May 26, 2020

SEC Issues New Exemptive Order in Response to COVID-19

On March 13, 2020, the staff of the Securities and Exchange Commission (“SEC”) issued an exemptive order providing relief from certain provisions of the Investment Company Act of 1940, as amended (the “1940 Act”), to registered funds in light of the current outbreak of coronavirus disease 2019 (COVID-19) (the “Order”). In each case, the relief is available if reliance on the Order is necessary or appropriate in light of the current or potential effects of COVID-19.

Relief from In Person Meeting Requirements

The Order provides relief from the in-person meeting requirements under Sections 15(c) and 32(a) of the 1940 Act and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii). These provisions relate to the approval or renewal of advisory and underwriting agreements, the approval or renewal of distribution plans, agreements or arrangements, and the appointment of auditors. The relief is available if (1) the votes cast for such matters are cast at a meeting in which directors may participate by any means that allows all directors to hear each other simultaneously during the meeting; and (2) the board, including a majority of independent directors, ratifies such actions at the next in-person meeting.

This relief is available for meetings held from March 13, 2020 through June 15, 2020.

Relief from Filing Obligations

The Order provides relief from the filing obligations on Form N-PORT and Form N-CEN, if the fund is unable to meet the filing deadline due to circumstances related to the effects of COVID-19. To rely on the Order, a registered fund must do the following:

  • Promptly notify the SEC staff via e-mail at IM-EmergencyRelief@sec.gov. The notice should state that the fund is relying on the Order, describe the reasons why the filing cannot be made on a timely basis, and state the estimated filing date.

  • Include a statement on its website that it is relying on the Order and the reasons why it is unable to make timely filings.

  • File the reports within 45 days of the original due date.

  • Include a statement in any Form N-CEN or Form N-PORT filed pursuant the Order that such filing was made in reliance on the Order and the reasons why the fund was unable to make timely filings.

This relief applies to filings with original due dates from March 13, 2020 through April 30, 2020.

Relief from Delivery Obligations

Registered funds are temporarily exempt from the requirement to transmit annual and semi-annual reports to investors and current prospectuses, provided that the sale was not an initial purchase of shares. To rely on the Order, a registered fund must do the following:

  • Promptly notify the SEC staff via e-mail at IM-EmergencyRelief@sec.gov that it is relying on the Order. The notice should state that the fund is relying on the Order, describe the reasons why and state the estimated transmission or delivery date.

  • Provide website notification that the fund is relying on the Order and state the reasons why.

  • For prospectuses, publish the prospectus online.

  • For shareholder reports, transmit the report to shareholders as soon as possible, but not later than 45 days after the original due date, and file the report within 10 days of such transmission.

  • For prospectuses, deliver the prospectus as soon as practicable, but not later than 45 days after the date originally required.

This relief applies for reports and prospectus delivery with originally scheduled due dates from March 13, 2020 through April 30, 2020.

Relief from Advance Notice Requirements of Rule 23c-2

 For registered closed-end funds and business development companies, the Order provides temporary relief from the requirement to file notices of their intent to call or redeem securities at least 30 days in advance under Sections 23(c) and 63 of the 1940 Act and Rule 23c-2 thereunder. To rely on the Order, the fund must do the following:

  • Promptly notify the SEC staff via e-mail at IM-EmergencyRelief@sec.gov of its intent to rely on the Order, stating the reasons why such reliance is necessary.

  • Determine that the abbreviated notice is permitted under state law and the fund’s governing documents.

  • File a 23C-3 Notice containing all required information prior to (including the same business day as) (1) the call or redemption of securities, (2) the commencement of offering of replacement securities and (3) providing notification to existing shareholders.

This relief applies through June 15, 2020.

Position Regarding Prospectus Delivery Requirements

In the same release adopting the Order, the staff stated it position that It would not take enforcement action if a registered fund did not provide shareholders with a current prospectus on the required date, provided the sale was not an initial purchase of shares, if the fund:

  • The fund promptly notices the SEC Staff stating (a) it is relying on the Position, (b) the reasons why, and (c) the estimated delivery date.

  • Provides website notification that it is relying on the position and the reasons why.

  • Publishes its prospectus online

  • The prospectus is delivered as practiceable but not later than 45 days after the date original required.

This relief applies to delivery required from March 13, 2020 through April 30, 2020.

© 2020 Vedder Price

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About this Author

Deborah Bielicke Eades, Vedder Price Law Firm, Finance Attorney
Shareholder

Deborah Bielicke Eades joined Vedder Price P.C. as a shareholder and is a member of the firm’s Investment Services Group.

Ms. Eades has extensive experience in all aspects of mutual fund and investment adviser regulation and compliance, including product design, federal and state registration, representation of fund boards, portfolio compliance, derivative instruments, affiliated transactions, electronic commerce and Web site design, privacy matters and general regulatory matters.

312-609-7661
Thomas Conner Investment Lawyer Vedder Price
Shareholder

W. Thomas Conner is a Shareholder in the Investment Services group in the firm’s Washington, DC office.

Mr. Conner has represented financial services companies, including mutual funds, exchange traded funds (ETFs), insurance companies issuing fixed and variable annuities, commodity pools and commodity pool operators and other types of financial services firms for over 25 years. His practice combines regulatory experience with an extensive knowledge of the mutual fund, ETF, commodity pool, variable contract and investment advisory services.

Mr. Conner focuses on providing practical and goal oriented advice. He enjoys working with clients to help them understand the application of financial services law and rules of regulatory agencies. He assists clients in navigating the complex regulatory requirements governing insurance and securities products, including the federal securities laws administered by the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission. Mr. Conner offers client-focused solutions derived from his perspective gained from law firm, regulatory agency and in-house experience.

Prior to joining Vedder Price, Mr. Conner represented financial service companies in private practice for over fifteen years. He was Vice President and General Counsel of the Insured Retirement Institute (IRI), and was also a staff member of the SEC in the Office of Disclosure and Investment Adviser Regulation and the Office of Insurance Products.

(202) 312 3331
Joseph Mannon, Investment Lawyer, Vedder Price Law Firm
Shareholder

Joseph M. Mannon is a member of Vedder Price P.C.’s Investment Services group.

Mr. Mannon focuses his practice on legal and compliance matters for investment advisers, mutual funds, closed-end funds and unregistered vehicles such as hedge funds, hedge fund of funds and other investment entities.  With regard to unregistered vehicles, he frequently counsels clients on fund formation and structuring matters for funds organized both in the United States and abroad.  He also counsels clients on issues relating to commodity trading advisers and...

312-609-7883
Maureen Miller, Corporate, Securities Matters, Investment Companies, Shareholder, Vedder Price Law FIrm
Shareholder

Maureen A. Miller is a Shareholder in Vedder Price’s Investment Services group. Ms. Miller concentrates her practice on corporate and securities matters with a focus on investment companies and investment advisers. She counsels independent directors of open-end, closed-end and exchange-traded funds on their special responsibilities under the law. Ms. Miller works with clients on federal and state registration and regulatory issues, SEC examinations and investigations, compliance policies and procedures, insurance arrangements, governance matters, negotiation of contracts, and business...

312-609 7699