The National Law Forum

With Form PF Compliance Dates Quickly Approaching, Advisers Managing $150 Million or More of Private Fund Assets Should Begin to Prepare

An article about Form PF Compliance written by Eric R. Markus, Victor B. Zanetti, and William L. Rivers of Andrews Kurth LLP recently appeared in The National Law Review:

On October 26, 2011, the Securities and Exchange Commission (the “SEC”) adopted Rule 204(b)‑1 under the Investment Advisers Act of 1940 (the “Advisers Act”) to require certain investment advisers that advise private funds to periodically complete and file the SEC’s new Form PF.¹ Rule 204(b)-1 implements sections 404 and 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and is intended to provide the SEC with information relevant to assessing the risks that certain advisers and funds pose to the stability of the financial system. Although Form PF is filed confidentially and exempt from the Freedom of Information Act, the SEC is permitted to share this information with other federal agencies (most notably the Commodity Futures Trading Commission and the Financial Stability Oversight Council).

The requirements of the rule and Form PF are novel and the amount of information required to be assembled can be—at least in certain instances—quite substantial. With the initial compliance dates for investment advisers to certain large private funds approaching in June 2012, now is the time for investment advisers to become familiar with this new regulatory requirement, to determine when their initial Form PF filing will be due, and to identify and begin to assemble the types and extent of the information that will be required.

The full text of the adopting release and the final rule is available here. The full text of Form PF is available here.

What Investment Advisers Are Subject to Rule 204(b)-1 and Must File Form PF?

The new rule requires any investment adviser registered (or required to register) with the SEC under the Advisers Act that advises one or more “private funds” and has, in aggregate, $150 million or more in private fund assets under management to file Form PF. For purposes of determining whether they meet certain regulatory thresholds established by Form PF, related advisers must aggregate their assets under management; however, related advisers do not need to aggregate their assets if they are “separately operated.”²

What is a “Private Fund”?

The term “private fund” is defined in Section 202(a)(29) of the Advisers Act as any issuer “that would be an investment company,” as defined in the Investment Company Act of 1940, as amended (the “ICA”), but is excepted by virtue of the exemptions provided in Section 3(c)(1) (funds with fewer than 100 beneficial owners) or Section 3(c)(7) (funds owned exclusively by qualified purchasers) of the ICA. Real estate funds relying on the exemption provided in Section 3(c)(5) of the ICA are not required to file Form PF (although many real estate funds, because of the nature and structure of their investments, rely on the exemptions provided under Section 3(c)(1) or (7) and therefore may be required to file).

Form PF establishes different treatment—in terms of initial filing dates, the frequency of filings and the content of those filings—based on the characteristics of the private funds involved and their advisers. The most important distinction that Form PF draws in this regard is between “Large Private Fund Advisers” and all other investment advisers to private funds.

What is a “Large Private Fund Adviser”?

A “Large Private Fund Adviser” is defined as a private fund adviser that meets any one or more of the following criteria:

it has at least $1.5 billion in regulatory assets under management attributable tohedge funds as of the end of any month in the most recently completed fiscal quarter;
it has at least $1.0 billion in combined regulatory assets under management attributable to liquidity funds and registered money market funds³ as of the end of any month in the most recently completed fiscal quarter; and/or
it has at least $2.0 billion in regulatory assets under management attributable toprivate equity funds as of the last day of the adviser’s most recently completed fiscal year.

How are Regulatory Assets Under Management Calculated?

The term “regulatory assets under management” has the same meaning given to it in the SEC’s recent amendments to Part 1A, Instruction 5.b of Form ADV. This definition measures assets under management gross of outstanding indebtedness and other accrued but unpaid liabilities.

In addition, in order to prevent an adviser from restructuring the way it manages money to avoid compliance with Form PF, the rule requires regulatory assets under management to include (a) assets of managed accounts advised by the adviser that pursue substantially the same investment objective and invest in substantially the same positions as private funds advised by the firm unless the value of those accounts exceeds the value of the private funds with which they are managed; and/or (b) assets of private funds advised by any of the adviser’s “related persons” other than related persons that are separately operated.

What is a “Hedge Fund”?

Form PF defines a “hedge fund” as any private fund that is not a securitized asset fund⁴if it meets any of the three following criteria:

it is permitted to pay one or more investment advisers (or their related persons) a performance fee or allocation calculated by taking into account unrealized gains;
it is permitted to borrow an amount in excess of one-half of its net asset value (including any committed capital); and/or
it is permitted to sell securities or other assets short or enter into similar transactions (other than for the purpose of hedging currency exposure or managing duration).

