In Brief

Kramer Levin Naftalis & Frankel LLP’s Financial Services group represents clients in all aspects of the financial services industry, specializing in investment company, investment adviser, broker-dealer, and banking and commodity matters. Our financial services clients, located throughout the U.S. and abroad, include many mutual fund complexes, closed-end funds, banks, investment advisers, broker-dealers and investment limited partnerships.

Together with the firm’s Litigation Department, we represent clients in the full range of administrative and civil proceedings before government agencies and in federal and state courts. We also work closely with the firm’s Tax and Employee Benefits groups to provide expertise in the specialized and complex tax and benefits issues that are associated with the various financial services provided by our clients.

Principal Areas of Focus

Regulatory and Compliance

The firm acts as general counsel on an ongoing basis to existing funds, trusts and partnerships and their boards of directors, trustees and general partners. We serve as “independent legal counsel” to independent investment company directors and advise them on governance and other regulatory issues. Our representation includes counseling on compliance with the fast-changing and increasingly complex body of federal and state securities, banking and commodities, futures, and laws and regulations covering, among others:

• Fund governance and the expanding role of independent directors and audit committees in a post Sarbanes-Oxley Act environment
• Electronic delivery of financial products and shareholder communications
• Best execution” of securities trades and soft dollar expenditures
• Valuation of portfolio securities
• Anti-money laundering
• Integration of securities, banking and insurance products in the Gramm-Leach-Bliley Era
• Reorganizations and acquisitions 

Our lawyers apply industry knowledge obtained from working inside fund complexes and the SEC, as well as from representing clients in regulatory proceedings. For example, we have helped clients:

• Apply for orders exempting them from provisions of the securities laws, particularly under the Investment Company Act
• Obtain no-action relief, even in cases where no such relief has previously been given
• Design codes of ethics, insider trading policies, trade allocation policies, “firewalls” to protect against conflicts of interest and compliance policies and procedures
• Develop compliance manuals, policies and procedures, and reports and disclosure for all aspects of investment management, including foreign custody and liquidity
• Design effective websites that comply with the myriad of rapidly changing laws and regulations
• Design anti-money laundering programs to comply with the USA PATRIOT Act

Investment Products

We advise clients on developing and structuring new investment products (both domestic and offshore) in a rapidly changing regulatory environment. These products include mutual funds and closed-end funds, variable annuity products, investment limited partnerships, securities investment trusts, group trusts and commodity pools. We are specialists in the registration of investment products with the Securities and Exchange Commission. For example, we have helped clients design and register such products as:

• The first open-end fund designed to track the return of a commodity index by investing in commodity-linked notes
• The first open-end fund to invest primarily in the Russian securities market
• The first actively managed exchange-traded fund
• The first closed-end fund with an automatic conversion feature
• “Fund of funds” structures
• “Manager of managers” structures
• Multiple class and “master-feeder” arrangements
• Actively managed exchange-traded funds
• Registered hedge funds

Mergers and Acquisitions

We represent clients in the acquisition of asset management companies and the structuring of joint ventures and other strategic relationships in the financial services industry. We counsel clients on all aspects of these transactions, including structuring and negotiating terms and funding, preparing agreements and related documents, due diligence, and regulatory compliance.

Registered Investment Companies

We represent registered investment companies from their organization through the entire cycle of their existence, including mergers, acquisitions, changes of control, approval of investment advisory and other agreements, personal trading, affiliated transactions, compliance, deregistration and other matters. For example, we help our clients:

• Prepare, file and maintain registration statements and other regulatory reports
• Develop disclosure controls and procedures to support required certifications by officers
• Fashion “plain English” disclosure describing complex investment policies, instruments and risks
• Prepare for directors’ meetings
• Assist in the negotiation of contracts with service providers
• Address day-to-day operational issues
• Resolve difficult regulatory and compliance issues
• Design securities lending programs
• Obtain credit facilities for liquidity and rule 12b-1 financing for distribution
• Provide general regulatory and compliance advice

