Hi! Thanks for the question.
Please be informed of the disclaimer below that this answer is general
information only and is not a substititue for informed professional
legal advice.
It seems that as regards to hedge funds, the SEC registration is of
utmost primary concern and not the NASD. In fact it doesn?t have to be
registered with the NASD. Furthermore, hedge funds that are formed
properly can be exempted from SEC registration altogether and be free
from some complicated regulatory scrutiny. Here are some relevant
articles that can help you.
?Hedge funds are similar to mutual funds in that they both are pooled
investment vehicles that accept investors' money and generally invest
it on a collective basis. Hedge funds differ significantly from mutual
funds, however, because hedge funds are not required to register under
the federal securities laws. Hedge funds generally rely on Sections
3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 to avoid
registration and regulation as investment companies. To avoid having
to register with the SEC the securities they offer, hedge funds often
rely on Section 4(2) and Rule 506 of Regulation D of the Securities
Act of 1933.?
?Hedge funds also are not subject to the numerous regulations that
apply to mutual funds for the protection of investors?such as
regulations requiring a certain degree of liquidity, regulations
requiring that mutual fund shares be redeemable at any time,
regulations protecting against conflicts of interest, regulations to
assure fairness in the pricing of fund shares, disclosure regulations,
regulations limiting the use of leverage, and more.?
?What is a hedge fund??
http://sec.broaddaylight.com/sec/FAQ_5_171.shtm
Our next link provides the necessary structure of your hedge fund
company to enable it to acquire exemptions from SEC registration.
?The creation and establishment of a hedge fund involves two separate
concepts - the creation of a limited partnership (in order to provide
the investment vehicle for the investments by the investors) and the
creation of a Regulation D offering - while a the hedge fund itself is
not subject to registration, its solicitation of investments is
subject to the securities laws. Once again however, a properly created
hedge fund is exempt from the registration requirements of the
Securities Act of 1933, so long as the offering is accomplished
pursuant to an exemption, typically pursuant to Regulation D.?
- Hedge funds are private and cannot advertise to the public. However
the SEC has permitted limited use of the Internet for advertising
purposes.
- Maximum of only 99 investors is allowed for the hedge fund company.
- ??only "accredited investors" can become limited partners in the
underlying limited partnership?
- ?An accredited investor, generally speaking, must have a net worth
of $1 million or more; or an annual income of $200,000?
?Hedging Your Bets?
http://www.seclaw.com/docs/998hedgefund.htm
Hedge funds as noted above can only take in a maximum of 99 investors.
Such investors for hedge funds are classified as ?accredited
investors?. Here is the legal definition of an accredited investor
from The Securities Act of 1933.
?Rule 501 -- Definitions and Terms Used in Regulation D?
http://www.law.uc.edu/CCL/33ActRls/rule501.html
Meanwhile, although hedge funds are unregistered, it doesn?t mean that
they are unregulated. Here are some restrictions to hedge funds.
Please read the whole article to get a better coverage of the topic.
- ?And while hedge funds are free from registration with the SEC,
those that use futures and trade commodities are registered with the
Commodity Futures Trading Commission (CFTC), which wields great power
under the Commodity Exchange Act (CEA). Hedge fund managers must also
pay attention to the securities and investment advisor laws of their
states and the states and countries where their investors may reside.?
Investment Company Act:
- ?Investment companies have to register under the Investment Company
Act and abide by its regulations.?
Commodity Exchange Act
- ?If a hedge fund trades futures and options contracts on a futures
exchange, the CEA considers the fund a commodity pool. The operator of
that pool, the hedge fund manager, is then subject to regulation as a
commodity pool operator (CPO) under the CEA.?
State Security Laws
- ?Most states have their own regulatory structures for investments
and investment services offered within their borders. Hedge fund
operators need to know the regulatory schemes of each state...?
Other Regulations:
- Antifraud Provisions
- Antimoney-Laundering Requirements
?Hedge Funds: Overview and Regulatory Landscape?
http://media.wiley.com/product_data/excerpt/94/04714630/0471463094.pdf
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Our next link from the website of Mast partners LP present a more
detailed guide on how to form your hedge fund but again reminds you
that such advice is for general information purposes only and you
should consult a legal professional before taking any action. Since
the link does not go immediately to the document we want, please
follow the instructions.
1. Go to this link: http://www.mastpartners.com/StartHedge.htm#PrivatePlacement
2. Then click on the 4th item called ?Private Placement Setup (details)?.
3. Click on the link for Rules and Regulations.
The information contained in the document is quite detailed. Here are
some highlights.
I. Basic Hedge Fund organization:
1. Hedge Fund Consultant
2. Attorney
3. Accountant
4. Broker
II. Hedge Fund Structure
a. Limited Partnership is the form of choice for most hedge funds but a
b. LLC or a limited liability company is also adopted by other firms.
III. State of Incorporation ? Delaware is the state of choice for Mast Partners
IV. Additional Restrictions mentioned:
1. Entity Restrictions
? An entity which invests in a hedge fund should not be made created
solely for the purpose of investing in the hedge fund.
- Entities that hold more than 10% of the total capital of the hedge
fund must provide proof that the entity holdings is less than 10% of
the total capital of such entity.
2. Insider Trading Rules
3. Schedule 13D
http://www.investopedia.com/terms/s/schedule13d.asp
Search terms used:
"hedge funds" regulations
'how to start a hedge fund"
"hedge funds" entity restrictions
Securities Act 1933
Schedule 13D
I hope these links would help you in your research. Before rating this
answer, please ask for a clarification if you have a question or if
you would need further information.
Thanks for visiting us.
Regards,
Easterangel-ga
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