| (a) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise:
(1) Private Fund Adviser--An investment adviser who
provides advice:
(A) solely to one or more Private Funds; or
(B) solely to one or more Private Funds and other clients,
who are not Private Funds, to whom advice may be provided pursuant
to another exemption from investment adviser registration provided
under the Texas Securities Act or Board rules.
(2) Private Fund--An issuer that would be an investment
company as defined in the Investment Company Act of 1940, §3,
but for an exclusion from the definition of an investment company
in §3(c)(1) or §3(c)(7) of that Act, 15 U.S.C. §80a.
(3) 3(c)(1) Fund--A Private Fund that relies solely
on the exclusion from the definition of an investment company under §3(c)(1)
of the Investment Company Act of 1940, 15 U.S.C. §80a-3(c)(l).
(4) Private Equity Fund--A Private Fund that meets
the definition of a private equity fund in the Instructions to Part
1A of Form ADV.
(5) Real Estate Fund--A Private Fund that meets the
definition of a real estate fund in the Instructions to Part 1A of
Form ADV.
(6) Venture Capital Fund A Private Fund that meets
the definition of a venture capital fund in SEC Rule 203(l)-1, 17
CFR §275.203(l)-1.
(b) Exemption for Private Fund Advisers. Subject to
the additional requirements of this section, the State Securities
Board, pursuant to the Texas Securities Act, §5.T and §12.C,
exempts from the investment adviser registration requirements of the
Texas Securities Act, §12, a Private Fund Adviser satisfying
each of the following conditions and limitations:
(1) The Private Fund Adviser files with the Securities
Commissioner each report and amendment thereto that an exempt reporting
adviser is required to file with the Securities and Exchange Commission
pursuant to SEC Rule 204-4, 17 CFR §275.204-4. These filings
are to be made electronically through the Investment Adviser Registration
Depository (IARD). A report shall be deemed filed when the report
required by subsection (b) of this section is filed and accepted by
the IARD on the state's behalf.
(2) Except as provided in paragraph (3) of this subsection,
neither the Private Fund Adviser, nor any of its advisory affiliates,
as that term is defined in the Instructions to Part 1A of Form ADV,
are subject to the following disqualifications:
(A) any of those described in Rule 262 of SEC Regulation
A, 17 CFR §230.262;
(B) has been convicted within five years prior to the
filing of the notice required under this exemption of any felony or
misdemeanor involving the offer, purchase, or sale of any security
or the rendering of investment advice, or any felony involving embezzlement,
obtaining money under false pretenses, larceny, or conspiracy to defraud;
(C) is currently subject to any order, judgment, or
decree of any court of competent jurisdiction, entered within the
last five years, temporarily, preliminarily, or permanently restraining
or enjoining such party from engaging in or continuing to engage in
any conduct or practice involving fraud or deceit in connection with
the purchase or sale of a security or the rendering of investment
advice;
(D) is the subject of a United States Postal Service
fraud order that is currently effective and was issued within the
last five years;
(E) is currently subject to any state or federal administrative
enforcement order or judgment, entered within the last five years,
finding fraud or deceit in connection with the purchase or sale of
a security or the rendering of investment advice;
(F) is subject to an order issued by a state or federal
authority that bars the person from association with an entity regulated
by the authority that issued the order, or from engaging in the business
of securities, insurance, or banking, or savings association or credit
union activities; or
(G) is the subject of a suspension or expulsion from
membership in or association with a member of a self-regulatory organization
that is currently effective and was issued within the last five years.
(3) Exceptions from disqualifications. The prohibitions
of paragraph (2) of this subsection shall not apply if:
(A) the party subject to the disqualification is duly
licensed or registered to conduct securities related business or render
investment advisory services in the state in which the order, judgment,
or decree creating the disqualification was entered against such party;
or
(B) before investment advisory services are rendered
under this section, the Securities Commissioner, or the court or regulatory
authority that entered the order, judgment, or decree, waives the
disqualification upon a showing of good cause.
(c) Additional requirements for Private Fund Advisers
to certain 3(c)(1) Funds. In order to qualify for an exemption pursuant
to this section, a Private Fund Adviser who advises at least one 3(c)(l)
Fund that is not a Private Equity Fund, Real Estate Fund, or Venture
Capital Fund shall comply with the following additional requirements:
(1) the Private Fund Adviser shall advise only those
3(c)(1) Funds (other than Private Equity Funds, Real Estate Funds,
and Venture Capital Funds) whose outstanding securities (other than
short-term paper) are beneficially owned entirely by persons who would
each meet the definition of a qualified client in SEC Rule 205-3,
17 CFR §275.205-3, at the time the securities are purchased from
the issuer; provided that if an entity was organized and exists only
for the purpose of acquiring an interest in the 3(c)(1) Fund, each
beneficial owner of such entity must be a qualified client; and
(2) the Private Fund Adviser shall comply with §116.17
of this title (relating to Custody of Funds or Securities of Clients
by Registered Investment Advisers) as if registered.
(d) Federal covered investment advisers. If a Private
Fund Adviser is registered with the Securities and Exchange Commission,
the adviser shall not be eligible for this exemption and shall comply
with the state notice filing requirements applicable to federal covered
investment advisers in the Texas Securities Act, §12-1.
(e) Investment adviser representatives. An investment
adviser representative is exempt from the registration requirements
of the Texas Securities Act, §12, if he or she is employed by
or associated with an investment adviser that is exempt from investment
adviser registration in this state pursuant to this section and does
not otherwise act as an investment adviser representative.
(f) Requests for records.
(1) Upon a written request from the Securities Commissioner
or the Commissioner's authorized representative, an investment adviser
relying on an exemption provided by this section shall make available
to the Commissioner all records subject to the custody or control
of the investment adviser related to any private fund to which the
investment adviser provides investment advice.
(2) Failure to comply with this subsection will result
in the loss of the exemption provided by this section.
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