Note that for purposes of the first criteria above, the fund must only be authorized to pay a fee based on unrealized gains (the classification applies whether or not the performance fee is actually paid). In the Adopting Release, the SEC clarified that the periodic calculation or accrual of performance fees based on unrealized gains solely for financial reporting purposes (as many private equity funds do) will not cause a private fund to be classified as a hedge fund. For purposes of the second and third criteria cited above, the private fund must be authorized to undertake such activities; actually undertaking the activities is not required.⁵

What is a “Liquidity Fund”?

Form PF defines a “liquidity fund” as any private fund “that seeks to generate income by investing in a portfolio of short term obligations in order to maintain a stable net asset value per unit or minimize principal volatility for investors.” Thus, a liquidity fund would be a private fund that resembles a registered money market fund.

What is a “Private Equity Fund”?

Form PF defines a “private equity fund” as any private fund that is not a hedge fund, liquidity fund, securitized asset fund, real estate fund,⁶ or venture capital fund⁷and does not provide investors with a right to redeem their interests in the ordinary course.

Does the SEC’s Focus on Hedge Funds, Liquidity Funds and Private Equity Funds Mean that Other Types of Private Funds are Not Subject to Rule 204(b)(1) and Form PF?

No. As the charts below show, an investment adviser that is not a Large Private Fund Adviser and that does not advise any hedge funds, liquidity funds or private equity funds must still prepare and file Form PF if it advises private funds with $150 million or more in private fund assets.

What are the Initial Compliance Dates for Form PF?

Form PF and Rule 204(b)-1 establish June 15, 2012 as the initial “compliance date” for any registered investment adviser (or an adviser that is required to register) that meets one or more of the following criteria:

it has at least $5.0 billion in regulatory assets under management attributable to hedge funds as of the last day of its fiscal quarter most recently completed prior to June 15, 2012;
it has at least $5.0 billion in combined regulatory assets under management attributable to liquidity funds and registered money market funds as of the last day of its fiscal quarter most recently completed prior to June 15, 2012; and/or
it has at least $5.0 billion in regulatory assets under management attributable to private equity funds as of the last day of its first fiscal year to end on or after June 15, 2012.

An adviser subject to the June 15, 2012 compliance date as a result of its advice to hedge funds and/or liquidity funds/money market funds will need to file its initial Form PF for the first fiscal quarter ending after June 15, 2012. For most such advisers, this will be for the fiscal quarter ending June 30, 2012 (and will be due August 29, 2012 for hedge fund advisers and July 15, 2012 for liquidity fund advisers). An adviser subject to the June 15, 2012 compliance date as a result of its advice to private equity funds will need to file its initial Form PF for the first fiscal year ending after June 15, 2012. For most such advisers, this will be for the fiscal year ending December 31, 2012 (and will be due April 30, 2013).

For all investment advisers that are not subject to the June 15, 2012 compliance date, the compliance date will be December 15, 2012. However, whether such advisers will be filing with respect to the first fiscal quarter or first fiscal year ending after that date (and the deadline for such filing) will depend on the type of private funds advised and the amount of assets under management as set forth in Table I below.

TABLE I

Regulatory assets under management for the fiscal quarter or year (as the case may be) ending immediately after June 15, 2012 are, for hedge funds and liquidity funds, measured as of the last day of the fiscal quarter ending immediately prior to such date, and for private equity funds measured, as of the last day of the fiscal year ending immediately prior to such date. For any other Form PF filing under Rule 204(b)-1, regulatory assets under management, for quarterly Form PF filers, are measured as of the end of each month in the immediately preceding fiscal quarter (and the threshold is passed if, as of any month end, the assets under management exceed the relevant threshold), and, for annual Form PF filers, are measured solely as of the last day of the immediately preceding fiscal year.

What Type of Information Must Be Included in the Form PF?

As with other issues under the new Form PF, the answer to this question depends on the size and nature of the private funds advised. Investment advisers to private funds (other than Large Private Fund Advisers) have much more limited disclosure obligations than Large Private Fund Advisers. In addition, as it relates to Large Private Fund Advisers, the additional disclosures required have been tailored to whether the private fund advised is a hedge fund, liquidity fund or private equity fund. Table II below summarizes the information requirements imposed by Form PF.

TABLE II

Investment Advisers should start now to determine whether they will be required to file the new Form PF, to determine the applicable filing date for any form PF filing, and to identify and begin to assemble the required information necessary to complete the form.

