. Sturman, 212.872.1035, New York
• Ann E. Tadajweski, 212.872.1087, New York
• Simon Thomas, 44.20.7012.9627, London
• Stephen M. Vine, 212.872.1030, New York

On October 14, 2008, and October 15, 2008, the Securities and Exchange Commission (SEC) adopted rules that continue the effectiveness of certain emergency orders issued by the SEC on September 17, 2008, and September 18, 2008.  The SEC’s new rules include (1) an interim final temporary rule that continues the requirement of persons filing Form 13Fs to report their short sales and short positions (the “Short Sale Reporting Rule”), (2) an interim final temporary rule to require the closing out of “failures to deliver” securities (the “Close-Out Rule”), (3) a final rule targeting deception of market participants about a seller’s intention or ability to deliver securities at settlement (the “Anti-Fraud Rule”) and (4) a final amendment to Rule 203 of Regulation SHO that eliminates the option market maker exemption from the requirement to close out failures to deliver in threshold securities.  The Short Sale Reporting Rule and the Close-Out Rule contain significant changes from the previously published emergency orders, which changes are described in more detail below.  The Anti-Fraud Rule and the elimination of the market maker exception are substantially similar to the previously published emergency orders.

The Short Sale Reporting Rule will be effective from October 18, 2008, to August 1, 2009.  The Close-Out Rule will be effective from October 17, 2008, until July 31, 2009.  The Anti-Fraud Rule and the elimination of the market maker exception will be effective on October 17, 2008, and extend indefinitely.

SHORT SALE REPORTING RULE

The Short Sale Reporting Rule, or Rule 10a-3T under the Securities Exchange Act of 1934, requires any person that files a Form 13F for the relevant calendar quarter, to file a Form SH on a weekly basis reporting any daily short sales and changes in short positions.  The SEC revised the Short Sale Reporting Rule included in the previous emergency orders and Form SH by, among other things, (1) changing the due date of Form SH, (2) eliminating certain reporting requirements from Form SH, (3) changing the de minimis exception, (4) eliminating the grandfather provision for short positions entered into prior to September 22, 2008, and (5) requiring the filing of Form SH in XML format.

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What follows is a client alert produced by Akin Gump’s investment funds practice. Download a PDF of the full alert here.

INTRODUCTION

In response to the turmoil in the U.S. financial markets, the Securities and Exchange Board of India (SEBI) announced in a press release issued on Monday, October 6, significant changes to Indian regulations governing foreign institutional investors (FIIs) and unregistered foreign investors who intend to invest in the Indian securities market.  In order to encourage the inflow of foreign capital into India, SEBI has removed the restrictions placed on the use of offshore derivative instruments (ODIs)-often referred to as “participatory notes” or “p-notes”-to invest in the Indian market.

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What follows is an excerpt from a client alert published by Akin Gump’s tax and investment funds practices. To download the full alert click here.

For more information on this alert please contact-

Tax:

• Patrick Fenn 212.872.1040 New York
• Stuart Leblang 212.872.1017 New York
• Bruce Simonetti 212.872.8023 New York
• Kevin Rowe 212.872.8064 New York
• Josh Williams 212.872.8014 New York

Investment Funds:

• Stephen Vine 212.872.1030 New York
• Prakash Mehta 202.887.4248 Washington, D.C.
• Mark Barth 212.872.1065 New York

On October 1, 2008, the Senate passed a bill that would add new Section 457A to the Internal Revenue Code (the “Code”). As discussed below, Section 457A would impose significant restrictions on techniques commonly used by managers of offshore hedge funds to defer fee income. The restrictions would generally apply to deferred compensation attributable to services rendered after 2008.

The Senate bill contains limited transition relief for deferred compensation attributable to services performed before January 1, 2009. Although some aspects of the bill are unclear (particularly with respect to side pockets), the transition relief would generally allow continued deferral of pre-2009 deferred compensation amounts until 2017.

The Senate bill combines the financial sector bailout bill that was rejected by the House on September 29, 2008 with a highly popular package of extensions for expiring tax cuts, which would be partially paid for by Section 457A. Thus, although there have been differences of opinion between the Senate and the House over how the bailout should be structured and the extent to which extensions of tax cuts should be paid for, it seems likely that the combined legislation will pass the House. The House is expected to bring the Senate bill to the floor for a vote on October 3, 2008. Assuming the House passes the bill, the White House has indicated that President Bush will sign the combined legislation.

