Foley Hoag LLP

SUMMARY

The I.R.S. has recently issued its annual cost-of-living adjustments applicable in 2011 to qualified retirement (pension, profit-sharing, § 401(k), money purchase and stock bonus) plans. Generally, there has been such a low rate of inflation in the nation’s economy that many of these cost-of-living adjustments will remain unchanged.

SUMMARY

As the end of 2010 approaches and we receive numerous inquiries concerning developing hiring plans, I thought you might be especially interested to note some particulars about the Hiring Incentives to Restore Employment Act (the “HIRE Act”) which was enacted earlier this year to stimulate prompt hiring of workers by businesses.

SUMMARY

Late yesterday afternoon, the U.S. House of Representatives passed legislation that would tax carried interest income (sometimes called “performance allocations” or “incentive allocations”) at ordinary-income rates beginning in 2010. The legislation (H.R. 4213, the “Tax Extenders Act of 2009”) also provides that carried interest income will be subject to self-employment taxes, regardless of certain exceptions previously available.

We will monitor the bill's progress in the Senate and Conference Committee and provide more detail as the bill moves closer to enactment.

SUMMARY

Insider trading cases often have focused on “the CEO’s brother-in-law” or similarly situated individuals who used a tidbit passed along at Thanksgiving dinner to make a quick and easy personal profit.  Today, hedge funds have joined “the CEO’s brother-in-law” as the target of insider trading cases.  In the hedge fund context, charges are being based on a hedge fund employee’s collection of information as part of the employee’s job in trading the hedge fund’s assets, unlike the classic cases based upon receipt of an isolated “tip” outside of the work setting that will be used to generate profit for an individual.

SUMMARY

On October 27, 2009, the U.S. House of Representatives Financial Services Committee (the “Committee”) voted 67-1 to approve the Private Fund Investment Advisers Registration Act (the “Bill”), sponsored by Representative Paul E. Kanjorski (D-PA). The Bill would require advisers to private funds (which would include advisers to hedge funds and private equity funds as defined by the SEC, but not advisers to venture capital funds) to register as investment advisers with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended.

SUMMARY

On October 1, 2009, Representative Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, released discussion draft bills of the Investor Protection Act and the Private Fund Investment Advisers Registration Act.  These bills are part of the financial regulatory reform movement in Congress in response to the recent economic crisis.  In conjunction with the release of the draft bills, on October 6, 2009, the House Financial Services Committee has scheduled a hearing to discuss the creation of a national insurance office, improving investor protections and the regulation of private pools of capital.

SUMMARY

On July 2, 2009 the United States Bankruptcy Court for the Southern District of New York issued an order establishing September 22, 2009 as the deadline for filing proofs of claims against Lehman Brothers Holdings Inc. or any of its debtor affiliates (the “Order”). The Order provides that any holder of a claim against the Debtors who fails to file a proof of claim before the September 22, 2009 deadline will be forever barred from asserting such claim thereafter. The Order also establishes certain procedures that must be followed when filing proofs of claims, and sets forth additional requirements for claims based on either a derivative contract or an obligation that was guaranteed by one of the Debtors.

SUMMARY

On Friday August 7, the IRS further extended the deadline to file Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”) for (i) persons who have only signature authority over a foreign financial account, but no financial interest in the account; and (ii) persons who have financial interests in “commingled funds,” including offshore hedge funds, private equity funds and mutual funds. The extended deadline is June 30, 2010, and applies to FBARs for 2008 and earlier years. The extension does not apply to persons who have financial interests in traditional financial accounts such as bank and brokerage accounts.

The IRS made the announcement in Notice 2009-62 [.pdf]. The IRS also announced that it is studying these questions and has solicited comments from interested parties, with a view to issuing regulations clarifying the requirements.

SUMMARY

As a follow up to our June 18, 2009 Foley Adviser, we note that the Internal Revenue Service (the “IRS”) has announced an extension to the previously announced deadline for the Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”) from June 30, 2009 to September 23, 2009 (without penalty) for filers who have paid all taxes and reported all income for 2008.

SUMMARY

A glossary of programs administered by the Treasury, the FDIC and the Federal Reserve.

Excerpt:

TARP, TALF, TGLP… Help!!! Ever since Congress passed the Emergency Economic Stabilization Act on October 3, 2008, the Secretary of the Treasury, the Federal Deposit Insurance Corporation (FDIC) and the Federal  Reserve have been working at a feverish pace to come up with solutions to the unprecedented crisis in the financial markets   continues...

 

Originally published in Bank Accounting & Finance.

 

SUMMARY

On June 17, 2009, President Barack Obama released a series of proposed initiatives entitled Financial Regulatory Reform: A New Foundation (the “White Paper”) [.pdf], which, if implemented, would effect sweeping reforms to the U.S. financial regulatory system. Certain individual proposals of particular importance to investment advisers and the alternative investment community are summarized below. 

SUMMARY

June 30, 2009 Deadline

Every U.S. person with a financial interest in, or signature or other authority over, any financial account outside the U.S. must file an annual report on Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”) if the aggregate value of all such accounts exceeds 10,000 USD at any time during the calendar year.  The FBAR for 2008 must be received by Treasury by June 30, 2009. 

SUMMARY

On March 26, 2009 Treasury Secretary Timothy Geithner testified (.pdf) before the House Financial Services Committee (the “Committee”) outlining a “comprehensive framework for regulatory reform” of the U.S. financial system. Geithner's testimony focused on four key areas, including reducing systemic risk. 

