NFA/CFTC exemption question

[Epic]

Was asked a question regarding 4.13(a)(2) exempt CPO, a.k.a Small Pool Exemption. The NFA statement is:

Total gross capital contributions in all
pools operated or intended to be
operated do not in the aggregate
exceed $400,000

The question was whether that means total AUM of less than $400K or just total initial capital contributions of $400K.

I didn't know the answer. The wording on the statement suggests that it is the latter, but in my research I came across a few statements implying the former. Admittedly, these were from CPAs who would benefit from selling a more expensive 'non-exempt' package.

Thanks guys.

 

[Stok]

I'm pretty sure it is AUM of $400k. Once over $400k (regardless of initial contribution), you have to register....that is my understanding.

 

[Epic]

Quote from Stok:

I'm pretty sure it is AUM of $400k. Once over $400k (regardless of initial contribution), you have to register....that is my understanding.

Hmmm... Interesting...

They should really change the phrasing on that statement then. IMO

 

[olias]

Quote from Stok:

I'm pretty sure it is AUM of $400k. Once over $400k (regardless of initial contribution), you have to register....that is my understanding.

Yes, I'm pretty sure you're right

 

[Stok]

Understand, but if that wasn't the case, then anyone could start managing money under $400k(initial contribution)...then grow it to millions without having to register.

 

[nazzdack]

Quote from Epic:
----exempt CPO....
----total AUM of less than $400K....
----the answer.
----CPAs....

miramarresearch.com

 

[Epic]

Quote from Stok:

Understand, but if that wasn't the case, then anyone could start managing money under $400k(initial contribution)...then grow it to millions without having to register.

Yeah, that is a valid point, but the way I look at it is that the regulations are there to protect investors from fraud. If the fund had less than 15 investors and had grown from $400K to many millions, then I would have a hard time making a case against it regarding fraud. How is the NFA protecting those investors then?

IMO, because they stuck with the original small tight group of investors and all of them are now quite profitable, the NFA shouldn't really care as much. Especially because in all likelihood, that small group are all now QEPs by definition and could simply liquidate that 'Small Pool' and create another pool with the QEP exemption. So all that is happening is that they are being regulated in the interim.

 

[Stok]

Quote from Epic:

Yeah, that is a valid point, but the way I look at it is that the regulations are there to protect investors from fraud. If the fund had less than 15 investors and had grown from $400K to many millions, then I would have a hard time making a case against it regarding fraud. How is the NFA protecting those investors then?

IMO, because they stuck with the original small tight group of investors and all of them are now quite profitable, the NFA shouldn't really care as much. Especially because in all likelihood, that small group are all now QEPs by definition and could simply liquidate that 'Small Pool' and create another pool with the QEP exemption. So all that is happening is that they are being regulated in the interim.

Understand as well. Call the NFA...they will clear it up and somewhat curious.

 

[Epic]

Quote from Stok:

Understand as well. Call the NFA...they will clear it up and somewhat curious.

Tried.. no answer yet.

 

[startraitor]

What number did you dial, I have never not gotten through.

Quote from Epic:

Tried.. no answer yet.

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