On June 22, 2011, the SEC adopted several new rules and rule amendments under the Advisers Act in order to implement certain provisions of the Dodd-Frank Act.

Mid-Sized Adviser Transition. Rule 203A-5 was adopted in order to provide an orderly transition to state registration for mid-sized advisers. Under the Dodd-Frank Act, advisers with assets under management between $25 million and $100 million are not eligible for registration with the SEC unless the mid-sized adviser’s state does not require registration or does not examine advisers, in which case such advisers are required to register with the SEC. Rule 203A-5 provides until March 30, 2012 for any adviser registered with the SEC to determine whether it remains eligible for registration and provides an additional 90 days (until June 28, 2012) to register with the state and withdraw its registration with the SEC. In addition, all advisers registered with the SEC on January 1, 2012 must file an amendment to their Form ADV by March 30, 2012, confirming their eligibility.

Exempt Reporting Advisers. The Dodd-Frank Act eliminates the private adviser exemption, except for foreign private advisers, in Section 203(b)(3) effective July 21, 2011, and creates two new exemptions from registration for certain advisers. Section 203(l) exempts advisers that advise only venture capital funds and Section 203(m) exempts advisers that advise only private funds and have assets under management of less than $150 million. Although they are not required to register with the SEC, Rule 204-4 requires these “exempt reporting advisers” to file reports with the SEC by completing certain sections of Form ADV. Form ADV was amended to accommodate use by exempt reporting advisers, and the information submitted by such advisers will be made public. The SEC also amended Rule 204-1 to require an exempt reporting adviser to amend its reports on Form ADV at least annually. The initial filing on Form ADV by exempt reporting advisers must be made by March 30, 2012.

Venture Capital Funds Defined. Rule 203(l)-1 was adopted to define “venture capital fund” for purposes of the exemption from registration under the Advisers Act for advisers that exclusively advise venture capital funds. A “venture capital fund” is a fund that (1) holds no more than 20% of its capital commitments in non-qualifying investments; (2) does not borrow or incur leverage (other than short-term borrowing); (3) does not offer redemption rights except in extraordinary circumstances; (4) represents itself as pursuing a venture capital strategy to investors; and (5) is not registered under the 1940 Act and is not a business development company. The Rule provides a grandfather provision for funds that began raising capital before the end of 2010 and represented themselves as pursuing a venture capital strategy.

Private Fund Adviser Exemption. Rule 203(m)-1 provides an exemption from registration for any investment adviser that advises only private funds and has less than $150 million in assets under management. The number of funds advised is not a factor. Under the Rule, the adviser must aggregate the value of all of the assets of the private funds it advises in determining its eligibility for this exemption. The adviser must calculate its assets under management annually using market value (or fair value if necessary). A non-U.S. adviser may rely on this exemption as long as all of the adviser’s clients are qualifying private funds. The type of its non-U.S. clients and the amount of its non-U.S. assets under management are not considered.

Foreign Private Advisers. Rule 202(a)(30)-1 was adopted to define certain terms used in Section 202(a)(30), which defines “foreign private adviser” for purposes of the Section 203(b)(3) exemption from registration.

Form ADV Amendments. A number of amendments to Form ADV were adopted in order to require advisers to provide additional information about three areas of their business: (1) the private funds advised by an adviser; (2) the types of clients, advisory practices and business practices that may present conflicts of interest (e.g., using affiliated brokers, soft dollar arrangements, compensation for client referrals); and (3) non-advisory activities and financial industry affiliations. Form ADV filings made after January 1, 2012 will need to include the additional required information.

“Pay to Play” Rule. Rule 206(4)-5 was amended to expand its scope to apply to exempt reporting advisers and foreign private advisers. In addition, an adviser is permitted to pay a registered “municipal advisor” to solicit government entities, if the registered municipal advisor is subject to a pay-to-play rule adopted by the MSRB that is at least as stringent as the pay-to-play rule applicable to the adviser. Also, registered broker-dealers and investment advisers that are subject to FINRA’s pay-to-play rule may solicit business on behalf of an adviser from a state or local government entity. The Rule amendments become effective 60 days after publication in the Federal Register.