Investment Advisers

We counsel investment advisers in all aspects of their business, and have helped our advisory clients:

• Address fiduciary issues in managing accounts
• Ensure adequate disclosure to fund shareholders and other advisory clients
• Ensure compliance with SEC, NASD and CFTC rules
• Comply with advertising rules
• Prepare for and pass regulatory examinations and defend administrative and enforcement proceedings
• Develop compliance manuals and procedures
• Obtain trademark protection

Broker-Dealers

We have experience assisting broker-dealer clients in:

• NASD and SEC regulatory matters
• Compliance with net capital rules
• Distribution issues, including Gramm-Leach-Bliley Act and issues involving “functional regulation”
• Compensation issues

Independent Directors

Independent directors of mutual funds play an increasingly vital role. The SEC and the courts view independent directors as “independent watchdogs” who safeguard shareholders and monitor potential conflicts of interest with management. Fiduciary responsibility, in the mutual fund context, involves an ever-widening array of business and regulatory matters requiring the attention of directors and counsel. We have had extensive experience in serving as “independent legal counsel” to independent directors of mutual funds. By understanding the responsibilities of disinterested directors, we are better able to represent the investment companies for which they serve. This is particularly true in these key areas:

• Negotiation of advisory fees
• Consideration of 12b-1 fees
• Review of brokerage and “soft dollar” allocations
• Audit committee responsibilities
• Personal trading issues
• Pricing and liquidity issues
• Custody of securities
• Risk management relating to derivative instruments
• Full and clear disclosure
• Issues raised by the sale of an adviser
• Board composition and compensation
• Director compensation, deferred compensation and retirement plans
• Annual self-evaluations

Domestic and Offshore Investment Vehicles

In addition to representing U.S. investment managers and registered investment companies, we have specialized expertise in advising non-U.S. advisers interested in accessing U.S. markets and non-registered funds, both U.S.-based and offshore.

We have developed:

• A variety of pooled investment vehicles for high net worth individuals, and for the institutional, tax-exempt and pension markets
• Alternative vehicles such as securities investment trusts, business trusts and limited liability companies to meet the special needs of the sponsor’s investors
• Offshore funds for both U.S. and non-U.S. financial services companies, including specially-structured products that can be used to commingle U.S. and non-U.S. investors’ assets in a tax efficient manner
• Exempt funds that have converted from existing non-registered funds and created new funds under Rule 3(c)(7) of the Investment Company Act of 1940
• Domestic and offshore funds that invest both short and long in U.S. and
  foreign equities
• Private equity and distressed securities funds
• Funds investing in debt, currencies, derivatives, insurance contracts, distressed securities and venture capital investments
• Non-registered vehicles for tax-exempt and pension investors, including venture capital operating companies and qualified group trusts
• Registered closed-end hedge funds investing in non-registered hedge funds

Insurance Companies

We have assisted insurance companies in, among other things, establishing and maintaining variable insurance products and integrating investment management operations with investment adviser affiliates.

Commodity Pools

We have helped clients establish and maintain commodity pools and counseled them in the area of disclosure, compliance and regulatory examinations.

New Media

We counsel investment advisers and broker-dealers on electronic delivery of financial products and services over the Internet.

Other Financial Institutions

We advise a broad range of financial institutions on a wide variety of issues, including:

• Transfer agents
• Bank holding companies and savings and loan holding companies involving Gramm-Leach-Bliley Act, Bank Holding Company Act and affiliate transaction issues
• Banks, savings institutions and trust companies
• Clearing brokers (creating no-transaction fee programs for mutual funds)

Recent issues of Funds Briefing, a quarterly newsletter of our investment funds and financial services practices published jointly by Kramer Levin and Berwin Leighton Paisner, are available online by clicking here. To subscribe, click on publications sign-up .