Platform

Investment offerings powered by the CaliberX platform, including those unaffiliated with Poolit, may touch on a number of laws and regulations, depending on the type of offering, the target investor(s), and whether investment advice is provided in a manner that requires registration with regulatory bodies. As such, the outline below is designed to give platform users a primer on relevant laws and regulations:

Investment Adviser Registration & Compliance

The U.S. Securities and Exchange Commission (SEC) is responsible for regulating and overseeing investment advisers in the United States, with a mission to protect investors, ensure transparency, and maintain the integrity of the securities markets. The SEC achieves these aims through various mechanisms, including registration requirements, mandatory compliance policies, and enforcement actions as detailed below.

Registration Requirement

The SEC mandates that most investment advisers register under the Investment Advisers Act of 1940 (Advisers Act). This registration process requires them to provide relevant information about their operations, including fees, services, assets under management, personnel, and any potential conflicts of interest. This information is then disclosed on Form ADV, filed with the SEC and publicly accessible through the Investment Adviser Public Disclosure (IAPD) website. Some advisers, like those managing less than $25 million or those serving only state-regulated entities, may be exempt from this registration requirement. Poolit Fund Management, LLC (a subsidiary of Poolit, Inc.) serves as investment adviser to two SEC-registered investment companies and therefore is required to maintain registration under the Advisers Act.

Ongoing Reporting

Registered investment advisers are required to submit annual amendments to their Form ADV, providing updated information about their business operations. They must also report material events or changes promptly. This allows the SEC to monitor industry trends, risks, and adviser activities effectively.

Compliance Policies and Procedures

Investment advisers must implement a set of internal compliance policies and procedures to prevent, detect, and correct potential violations of securities laws. These policies must cover areas such as portfolio management, trading practices, marketing and advertising, client communications, and more. The SEC expects these policies to be tailored to the specific nature and risks of each advisory business.

Chief Compliance Officer (CCO) Requirement

Registered investment advisers must appoint a Chief Compliance Officer (CCO) responsible for administering their compliance program. The CCO must possess adequate knowledge of the Advisers Act and other relevant securities laws to carry out their duties effectively.

Compliance Examinations

The SEC conducts routine examinations, sometimes known as audits, of the investment advisers under its jurisdiction. These examinations aim to assess whether a firm is adhering to securities laws and its own compliance policies. During an examination, the SEC may review documentation and records, conduct interviews, and perform on-site visits. Depending on their findings, the SEC may take corrective actions such as ordering specific changes, imposing financial penalties, or initiating enforcement actions.

Enforcement Actions

The SEC possesses the authority to bring enforcement actions against investment advisers who violate securities laws, which may lead to civil injunctions, disgorgement of ill-gotten gains, financial penalties, or even criminal charges. These actions help deter misconduct, maintain market integrity, and protect investors.

AML & KYC

AML (Anti-Money Laundering) and KYC (Know Your Customer) legislation represents a regulatory framework designed to prevent and monitor illegal activities such as money laundering, terrorism financing, and other forms of financial crime. These regulations affect all financial institutions, including SEC-registered investment advisers and investment companies registered under the Investment Company Act of 1940 (1940 Act).

For SEC-registered investment advisers, AML and KYC regulations typically require (or encourage) them to:

Develop and enforce an AML compliance program

Advisers should establish a comprehensive program to detect, prevent, and report suspicious activities. This program must include a risk assessment process, AML policies and procedures, a designated AML compliance officer, ongoing employee training, and independent audits to ensure compliance.

Implement customer identification and verification processes

Advisers must develop policies to verify customer identity, which may involve collecting information such as name, date of birth, address, and identification number. They must also understand the nature of the customer's business and assess any potential risks associated with it.

Conduct ongoing monitoring of customer transactions

Advisers have to monitor customer activity and transactions to identify any potential red flags or unusual activity. This includes looking for patterns, large transactions, or activities with high-risk jurisdictions.

Report suspicious activities

If an adviser identifies any potential suspicious activity, they are obligated to file a Suspicious Activity Report (SAR) with the Financial Crimes Enforcement Network (FinCEN).

Maintain proper record-keeping

Advisers must keep records of customer identification, transaction history, and any reports filed with the authorities.

Investment companies registered under the Investment Company Act of 1940 are also impacted by AML and KYC regulations. Although these companies and their advisers may be subject to overlapping requirements, investment companies must ensure compliance through:

AML compliance of underlying service providers

Investment companies must ensure that their service providers such as transfer agents, custodians, and fund administrators comply with AML and KYC regulations.

Establishing AML policies and procedures

Investment companies need to develop their own AML compliance program, including policies, procedures, and risk assessments that reflect their unique risk exposure as an entity.

Shareholder identification and reporting

Investment companies are required to identify and report beneficial owners to authorities as required, and they must monitor shareholder transactions for suspicious activities.

Broker-Dealer Regulation

The Securities Exchange Act of 1934 (Exchange Act) established a comprehensive regulatory framework for securities markets and broker-dealers in the United States. The Exchange Act is aimed at ensuring fair and transparent markets, protecting investors, and preventing abuse or fraud.