1. See Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, Release No. IA-3308; File No. S7-05-11 (October 31, 2011) (the “Adopting Release”).

2. An adviser is not required to aggregate its private fund assets with those of a related person if the adviser is not required to complete Section 7.A of Schedule D to its Form ADV with respect to such related person. The criteria for excluding a related person from Section 7.A of Schedule D to an adviser’s Form ADV include (i) the adviser having no business dealings with the related person in connection with advisory services provided to its clients; (ii) the adviser not conducting shared operations with the related person; (iii) the adviser not referring clients or business to the related person, and the related person not referring prospective clients or business to the adviser; (iv) the adviser not sharing supervised persons or premises with the related person; and (v) the adviser having no reason to believe that its relationship with the related person otherwise creates a conflict of interest with its clients.

3. An adviser that manages liquidity funds and registered money market funds must combine the assets in those funds for purposes of determining whether it qualifies as a Large Private Fund Adviser.

4. A securitized asset fund is a private fund whose main purpose is to issue asset backed debt securities.

5. This test does not require that the fund’s organizational documents expressly prohibit such leverage or short-selling as long as “the fund in fact does not engage in these practices … and a reasonable investor would understand, based on the fund’s offering documents, that the fund will not engage in these practices.” SeeAdopting Release at page 28.

6. A real estate fund is defined as a private fund that invests primarily in real estate and real estate-related assets as long as it is not a hedge fund and does not provide investors the right to redeem in the ordinary course.

7. A venture capital fund is defined by reference to Rule 203(l)-1 of the Advisers Act. That rule is complex, subject to various exceptions, definitions and other discussions, and easily could be the subject of its own client alert. In short, a venture capital fund is defined as a private fund that: (i) holds no more than 20 percent of the fund’s capital commitments in certain non-qualifying investments; (ii) does not incur leverage, other than limited short-term borrowing; (iii) does not offer its investors a right to redeem except in extraordinary circumstances; (iv) represents itself as pursuing a venture capital strategy; and (v) is not registered as a business development company.

8. For purposes of calculating the amount of regulatory assets under management by a manager to a liquidity fund, regulatory assets under management include the combined assets under management attributable to all liquidity funds and registered money market funds.

9. A “Large Private Fund Adviser” includes (i) any adviser that has at least $1.5 billion in regulatory assets under management attributable to hedge funds, (ii) any adviser that has at least $1.0 billion in regulatory assets under management attributable to liquidity funds and registered money market funds, or (iii) any adviser that has more than $2.0 billion in regulatory assets under management attributable to private equity funds.

10. An adviser solely to private funds other than hedge, liquidity and private equity funds would not be a Large Private Fund Adviser regardless of the assets under management in those funds.

11. See Note 9.

12. Form PF requires additional disclosures in Section 2b by Large Private Fund Advisers with respect to any hedge fund that has a net asset value of at least $500 million.

13. See Note 10.

2012 Young Professionals in Energy International Summit

The National Law Review is pleased to bring you information on the 2012 Young Professionals in Energy International Summit:

2012 YOUNG PROFESSIONALS IN ENERGY INTERNATIONAL SUMMIT

April 23-25, 2012

Planet Hollywood Resort & Casino

Las Vegas, Nevada

About the YPE:

Young Professionals in Energy (“YPE”) is the first and only interdisciplinary networking and volunteer organization for people in the global energy industry – a place where bankers can connect with engineers, accountants with geologists and so on. Our mission is to provide a forum for knowledge sharing and camaraderie among future leaders of the energy industry.

The event will feature panel discussions and presentations by YPE members from around the world on such vital energy issues as the world oil supply, shale, renewable energy, career issues and funding new energy projects.

Confirmed speakers include YPE members from the American Petroleum Institute, ExxonMobil, Fulbright & Jaworski L.L.P. the India Ministry of Petroleum and Natural Gas, the Nevada Institute for Renewable Energy Commercialization, Pemex, the University of Southern California and the U.S. Dept. of Commerce.

Highlighting the three-day conference is a keynote speech by Daniel Yergin, author of the best-selling “The Quest: Energy, Security and the Remaking of the Modern World (www.danielyergin.com).

Internet Marketing for Attorneys: How Blogging Is Like Sex

Recently The National Law Review published an article by Stephen Fairley of The Rainmaker Institute regarding Internet Marketing for Attorneys:

Did that headline grab you? It certainly did me when I saw this infographic from an India-based social media marketing firm:

The point is, that to be effective, blogs need to grab and hold the attention of your readers. Blogs hold a unique position in the online media landscape because they have become an accepted source of information. Here are some tips on how to successfully grow your blog:

Engage with other online communities. Become known on other relevant blogs by contributing valuable content to pick up audiences for your own blog.