Because it seems likely that Section 457A will be signed into law in 2008 and will impose significant restrictions on deferred compensation arrangements attributable to services rendered after 2008, we think it may be prudent for fund managers to consider before year end certain planning techniques to take maximum advantage of the transition relief provided in Section 457A and to consider compensation arrangements going forward to address the new challenges posed by Section 457A.

On October 1, 2008, the Securities and Exchange Commission (SEC) issued a press release announcing that it will extend its emergency orders that impose restrictions and reporting requirements on certain short selling activities and relax certain conditions on issuer share repurchases. At the time of the publication of this alert, two orders extending the effectiveness of the issuer repurchase rule and Rule 204T of Regulation SHO, have been issued.

This alert is published by Akin Gump’s corporate and investment funds practices. To read the full alert please click here.

If you have questions regarding this alert, please contact—

• Patrick J. Dooley, 212.872.1080, New York
• Bruce S. Mendelsohn, 212.872.8117, New York
• Eliot D. Raffkind, 214.969.4667, Dallas
• Stephen M. Vine, 212.872.1030, New York
• Richard B. Zabel, 212.872.8060, New York

The Wall Street Journal is reporting that the Emergency Economic Stabilization Act of 2008 has failed to pass the House of Representatives by a 205-228 vote. Read the full story here, and read about the vote’s effect on the stock market here.

The Securities and Exchange Commission (SEC) has posted answers to a series of frequently asked questions on its website in order to assist in the understanding and application of the SEC’s Emergency Order of September 17th, which temporarily strengthens the delivery requirements for all equity securities.

See a Client Alert on the order here.

These FAQs, while not constituting official statements by the SEC, provide important clarification regarding the order.

The SEC’s FAQs can be accessed here and the original SEC Emergency Order can be accessed here.

The Securities and Exchange Commission (SEC) and the United Kingdom’s Financial Services Authority (FSA) have posted answers to a series of frequently asked questions on their websites in order to clarify the new disclosure requirements under the SEC’s amended Emergency Order of 21 September and the FSA’s Short Selling (No 3) Instrument 2008 of 23 September.

See a Client Alert on the FSA document here.

These FAQ, while not constituting official statements by either agency, provide important clarification regarding the scope, definitions and commenting procedures.

The SEC’s FAQ can be accessed here and the FSA’s here.

The United Kingdom Financial Services Authority (FSA) has released on 23 September 2008, a new Short Selling (No 3) Instrument 2008 and revised FAQs. The Instrument makes a few minor changes to the provisions as previously published. The revised FAQs include some new questions and answers and revise certain of the answers previously given.

Key Points From the Revised FAQs

The revised FAQs clarify that the prohibition on short sales and the disclosure requirements apply to both covered and uncovered/naked short positions.

The prohibition and disclosure requirements do not apply to—

• the issuance of convertible bonds
• credit default swaps (CDSs)
• stock lending activities.

See the full alert here.

For specific advice in relation to your own disclosure obligations under this new regime or if you otherwise have questions regarding this alert, please contact—

• Sebastian Rice, 44.20.7012.9618, London
• Simon Thomas, 44.20.7012.9627, London

In a July 2007 client alert, we reported on an Internal Revenue Service (IRS) effort to investigate the use of derivative transactions by hedge funds and other foreign investors to avoid U.S. withholding tax on U.S. source dividends and certain other types of income. At the time, the scope of the IRS investigation was unclear, but we noted then that it appeared to be focused on so-called “dividend enhancement” trades, such as total return swaps over U.S. publicly traded stock and similar derivatives. In addition, we noted that it remains to be seen whether the investigation would lead to tax audits of foreign funds that entered into tax-advantaged derivative transactions.

The attack on these types of transactions seems to be intensifying. On September 11, 2008, the U.S. Senate Permanent Subcommittee on Investigations, a subcommittee of the Committee on Homeland Security and Governmental Affairs, held a hearing on the transactions; in advance of the hearing, the subcommittee released a staff report entitled “Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends.” The report and hearing were the subject of numerous high-profile news articles, including articles in the Wall Street Journal and New York Times. A number of speakers, including IRS Commissioner Douglas Shulman, Professor Reuven S. Avi-Yonah and executives of certain financial institutions and investment funds, testified at the hearing.

See the full alert here.

If you have questions regarding this alert, please contact—

• Patrick B. Fenn, 212.872.1040, New York
• Stuart E. Leblang, 212.872.1017, New York
• Robert Rothman, 212.872.7411, New York
• Peter J. Guy, 212.872.1024, New York
• Stephen M. Vine, 212.872.1030, New York
• Prakash H. Mehta, 202.887.4248, Washington, D.C.
• Mark H. Barth, 212.872.1065, New York