Under the Exchange Act, broker-dealers are required to register with the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization overseeing brokerage firms and their registered representatives. A broker-dealer is generally defined as a person or firm engaged in the business of trading securities for its own account, or on behalf of its customers.

At present, Poolit is not required to register with FINRA. The requirement to register with FINRA is triggered if a firm or individual satisfies at least one of the following conditions:

Effecting transactions in securities

If the firm or individual, as part of its regular business, engages in buying or selling securities on behalf of customers or for its own account; or

Receipt of transaction-based compensation

If the firm or individual receives compensation for securities transactions, such as commissions or certain markups, this is considered to be transaction-based compensation.

The receipt of transaction-based compensation is often considered dispositive in determining whether a firm or individual needs to register as a broker-dealer. This is because transaction-based compensation is often characterized as involving financial incentives to recommend or execute securities transactions. Individuals or firms receiving such incentives may unduly influence the quality of the services provided or promote conflicts of interest, particularly when it comes to investor protection.

By requiring broker-dealers to register with FINRA, the Exchange Act creates a more controlled and accountable environment that promotes transparency, disclosure, and investor protection. The registration process includes an examination and strict adherence to FINRA's rules and regulations, as well as ongoing reporting and compliance obligations, which all contribute to a safer and more regulated securities market.

Marketing Financial Services & Fund Products

If you have questions about how these offerings may affect your local jurisdiction, please don't hesitate to contact us. We are able to provide legal and compliance services to help navigate the complexities of these laws.

Marketing regulations related to financial services, including the promotion of investment advice and investment funds, differ significantly across various countries. Financial services regulators in different jurisdictions impose restrictions and guidelines on marketing materials and communications to protect consumers, ensure a fair and transparent marketplace, and prevent financial crimes.

USA

In the United States, the SEC is responsible for regulating financial services marketing. Promotions and advertisements are subject to rules such as the Advisers Act and the 1940 Act. These regulations focus on preventing misleading claims, ensuring the clarity of information, and enforcing proper disclosures in relation to fees and potential conflicts of interest.

UK

In the United Kingdom, the Financial Conduct Authority (FCA) regulates promotional materials and communications for financial services firms. Firms must adhere to the FCA's Conduct of Business rules, which dictate the content, format, and target audience for promotions. These rules require fair, clear, and non-misleading communications, with appropriate risk disclosures and governance structure to ensure compliance.

EU

In the European Union, marketing regulations for investment funds and financial services are governed by the Markets in Financial Instruments Directive II (MiFID II) and the Alternative Investment Fund Managers Directive (AIFMD). These directives focus on harmonizing consumer protection measures, promoting transparency, and ensuring appropriate disclosures. They mandate that financial promotions are fair, clear and non-misleading and comply with specific rules on risk disclosures, past performance, and fees.

Asia-Pacific

In the Asia-Pacific region, marketing regulations can vary widely, but common themes include transparency, consumer protection, and disclosure. For example, in Australia, the Australian Securities and Investments Commission (ASIC) enforces the Corporations Act 2001 to govern financial product advertising, whereas Hong Kong’s Securities and Futures Commission (SFC) oversees financial communications under the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

Definitional Guidance

Regulatory definitions of “marketing” and “offering” financial services/products tend to be context-dependent and fact-specific. For example, the use of similar informational materials may be considered marketing depending on how recipients were identified and whether in-person meetings were involved.

Reverse solicitation is a concept arising in cross-border relationships where a customer or investor initiates contact or requests information from a foreign financial services firm, rather than the firm proactively soliciting specific financial services. In these situations, a foreign firm may be exempt from regulations or registration requirements in the investor's jurisdiction.

This concept recognizes that investors may seek out specific international services or products, and it can help protect foreign entities from the burden of complying with local registration or licensing requirements in the investor's jurisdiction. However, the rules around reverse solicitation vary widely across countries and should be considered carefully.

Privacy & Data Processing

Global privacy laws provide the legal framework for the protection of personal data, with the main goal of ensuring individuals' privacy rights. The most notable global privacy regulations include the European Union's General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA) in the U.S., and the Massachusetts Data Privacy Law.

The GDPR is a comprehensive data protection law that applies across the EU and requires businesses to protect the personal data and privacy of EU citizens for transactions that occur within the EU. It mandates the proper collection, processing, storage, and disposal of personal data, along with the responsibility to provide individuals access to their data and the right to request modifications or deletion.

The CCPA is a data privacy law governing organizations that collect and store personal data of California residents. Businesses must ensure transparency in data collection practices, allowing Californians to access their personal information, request its deletion, and opt out of its sale. Additionally, the CCPA imposes strict penalties for non-compliance and data breaches.

The Massachusetts Data Privacy Law governs data protection for businesses holding personal information about Massachusetts residents. The law mandates companies to have a comprehensive written information security program (WISP) to safeguard personal data, addressing both administrative and technical aspects of data security.