Write about what you know. If you are passionate about your law practice, share it.

Provide engaging content. Be the spark that starts smart conversations online.

Answer questions. Solicit feedback and keep the conversation going.

Offer real value. Dive deep into your subject matter to keep readers wanting more.

Create content to match needs. Speak to your target market in your blog about the legal issues that concern them.

Make readers feel good. If someone posts a thoughtful comment, respond to it with appreciation. If you disagree, do so gracefully.

Give more than you get. Offer readers something of value like a free e-book or newsletter subscription. Post on a regular schedule so your readers are always getting something new from you.

ICC Institute Masterclass for Arbitrators

The National Law Review is pleased to bring you information about the upcoming ICC Conference Masterclass Arbitrators:

Join us for an intensive 2 1/2 day training for professionals interested in working as international arbitrators!

June 4-6, 2012 at ICC Headquarters in Paris.

Opening of the 13th Great-Idea China Sourcing & New Industrial Delegation to China

The National Law Review recently published an article by Lisa L. Mueller of Michael Best & Friedrich LLP regarding The New Industrial Delegation to China:

Today was the first day of the 13th Great-Idea China Sourcing & New Industrial Delegation (Delegation). The first stop: Shanghai.

Because this was my first time to China, I really did not know what to expect when my plane landed in Shanghai. All I really knew about China before leaving home is that from a geographical standpoint, it is an extremely large-sized country with an equally large population, and that many of the products that I rely on day in and day out in my life (my running shoes, many of my clothes, etc.) are made in China. Well, I was certainly not prepared for what I found when my plane landed in Shanghai. What struck me immediately was that Shanghai is absolutely enormous in a multitude of different ways. First, the sheer number of people who live and work in Shanghai is colossal. Since my arrival, I have heard that the number of residents in Shanghai to be anywhere from 20 to 23 million. Regardless of the actual number, I can tell you that there are simply people everywhere and they seem to be going in every direction. In fact, there are so many people in Shanghai that there is not enough room for people to walk on the sidewalks, so they frequently travel in the streets along with the buses, cars, mopeds, motorcycles and bicycles that make up traffic.

Second, the sheer number and size of free-standing skyscrapers in Shanghai is astonishing. Some of the more prominent skyscrapers include the Jin Mao Tower, the Shanghai World Financial Center, which is the tallest skyscraper in mainland China at the moment, the Oriental Pearl Tower and the Development Tower.

Third, the amount of new skyscrapers that are under construction is tremendous. There seems to be skyscrapers under construction no matter which direction you look in Shanghai. Based on the work done thus far, it appears that many of these skyscrapers are going to be just astronomical in size.

Fourth, the traffic in Shanghai is monstrous. Growing up on Long Island, NY, I thought I was used to the immense day-to-day traffic that has long been a staple in the New York Metropolitan area. NOTHING could prepare me for the mammoth traffic in Shanghai. Getting around by car, cab or bus is absolutely painful during what most people would consider “reasonable” waking hours during the day. I took a bike tour on Saturday and I can personally attest that this traffic makes biking a challenge when you have to traverse cars, buses, cabs, mopeds, motorcycles, bicycles and people crossing the streets. In fact, at times, the weaving in and out was better than any amusement park ride I’ve been on in years (and far less expensive).

Fifth, not surprisingly given the number of cars, buses and motorcycles that comprise the traffic in Shanghai, the pollution is gargantuan. It has taken my eyes and lungs a bit of time to adjust to the increased levels of pollution.

In addition to the enormity of China, I was also not prepared for what I have found in terms of the people of China. For the most part, the Chinese people are very friendly and warm. I have found them to be very hard-working and capitalistic. Unfortunately, given the large number people in China, there are far more people than jobs. In view of this, as part of China’s 12th Five-Year Plan for National Economic and Social Development, the Chinese government is trying to spread the benefits of economic growth to a higher number of Chinese citizens. The plan’s key themes involve rebalancing the economy, ameliorating social inequality and protecting the environment. Part of this plan involves changing the export-oriented economy of China from low-end manufacturing outsourcing to advanced manufacturing outsourcing and international service outsourcing. The three main sectors to be targeted by this plan are healthcare, energy and technology.