SUMMARY

Under new regulations effective January 1, 2009, any pass-through entity that maintains an office or engages in business in Massachusetts must withhold tax on a quarterly basis from each member’s share of the entity’s Massachusetts source income, unless either the entity itself is exempt from this requirement or the member timely certifies that it is exempt. This withholding obligation applies regardless of whether the pass-through entity actually makes any distributions to its members.

SUMMARY

Beginning on March 16, 2009 all federal Form D filings must be made electronically using the SEC’s online filing system (“EDGAR”). In order to comply with this requirement, any issuer effecting a private placement of securities in reliance upon Regulation D will need to obtain EDGAR access codes. Current EDGAR filers can use their previously assigned EDGAR filing codes to complete Form D filings.

SUMMARY

Excerpt:

Q: In the course of doing this year's audit, our independent auditor found a problem with our previously issued financial statements. What do we do now?

A: You need to know more. You do not have to restate your financial statements unless they are materially wrong, although bear in mind that the Securities and Exchange Commission (SEC) has said that materiality can be “qualitative” as well as “quantitative.” See Staff Accounting Bulletin No. 99.

Work through the potential issues and determine what, if anything, needs to be restated. Be sure that your independent auditor considers possible accounting alternatives to a restatement, like a cumulative catch-up. Also, you need to understand why the problems occurred; evidence of fraud, for example, will surely call for additional action. Once you have reason to believe that there is a material error, you should shut down trading in the company's securities by insiders. You may also have to suspend outstanding shelf registration statements, if there are any.

Other questions include:

• Okay, after reviewing everything, the Audit Committee has indeed concluded that some of our previously issued financial statements should no longer be relied on. And, it looks like we are going to be delayed in filing our Annual Report on Form 10-K. What do we do?
• What if we cannot file our periodic reports within the Rule 12b-25 grace period?   
• What happens when my periodic reports are late?
• What else do I need to be thinking about during this process?

SUMMARY

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “Act”). The new law is the centerpiece of President Obama’s efforts to create jobs and revive the economy and includes over $787 billion in spending and tax incentives.

In particular, the Act represents a multi-prong approach to stimulating innovation and encouraging investment in the energy and clean technology sectors. It includes new energy-related spending and tax incentives as well as expands existing tax incentives for businesses and individuals. A summary of certain key provisions is provided below.

SUMMARY

As noted in our January 30 Foley Adviser, Senators Chuck Grassley, R-Iowa and Carl Levin, D-Michigan introduced the Hedge Fund Transparency Act of 2009 (the “2009 Bill”) on January 29, 2009. The 2009 Bill (S. 344), has been referred to the Senate Committee on Banking, Housing and Urban Affairs.

The 2009 bill is not the first hedge fund related bill filed by Senator Grassley. In 2007, Senator Grassley introduced the Hedge Fund Registration Act of 2007 (S. 1402) which, if adopted, would have amended Section 203(b)(3) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”) to require many investment advisers currently exempt from registration under the Advisers Act to register with the Securities and Exchange Commission (the “SEC”). The 2009 Bill takes a different approach to the regulation of hedge funds by proposing amendments to the Investment Company Act of 1940, as amended (the “1940 Act”), which amendments would require any private investment fund (including hedge funds, venture capital funds and private equity funds) with $50 million or more under management to register with the SEC. The 2009 Bill also would require such funds to submit an annual information statement with the SEC. In addition, the 2009 Bill would require the adoption of anti-money laundering programs.

Other topics include:

• Amendments to definition of “Investment Company”
• Required Anti-Money Laundering Program
• Implications for Unregistered Advisers
• Additional Hedge Fund Legislation

SUMMARY

The Judge overseeing the bankruptcy proceeding of Lehman Brothers Holdings, Inc. and its affiliates (collectively "Lehman Brothers") recently approved Lehman Brothers’ proposed procedure for settlement or assignment of derivative contracts that Lehman Brothers entered into prior to filing for bankruptcy. (Order available at Lehman-Docket.com, Docket # 2257.) Under the procedure, Lehman Brothers will be permitted to terminate or assign all outstanding derivative contracts without obtaining express approval from its counterparties and without seeking individual approval from the court. Counterparties to existing derivative contracts with Lehman Brothers face the possible imminent loss of both the right to terminate the contracts and the right to expressly consent to assignment of the contracts.

SUMMARY

Excerpt:

Q: My company just filed a Chapter 11 bankruptcy reorganization proceeding. Our financial statements are a mess. We need to save every penny. Is the company excused from filing 10–Qs, 10–Ks and 8–Ks while we're in bankruptcy?

A: Unfortunately, no. Being in bankruptcy does not excuse you from making regular SEC filings.

Other questions include:

• Well, if we have to make some filings, is there some way I can appeal for relief to the SEC?
• If the SEC lets us modify our reporting requirements, what's "normal"? In other words, what's the least we are likely to be permitted to file? After we come out of Chapter 11, do we immediately have to be in full compliance? Any grace period?  
• While we are in bankruptcy, what's the effect of modified reporting on short-form registration statements, like S–8 and S–3? And can my officers and directors, and holders of privately purchased stock, still rely on Rule 144 if we are filing modified reports, or is that not possible?