Investment Company Act of 1940

That was an important financial invention.

Then in the 40s, there was something called the Investment Company Act of 1940 that started to really put regulations around this.

So that way people were getting a fair shake.

There wasn't this group of people that were manipulating the markets.

Of course, all of these things still exist, but really put boundaries on it.

And that Investment Company Act of 1940, if you ever get in this business, you've got to study that act and read about it.

And you may forget half of it, but it's an important iteration in our history.

historical, monumental, I think, event that I need to recognize is in 1978 was the birth year of the 401k, which wasn't that long ago.

they were looking for a vehicle to get their people to learn about securities law.

And that's what this is, because really what it is, is it's a compilation of 33 Act, 34 Act, 40 Act and a summary of what they are and what they mean.

It was a composite of the SEC hierarchy at the time.

a composite of all of the ways and rules and things and what they meant and what they've meant.

Now, what does this do, right? It pools money, it buys things, it issues proportional stakes or shares.

On the surface, there are some similarities to vaults, it seems, which might trigger laws like the Investment Company Act of 1940.

And that was point number two for Lewis Cohen of KL.

what's going on inside that vault, right? So the vault holds various crypto assets.

To date, a lot of the emphasis in crypto law has been on 33-act issues.

Is the vault itself like an investment company, right? And that also depends on what assets it holds.

I think one... interesting kind of nuance is that the definition of security under the investment company act is broader than the definition under the 33 and 34 act right and includes like evidence of indebtedness so i think it again kind of becomes tricky when you're thinking about some of these lending protocols

What Rodrigo said there, that things like evidence of indebtedness can trigger securities laws, raises questions over what you're actually getting when you deposit into a vault.

Yeah.

Well past the 40 Act.

Yeah.

So anyway, the SEC have been partners.

This is more potentially profitable.

unwinding the entire fund at hopefully a reasonable price to just let the capital and the underlying loans get recessed because a lot of people said you basically got rid of the loans you could get rid of first and that makes me suspect the ones that are sitting on the balance sheet are not the easy ones and not the liquid ones and and they can't guarantee that because they didn't write these loans but that's a suspicion that feels to be coming out but again we probably Well, no, for a quarter or so, because there's got to be some proxy votes and other mechanisms under the 40 Act.

It

does not make you confident that even 95 cents on the dollar is going to be the turnout, but at least we have a perspective on what might happen if you're in that bottom cohort.

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On what this-

This proposal targets registered investment advisors and investment companies, clarifying how they may hold crypto assets for clients under the custody provisions of the Investment Advisors Act of nineteen forty and the Investment Company Act of nineteen forty.

The draft aims to eliminate certain legacy custody requirements that the agency views as outdated, particularly those that don't account for private keys and blockchain-based systems.

And this is a fresh rule-making under SEC Chair Paul Atkins, correct? Separate from the withdrawn Safeguarding Advisory Client Assets proposal from June twenty twenty-five?

Earlier this summer, the SEC brought a settled enforcement action against an investment advisor for allegedly failing to disclose conflicts of interest that it had investments in sub-advisors that it recommended to advisory clients and failing to disclose other affiliate relationships.

And just a few weeks ago, in the Simplify settlement, the SEC brought an action against another ETF advisor related to, among other things, engaging in conflicted transactions with affiliates that are prohibited by the Investment Company Act.

And last, in June, the SEC staff issued a risk alert that was focused on conflicts of interest and concerned examination observations of investment advisor obligations related to economic conflicts of interest.

So this is a priority of the current SEC, and we expect to be a priority across SECs.