Tokens of Wisdom

Dave Rothschild

Do you love investing? Ever thought about turning that passion into a business? Listen up to learn to navigate the legal loopholes in forming, launching, and running a private investment fund, including considerations unique to digital asset/crypto funds. Dave Rothschild is a partner at Cole-Frieman & Mallon, one of the country's premier boutique investment management law firms with deep experience in traditional assets, as well as esoteric asset classes like digital assets. For questions or comments, email tow@colefrieman.com. Visit our website: https://colefrieman.com read less
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Episodes

Episode 38: RIP Private Fund Adviser Rule
Jun 7 2024
Episode 38: RIP Private Fund Adviser Rule
Big news today (June 5) as the 5th circuit court of appeals VACATED the SEC’s private fund adviser rule!! Go back and listen to Episode 21 if you want to waste your time hearing all the details of this now-defunct rule. Special Note: you may notice while listening to today’s episode that I mistakenly refer listeners to Episode 29 for my full PFAR breakdown (I refer to “Episode 29” several times). Turns out, I’m even worse at math than I thought, because my PFAR episode is # 21; not 29…Rather than delay the episode and re-record, I’m alerting you here. Cuz everyone reads the show notes, obviously.Key Points From This Episode:What is Section 206(4) of the Advisers Act, and why does it NOT give the SEC authority to issue PFAR?What is Section 211(h) of the Advisers Act, and why does it NOT give the SEC authority to issue PFAR?What provisions of the Advisers Act DO give the SEC authority to issue PFAR? Hint: None.A little bragging about how prescient I was in Episode 21 (not episode 29). Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:5th Circuit Ruling - https://storage.courtlistener.com/recap/gov.uscourts.ca5.215539/gov.uscourts.ca5.215539.123.1.pdfDave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com
Episode 36: Adviser Integration
May 16 2024
Episode 36: Adviser Integration
Last episode we dissected the SEC’s “venture capital fund” definition and discussed how, if an adviser manages only VC funds, there is no AUM ceiling on its ability to remain exempt from registration. If that same adviser manages money for any non-Venture capital fund, it has to register as an investment adviser once AUM hits $150mm. This can lead some less scrupulous investment advisers to try to “game” the system by forming new adviser entities, thinking they can skirt regulation by forming new legal entities.Well, not so fast. The wool can’t be pulled over Uncle Sam’s eyes that easily (unfortunately?) – the SEC has a doctrine of “adviser integration” where under certain circumstances, two ostensibly separate investment adviser entities are treated as one business for purposes of advisers act compliance.Key Points From This Episode:Under what circumstances are two ostensibly separate investment adviser entities treated as one business?What is operational independence?The four areas the SEC focuses its analysis:Capital structureControlPersonnelInvestment decision-makingWhy, if this analysis is relevant to you, you really need a good lawyer.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com
Episode 35: Venture Capital Funds
Apr 25 2024
Episode 35: Venture Capital Funds
Like I mentioned back in Episode 2, there are some down sides to relying on the private fund exemption – at the SEC level, the only “down” side is an AUM ceiling after which you have register (150mm…see ep 32). But many states require extra stuff if you’re managing any 3c1 funds: this varies by state, but many impose annual audit requirements and either increased investor accreditation thresholds, restrictions on who can pay performance-based comp, or both. EXCEPT those restrictions don’t apply to managers whose only clients are “venture capital funds”.So what is a “venture capital fund”? Tune it to today’s episode to find out!Key Points From This Episode:The “venture capital fund” definition. Quick summary: It’s a “private fund”;it represents to investors that it’s is pursuing a venture capital strategy;it severely limits any borrowing;it provides no redemption rights to investors except in extraordinary circumstances;it’s not registered under the Investment Company Act; andImmediately after acquiring any asset, it must hold no more than 20% of its aggregate capital contributions and uncalled commitments in assets that are not “qualifying investments”.What is a “qualifying investment”?Why do people hate Congress?Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com