The Delegation is part of an international summit and forum that has come to China to learn more about the plan, to meet with local business leaders and politicians who will be instrumental in implementation and to foster cooperation and investment opportunities between China and other nations based on the plan of the International delegates. Some are venture capitalists or other types of investors, some are lawyers and others are technology specialists.

This evening, the delegation visited Hand Enterprise Solutions Company (Hand) for a presentation by Mr. Dean Chen, President. Hand was established in Shanghai in 2002 and was one of the first local enterprise resource planning (ERP) consulting firms in China. They currently have over 700 employees and an average growth rate of 30% in recent years. In 2002, IDC named Hand one of the “Top Consulting Companies” in the China IT Industry. Hand currently provides a variety of IT services ranging from traditional IT strategic consulting, business process optimization, ERP implementation service, as well as, mobile solutions and business intelligence. They have provided consulting services in a variety of industries such as machinery, electronics, automotive, pharmaceutical, chemicals, food and beverage, financial services, telecommunications and the Chinese aviation industry. Hand has about 400 customers in China, Japan, Europe and the US and has offices in Beijing and Guangzhou in China and in Tokyo, Japan.

Tomorrow morning the Delegation will tour the Zhangjiang Science and Technology Park in Shanghai before heading to Suzhou.

2012 National Law Review Law Student Writing Competition

The National Law Review is pleased to announce their 2012 Law Student Writing Competition

The National Law Review (NLR) consolidates practice-oriented legal analysis from a variety of sources for easy access by lawyers, paralegals, law students, business executives, insurance professionals, accountants, compliance officers, human resource managers, and other professionals who wish to better understand specific legal issues relevant to their work.

The NLR Law Student Writing Competition offers law students the opportunity to submit articles for publication consideration on the NLR Web site. No entry fee is required. Applicants can submit an unlimited number of entries each month.

Winning submissions will be published according to specified dates.
Entries will be judged and the top two to four articles chosen will be featured on the NLR homepage for a month. Up to 5 runner-up entries will also be posted in the NLR searchable database each month.
Each winning article will be displayed accompanied by the student’s photo, biography, contact information, law school logo, and any copyright disclosure.
All winning articles will remain in the NLR database for two years (subject to earlier removal upon request of the law school).

In addition, the NLR sends links to targeted articles to specific professional groups via e-mail. The NLR also posts links to selected articles on the “Legal Issues” or “Research” sections of various professional organizations’ Web sites. (NLR, at its sole discretion, maydistribute any winning entry in such a manner, but does not make any such guarantees nor does NLR represent that this is part of the prize package.)

Congratulations to our 2012 and 2011 Law Student Writing Contest Winners

Winter 2012:

Fall 2011:

Why Students Should Submit Articles:

Students have the opportunity to publicly display their legal knowledge and skills.
The student’s photo, biography, and contact information will be posted with each article, allowing for professional recognition and exposure.
Winning articles are published alongside those written by respected attorneys from Am Law 200 and other prominent firms as well as from other respected professional associations.
Now more than ever, business development skills are expected from law firm associates earlier in their careers. NLR wants to give law students valuable experience generating consumer-friendly legal content of the sort which is included for publication in law firm client newsletters, law firm blogs, bar association journals and trade association publications.
Student postings will remain in the NLR online database for up to two years, easily accessed by potential employers.
For an example of a contest winning student written article from Northwestern University, please click here or please review the winning submissions from Spring 2011.

Content Guidelines and Deadlines

Content Guidelines must be followed by all entrants to qualify. It is recommended that articles address the following monthly topic areas:

March Topic Feature: Environmental and Energy, Insurance and Intellectual Property Law
March Submission Deadline: Tuesday, February 21, 2012
May Topic Feature: Tax, Bankruptcy and Restructuring and Healthcare Law
May Submission Deadline: Monday, April 16, 2012

Articles covering current issues related to other areas of the law may also be submitted. Entries must be submitted via email to lawschools@natlawreview.com by 5:00 pm Central Standard Time on the dates indicated above.

Articles will be judged by NLR staff members on the basis of readability, clarity, organization, and timeliness. Tone should be authoritative, but not overly formal. Ideally, articles should be straightforward and practical, containinguseful information of interest to legal and business professionals. Judges reserve the right not to award any prizes if it is determined that no entries merit selection for publication by NLR. All judges’ decisions are final. All submissions are subject to the NLR’s Terms of Use.

Students are not required to transfer copyright ownership of their winning articles to the NLR. However, all articles submitted must be clearly identified with any applicable copyright or other proprietary notices. The NLR will accept articles previously published by another publication, provided the author has the authority to grant the right to publish it on the NLR site. Do not submit any material that infringes upon the intellectual property or privacy rights of any third party, including a third party’s unlicensed copyrighted work.

