Investment managers, when forming their first private fund, can claim exemption for the fund from registration as an investment company (pursuant to Section 3(c)(1) of the Investment Company Act of 1940) if the fund (1) has no more than 100 investors; and (2) is not sold in a public offering. However, in many situations as investor demand increases – threatening to surpass the 100 investor limit - the investment manager decides to initiate a secondary private fund, believing it too will be exempt from registration. The result is that the manager is managing 2 identical funds with 160 investments.

With this year’s U.S. Supreme Court (the “Court”) term coming to a close, there has been a flurry of rulings that may substantially impact the securities industry. While most are aware of the Court’s decision to invalidate the Defense of Marriage Act (“DOMA”), and the possible windfall that adviser’s may now experience as a result, there was another Court decisions that may also greatly impact investment advisory firms and their Chief Compliance Officers (“CCOs”).