Episode 33: Tokenized Funds
Mar 12 2024
Episode 33: Tokenized Funds
Recently, it seems like tokenizing things is all the rage. Everybody wants to talk about tokenizing real estate or art or securities or any other “real world asset”. Heck, even “RWA” has become a commonly understood acronym to describe things that exist in tangible form, as opposed to just digitally. Well, private investment funds are no different, and I’ve noticed an uptick recently in managers inquiring about tokenizing their fund offerings. Today’s episode is all about tokenized funds.Key Points From This Episode:What are RWAs?What is a tokenized fund?Similarities and differences in the launch process for a tokenized fund vs a traditional fund.Considerations unique to tokenized funds.Theoretical and practical reasons to tokenize a fund offering.Benefits and drawbacks to tokenized fund products.Is it worth it? Preview – it depends. Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Tokenized Fund Blog Post - https://hedgefundlawblog.com/tokenized-private-funds-hedge-funds-vc-funds.html Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com
Episode 26: Waterfalls
Nov 7 2023
Episode 26: Waterfalls
Today we’re keeping the performance-based comp discussion going and looking at “Carried Interest” or “Carry” for short: performance-based compensation for closed-end funds – VC, PE, etc. One big structural difference from open-ended funds is that the GP typically doesn’t get performance-based comp on paper (i.e., unrealized) gains. For a refresher on closed-end vs open-end funds, listen to Episode 9.Instead, proceeds from monetization events get distributed among the partners in proportions dictated by a complicated cascading mechanism in the fund’s offering documents. That cascading mechanism is called: The Waterfall!Key Points From This Episode:Background on the Waterfall concept and an elegant analogy to help you visualize it.Examples of the waterfall in action – from simple to more complex.Descriptions of “preferred return” and “GP catchup” provisions.Ways to make the Waterfall even more complex.American vs European waterfalls.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com
Episode 22: Late Summer News Roundup
Sep 13 2023
Episode 22: Late Summer News Roundup
Feels like a lot has been happening in the crypto world lately, and while none of these stories/events is individually worthy of its own episode, everyone loves the occasional news roundup. So in this episode we take a quick ride through some recent newsworthy events affecting The Space. Key Points From This Episode:Grayscale’s court win.Financial Accounting Standards Board’s new fair value accounting rules for digital assets.New proposed Treasury Department rules.SEC’s enforcement action against NFT issuer Impact Theory.Terraform Labs Order.Industry groups sue the SEC to block implementation of the private fund adviser rule.Celebrating circles.Disclaimer:This show is for informational purposes only. Nothing presented here constitutes legal advice. Tokens of Wisdom is produced by Dave Rothschild, partner at Cole-Frieman & Mallon LLP headquartered in San Francisco, California. For more information, visit https://colefrieman.com/Links Mentioned in Today’s Episode:Grayscale win: https://www.reuters.com/legal/us-court-says-sec-wrong-deny-grayscales-spot-bitcoin-etf-proposal-2023-08-29/FASB Fair Value Accounting: https://www.coindesk.com/policy/2023/09/06/fasb-says-crypto-assets-should-be-marked-at-current-values/#:~:text=The%20first%20U.S.%20accounting%20rule,Accounting%20Standards%20Board%20(FASB).Treasury Department Proposal: https://dailyhodl.com/2023/09/08/u-s-treasury-and-irs-propose-new-rules-that-broaden-client-information-crypto-businesses-are-required-to-file/Impact Theory Settlement: https://www.sec.gov/files/litigation/admin/2023/33-11226.pdfTerraform Labs Order: https://storage.courtlistener.com/recap/gov.uscourts.nysd.594150/gov.uscourts.nysd.594150.51.0.pdfLawsuit vs Private Fund Adviser Rule: https://nvca.org/press_releases/nvca-asset-management-associations-file-lawsuit-to-set-aside-secs-new-private-fund-adviser-rule/Dave Rothschild - https://www.linkedin.com/in/davidcrothschild/Cole-Frieman & Mallon LLP - https://colefrieman.com/Music by Joe Ginsberg - https://www.instagram.com/thejoeginsbergFor any questions or comments, email: tow@colefrieman.com