On June 18, 2012 the California Department of Corporations (DOC) published notice of additional changes to its proposed private fund adviser exemption regulation (10 CCR §260.204.9) and a new 15-day public comment period. As reported earlier, the DOC's proposed rule provides a California corollary to the new federal regulatory exemption for private fund advisers with assets under management of less than $150 million. Under the proposed rulemaking, certain California private fund advisers will be exempt from the DOC's investment adviser registration requirement if the adviser: (1) is not subject to statutory disqualification under SEC Rule 262 of Regulation A; (2) files periodic reports on Form ADV containing the information required by federally exempt private fund advisers; and (3) pays an annual fee of $125. Under the DOC's proposed rule, a private fund adviser is defined as an "investment adviser who provides advice solely to one or more qualifying private fund(s)" and a qualifying private funds is an issuer "that qualifies for the exclusion from the definition of an investment company under section 3(c)(1), 3(c)(5), or 3(c)(7) ... of the Investment Company Act of 1940..." The revised exemption was initially proposed on January 6, 2012. Comments received on that initial proposal resulted in a number of changes to the rule, necessitating the new public comment period. The changes to the proposed rule are fairly non-controversial. They include: -Expansion of the definition of "qualifying private fund" to include issuers that qualify for an exclusion from registration as an investment company under Section 3(c)(5)of the Investment Company Act of 1940; -For advisers who qualify for the exemption because their funds are excluded from registration as an investment company under Section 3(c)(1) or 3(c)(5) of the Investment Company Act of 1940:
- A requirement that audited financials to be prepared by a CPA that is registered with the PCAOB and be delivered to the fund's investors within 120 days of the end of the fund's fiscal year (or 180 days for a fund of funds), and
- Prohibition of charging performance fees to any investor that is not a "qualified client" as defined by SEC Rule 205-3(d) (17 CFR § 275.205-3(d)); and
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