Manuscript Requirements

Format – HTML (preferred) or Microsoft^® Word
Length – Articles should be no more than 5,500 words, including endnotes.
Endnotes and citations – Any citations should be in endnote form and listed at the end of the article. Unreported cases should include docket number and court. Authors are responsible for the accuracy and proper format of related cites. In general, follow the Bluebook. Limit the number of endnotes to only those most essential. Authors are responsible for accuracy of all quoted material.
Author Biography/Law School Information – Please submit the following:
1. Full name of author (First Middle Last)
2. Contact information for author, including e-mail address and phone number
3. Author photo (recommended but optional) in JPEG format with a maximum file size of 1 MB and in RGB color format. Image size must be at least 150 x 200 pixels.
4. A brief professional biography of the author, running approximately 100 words or 1,200 characters including spaces.
5. The law school’s logo in JPEG format with a maximum file size of 1 MB and in RGB color format. Image size must be at least 300 pixels high or 300 pixels wide.
6. The law school mailing address, main phone number, contact e-mail address, school Web site address, and a brief description of the law school, running no more than 125 words or 2,100 characters including spaces.

To enter, an applicant and any co-authors must be enrolled in an accredited law school within the fifty United States. Employees of The National Law Review are not eligible. Entries must include ALL information listed above to be considered and must be submitted to the National Law Review at lawschools@natlawreview.com.

Any entry which does not meet the requirements and deadlines outlined herein will be disqualified from the competition. Winners will be notified via e-mail and/or telephone call at least one day prior to publication. Winners will be publicly announced on the NLR home page and via other media. All prizes are contingent on recipient signing an Affidavit of Eligibility, Publicity Release and Liability Waiver. The National Law Review 2011 Law Student Writing Competition is sponsored by The National Law Forum, LLC, d/b/a The National Law Review, 4700 Gilbert, Suite 47 (#230), Western Springs, IL 60558, 708-357-3317. This contest is void where prohibited by law. All entries must be submitted in accordance with The National Law Review Contributor Guidelines per the terms of the contest rules. A list of winners may be obtained by writing to the address listed above. There is no fee to enter this contest.

Beer, wine and voter ID laws: Beer and Wine Wholesalers Among Those Behind Legislators Pushing Controversial New Election Rules.

Recently an article by Paul Abowd of the Center for Public Integrity regarding Voter ID Laws was published in The National Law Review:

Wholesalers among those behind legislators pushing controversial new election rules.

Some of America’s best known brands are dropping their membership in the American Legislative Exchange Council at least partly in response to controversy over the group’s backing of voter ID laws. Coca-Cola quit on April 4 and Pepsi, Kraft Foods, Intuit, McDonalds and the Bill and Melinda Gates Foundation followed them out after a coalition of left-wing groups launched pressure campaigns. Nine states have passed strict voter ID requirements just since 2011, which opponents say could result in millions being unable to cast ballots in November.

But there’s been little attention paid to one major ALEC-affiliated sector behind several state legislators pushing these measures: the beer and wine industry.

Major players in beer and wine sit on an ALEC task force that crafted and approved voter ID model legislation in 2009. The industry’s major trade associations — the National Beer Wholesalers Association and Wine and Spirits Wholesalers of America — are among them. Since 2007, the wholesalers have also pumped substantial cash into the campaigns of several ALEC politicians who have been authors or primary sponsors of voter ID bills in their states.

Founded in 1973, ALEC, a coalition of corporate America and almost exclusively Republican state lawmakers, had operated quietly and, by most accounts, effectively in pushing conservative, business-friendly laws including Arizona’s immigration law and the flurry of controversial “Stand Your Ground” laws that have been in the headlines since the February 26 shooting of Florida teen Trayvon Martin.

ALEC has a vast legislative agenda covering state budgets, education, health care, corrections, energy and environment, guided by free-enterprise and limited-government principles. It draws funding from hundreds of corporate members including Koch Industries, ExxonMobil, Pfizer, UPS, AT&T, and Walmart. Corporate membership costs between $7,000 and $25,000, according to the ALEC website. Two thousand state legislators pay $50 a year to be members.

ALEC has been the subject of increasing media attention since last summer, when hundreds of leaked documents shed unprecedented light on ALEC’s reach into state legislatures. The organization did not respond to calls for comment.

