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Investment Advisors Act of 1940

Summary

The U.S. Securities and Exchange Commission (SEC) has recently imposed new regulations on private investment pools, also known as hedge funds. The SEC requires hedge fund managers with assets in excess of $25 million to register under the Investment Advisers Act of 1940. The ruling requires that most hedge fund advisers register with the SEC under the Investment Advisers Act of 1940, which includes provisions for securing, managing and archiving all electronic communication.

The amendments introduce the phrase “electronically stored information” to Rules 26(a)(1), 33, and 34, to acknowledge that electronically stored information is discoverable. The expansive phrase is meant to include any type of information that can be stored electronically. It is intended to be broad enough to cover all current types of computer-based information, and flexible enough to encompass future changes and technological developments.

Key regulatory requirements include:
  • Archived messages must be stored in duplicate. One copy must be stored in an online archive, and a second copy must be stored offline on permanent, tamperproof media, such as Write-Once-Read-Many (WORM) technology.
  • Storage media must be verified automatically for quality and accuracy.
  • Archived messages must be date/time-stamped and serialized. Each message must be assigned a unique, sequential identification number as a safeguard against deletion.
  • A searchable index of all stored data must be maintained. Indexes must be retained on each unit of storage media for the messages and attachments stored on that unit.
  • Messages and indexes must be easily retrievable and downloadable to other media as required by SEC regulators.

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