Good news and bad on the regulatory front

There has been mixed news on the US regulatory front this week: the pay-to-play scandal continues to wreak a path of destruction, but a ray of hope has emerged for venture capital funds looking to avoid registration.

This week saw the end of the public comment period on the Securities and Exchange Commission’s proposed placement agent ban. All told, the proposal drew 170 comments, the vast majority of which expressed disapproval. The industry must now wait as the SEC reviews those comments and decides what its next move will be, writes Jennifer Harris in “Comment period ends on placement agent ban”.

Meanwhile, the unfolding New York State Common Retirement Fund scandal has brought down another figure in the private equity world. Saul Meyer, founder of Dallas-based private equity advisory firm Aldus Equity, has pleaded guilty to fraud charges related to the growing pay-to-play investigation led by New York State attorney general Andrew Cuomo.

The guilty plea was unsealed on Tuesday, according to Cuomo’s office. Meyer entered his plea in New York County Supreme Court on 2 October. He faces “up to four years in prison”, according to a press release from the attorney general.

As David Snow writers in “Meyer pleads guilty, faces 4 years in prison”, Meyer admitted to having conducted due diligence on and recommending an investment in the Strategic Co-Investment Partners, a partnership to which his client the New York State Common Retirement Fund committed $750 million. Meyer knew that political operative and friend of pension’s senior leadership, Barrett Wissman, would receive a share of the economics in the partnership.

Meyer also agreed to share economics on a separate pension commitment to the Aldus/NY Emerging Fund with Hank Morris, another political operative and supporter of New York Comptroller Alan Hevesi and former pension chief investment officer David Loglisci. Both men have been arrested and face multiple charges. Neither have plead guilty and the “indictment remains pending”, according to Cuomo’s office.

But amid all this tension, there was a ray of hope for some US funds – namely those that check the “venture capital fund” box on their Form D. A member of the US House Financial Services Capital Markets Subcommittee has introduced a bill that would amend the Private Fund Investment Advisers Registration Act to exempt venture capital funds from registering as investment advisers. Those funds would still have to provide such information as the SEC deems necessary, but wouldn’t have to bear the costs of formal registration procedures.

Just how the SEC will define venture capital funds remains to be seen, and could be difficult, as Jennifer Harris writers in “New bill would exempt VCs from US registration”. But it’s a sign that the US government is listening to the industry, and is perhaps softening its stance on the alternative funds industry.