The course of voter ID

ALEC didn’t kick off the voter ID movement; a 2005 Indiana law co-authored by Republican Sen. Brandt Hershman, an ALEC member who has received nominal contributions from the state wine wholesalers association, seems to have started the trend. In early 2009, though, ALEC formed a committee within its Public Safety and Elections Task Force to focus on election fraud.

Sean Parnell, the former president of the Center for Competitive Politics, a conservative think tank, said legislators from a dozen states brought voter ID to ALEC in the spring of 2009, but he declined to identify them.

By summer 2009, the full Public Safety and Elections Task Force, including the beer and wine wholesalers, formally approved the voter ID model law before it filtered into dozens of legislatures nationwide — according to internal ALEC documentspublished by the Wisconsin-based investigative nonprofit Center for Media and Democracy.

The model legislation requires voters to show government-issued photo identification at the polls, or else sign an affidavit and cast a provisional ballot. Provisional voters must make a separate trip to provide county election officials with proof of identity by the Monday following an election if they want to ensure their vote is counted. By that time, critics say, most elections have been decided.

Since 2009, 12 states have passed voter ID laws with strict requirements for government-isued identification. Nine of those states have signed such laws just since 2011, and Virginia seems poised to become the tenth.

Conservative legislators tout the laws’ ability to stop voter fraud. ALEC argues that such fraud could be a serious problem, pointing to the nation’s messy voter registration rolls. The assertion is bolstered by a recent report from the Pew Center on the States, which says 1.8 million deceased Americans are still listed as voters and that 2.75 million people are registered to vote in more than one state.

But the laws have drawn rebuke from the U.S. Department of Justice and civil rights advocates, who say the requirements will disproportionately restrict access to the ballot for people of color, students, homeless and the elderly — groups that they say are less likely to possess government-issued identification.

A 2006 survey conducted for the Brennan Center for Democracy found that 25 percent of African Americans and 16 percent of Latinos do not possess state-issued photo IDs. Voter ID laws, together with restrictions on voter registration and early voting, the Brennan Center says, could affect 5 million Americans in 2012. Since December, the Justice Department has rejected voter ID laws in South Carolina and Texas, subject to review by the courts. Under the Voting Rights Act of 1965, changes to electoral laws in states with a history of voter discrimination must get federal approval.

The Justice Department said that, whether or not the new voter ID requirements in both those states had a “discriminatory purpose,” they would have “a discriminatory effect” on people of color.

Political players

The National Beer Wholesalers and Wine and Spirits Wholesalers of America are not strangers to power politics. The beer wholesalers are a trade association representing thousands of companies who deliver beer from breweries to bars. In twenty years, the association has played a substantial role in campaign finance, ranking 25^th on a list of federal campaign cash “heavy hitters” compiled by the Center for Responsive Politics.

The wholesalers’ state-based affiliates have used their political leverage in efforts to contain beer and liquor taxes and fight large retailers like Costco Wholesale Corporation, which are competing for a share of the large distribution market.

So why would these industry players back a politically charged issue like voter ID? Formally, they don’t.

“The National Beer Wholesalers Association has no position on this issue,” said spokeswoman Kathleen Joyce, in an e-mail. The wine wholesalers had a similar response. “The task force’s sponsorship of voter ID laws and any other election activities is a mere coincidence, and we have never been involved in those areas,” said Jerry Brown, a spokesman for wine wholesalers.

Both organizations say their groups have been members of ALEC’s Public Safety and Elections task force to foster efforts aimed at preventing underage drinking. The task force has endorsed three pieces of legislation since 2006 seeking heightened penalties for those selling alcohol to underage consumers.

Not everyone is convinced. Among the skeptics is Edwin Bender, executive director of the National Institute on Money in State Politics. “If you see this happening in several states, that’s some indication that there’s a strategy there, especially if they’re giving money to ALEC members,” said Bender. Neither the beer or wine wholesalers would say how they voted when the ALEC Public Safety and Elections Task Force approved the model voter ID law.

Indeed, cash from the beer and wine wholesalers shows up repeatedly backing state legislators who are behind the voter ID measures. Since 2011, five ALEC-member legislators in Virginia, Texas, Tennessee, Kansas and South Carolina were primary sponsors of voter ID bills and relied in part on the flow of beer and wine money for their campaigns. In Wisconsin, 28 of the 48 legislators who introduced voter ID in 2011 are ALEC members, including one who was on the elections task force and received support from the beer industry.

The amounts of cash are modest in comparison to the millions already being spent on the presidential campaign, but are significant in the context of state legislative races, for which candidates usually raise less than $100,000.