Investment management companies are heavily impacted by these privacy laws, as they collect, process, and store clients' personal and financial data. Some examples of how they might be affected include:

Data collection and processing

Firms must ensure that they collect only the necessary data for specific purposes, and obtain explicit consent from clients before processing their personal information. Data storage and security: Investment companies are obligated to adopt and maintain strong security measures to safeguard their clients’ information from unauthorized access or theft. Regular audits and updates to security protocols may be required. Third-party relationships: Firms should carefully analyze and evaluate the potential risk when sharing client data with third parties (such as service providers) and ensure these parties also comply with privacy regulations. Data breach notifications: In the event of a data breach, investment management companies must comply with strict notification procedures, which can include reporting to regulators within a specified time frame (e.g. 72 hours for GDPR) and informing affected clients as soon as possible. Client rights: Clients may exercise their rights to access, modify, or delete their personal information, which could require investment management companies to adjust their data handling practices and systems accordingly. Compliance with global privacy laws is therefore crucial for investment management companies to avoid significant penalties, reputational damage, and potential loss of clients' trust.

U.S. Private Offerings / Placements

The SEC (U.S. Securities and Exchange Commission) oversees and enforces various rules and regulations to protect investors and ensure the integrity of the capital market. When raising capital, companies may rely on offering exemptions that allow them to avoid full SEC registration. Both Poolit RICs and Feeder Funds generally rely on Regulation D, with its RICs specifically relying on Rule 506(c) which requires active steps to verify accredited investor status.

For further reference, below is a summary of key offering exemptions under SEC rules and regulations:

Regulation A (Reg A)

Reg A allows companies to offer and sell securities to the public without full registration under certain conditions. It is divided into two tiers:

Tier 1

Raise up to $20 million in a 12-month period, with no limit on the amount of money that can be raised from accredited investors.

Tier 2

Raise up to $75 million in a 12-month period, with an investment cap based on investor type. Regulation D (Reg D): Reg D has three rules (504, 505, and 506), which allow for raising capital through private placements:

Rule 504

Companies can raise up to $10 million in a 12-month period; limited general solicitation allowed in certain circumstances.

Rule 506(b)

No limit on the amount raised; cannot engage in general solicitation; allows up to 35 non-accredited investors with specific conditions.

Rule 506(c)

No limit on the amount raised; general solicitation permitted but all investors must be accredited and verified.

Regulation Crowdfunding (Reg CF)

Reg CF allows businesses to raise capital through crowdfunding platforms without full registration up to specific limits:

Companies can raise up to $5 million in a 12-month period. Investment limits are in place based on an investor's annual income or net worth.

Rule 147 & Rule 147A

Both rules facilitate financing for a company from investors within its home state without full registration:

Rule 147

Intrastate offerings limited to residents of one state with a connection to the state (e.g., primary office).

Rule 147A

Removes physical presence requirements; allows publicly available offers; sales are limited to state residents. Section 4(a)(2): This exemption provides a path for companies to raise funds in a private offering directly from investors without specific limitations, provided the offer does not involve a public offering or general advertisement.

These exemptions offer different capital-raising opportunities for companies while balancing investor protection. Each exemption has its unique characteristics and constraints that must be considered when deciding which method to use for capital raising.

Registered Funds vs. Private/Feeder Funds

The main difference between SEC-registered investment companies and unregistered "private funds" lies in their regulatory structure, investor accessibility, and reporting requirements under the Investment Company Act of 1940 (1940 Act). Section 3(c)(1) and 3(c)(7) of the 1940 Act provide exclusions from registration for certain types of private funds.

SEC-registered investment companies

• Must register with the SEC under the 1940 Act

• Subject to ongoing reporting, disclosure, and regulatory requirements

• Offer investments to the general public (retail investors)

• More easily accessible to smaller or non-accredited investors

Unregistered "private funds"

• Not required to register with the SEC if they meet specific exemptions under the 1940 Act

• Section 3(c)(1): Exempts funds with 100 or fewer beneficial owners (excluding "knowledgeable employees") who are accredited investors

• Section 3(c)(7): Exempts funds exclusively open to "qualified purchasers" (higher net worth investors and institutions)

• Limited reporting and regulatory requirements

• Not accessible to the general public but only to accredited investors (less transparency)

Here is a comparison of the key characteristics between Registered and Unregistered Funds, suitable for conversion into table/matrix format

Characteristic	Registered Funds	Unregistered Funds (3(c)(1) & 3(c)(7))
Regulatory	Subject to SEC registration & reporting requirements	Exempt from registration (if meeting conditions)
Investor Accessibility	Open to the general public, including smaller/non-accredited investors	Restricted to accredited investors, qualified purchasers (3(c)(7))
Investment Limitations	Must follow diversification limits, leverage restrictions, etc.	Generally more flexible with investments and strategies
Fees	Typically lower management fees, 12b-1 fees, etc.	Often higher management fees, performance fees (e.g., carried interest)
Transparency	Required to provide regular, detailed financial disclosures (e.g., prospectus)	Limited disclosure requirements (e.g., PPM)
Accounting	Must adhere to GAAP, provide audited financial statements	Adherence to GAAP recommended, may present unaudited financials
Tax Implications	Usually structured as regulated investment companies, avoiding entity-level taxation	Often structured as partnerships, pass-through tax treatment to investors