Parade of states

In South Carolina, the Justice Department struck down a law sponsored by Rep. James Harrison, a member of the ALEC Public Safety and Elections task force and a recipient of at least $4,000 from beer and wine wholesaler associations since 2007. Harrison was also one of 13 sponsors of a successful 2007 bill that set up education programs for underage consumers of alcohol.

In Texas, Gov. Rick Perry decried the Justice Department’s decision to block a voter ID law introduced by ALEC member and Republican Sen. Troy Fraser. ProPublicaidentified more than $160,000 donated to Fraser between 2007 and 2010 by ALEC member corporations including Time Warner, AT&T, Bank of America. In addition, since 2007 the state-based beer wholesaler association has given Fraser $14,000 in campaign cash.

Fraser had no comment on his role in the law and support from the wholesaler.

In the Texas House, the story was similar. Four of the five representatives who were primary sponsors of a companion to Fraser’s Senate bill are ALEC members who received a total of $13,000 in beer industry support since 2007. Two of them — Reps. Aaron Pena and Larry W. Taylor — sat on the ALEC task force that approved voter ID model legislation. Pena received more than $3,800 and Taylor $2,500 from the beer wholesalers.

Pena says he doesn’t remember when ALEC approved the law, and denied the think tank’s role in shaping the Texas voter requirements. “None of my knowledge of this law comes from ALEC,” he said. “There is no connection.” Rep. Taylor did not return calls.

In Tennessee, longtime Sen. Bill Ketron sponsored a successful voter ID bill in 2011. Since 2007, he has drawn at least $35,000 in donations from ALEC members that approved the model voter ID bill, including $4,000 from the state wine wholesalers’ association.

According to Ketron spokeswoman Darlene Schlicher, the senator introduced voter ID following a high-profile voter fraud case involving a Democratic state legislator. Sen. Ophelia Ford narrowly won a 2005 special election to fill a seat left open by her brother. When her opponent challenged the result, an investigation found ballots had been cast by nonresidents, felons, and in the names of deceased voters. The state Senate voided the election in 2006.

Any connections between the voter ID laws and the beer and wine industry, says Schlicher, are “right out of left field.” Ketron was also one of six sponsors of 2009 legislation heightening penalties for underage drinking.

ALEC member Rep. Lance Kinzer sponsored voter ID in Kansas and has received nominal contributions from the wine wholesalers association. Wisconsin’s embattled law passed with heavy sponsorship from ALEC members in 2011, including that of Rep. Dan Knodl, who has received $1,500 since 2007 from the beer wholesalers association.

Wisconsin has some of the most restrictive ID requirements in the nation, disallowing student IDs and veteran IDs, says Wisconsin ACLU spokeswoman Stacey Harbaugh, whose organization is one of several groups suing to overturn the law. A state judge struck down the strict voter ID requirements in March.

Even though Wisconsin would provide free IDs to those with improper state-issued ID, residents have to show their birth certificate to obtain one, and obtaining a birth certificiate can itself cost time and money. “The free IDs aren’t really free,” says Harbaugh.

Virginia Republican Sen. Stephen Martin, ALEC’s state chairman, introduced voter ID legislation this year. Martin received at least $45,000 from ALEC private sector members from 2006 through 2009, and more than $5,300 from the state’s beer and wine wholesaler associations between 2006 and 2011. Martin did not return calls for comment.

One of three co-sponsors of the Martin bill was ALEC member Frank Ruff. His $40,000 in campaign contributions from ALEC corporations since 2006 included more than $3,000 from beer and wine wholesalers. Republican Lt. Gov. Bill Bolling broke the party-line tie in the Virginia Senate, sending the bill to Gov. Bob McDonnell’s desk. On April 10, McDonnell sent it back, calling on legislators to expand the acceptable forms of identification.

Shifting sands

Links to ALEC are becoming a potential liability for corporations, due to a pressure campaign by Color of Change. The progressive online advocacy organization devoted to strengthening the political voice of people of color says voter ID laws constitute a “modern-day poll tax” aimed at voters from minority groups.

“The hurdles involved in getting proper ID for many people can be expensive,” said Color of Change’s Executive Director Rashad Robinson in an interview.

Coca-Cola dropped its membership five hours after Robinson’s group launched its pressure campaign against the company.

Groups affiliated with ALEC’s voter ID measure, including the beer and wine wholesaler associations, should be aware that they are going to be featured targets, said Robinson.

ALEC Executive Director Ron Scheberle released a statement April 11 responding to the “intimidation campaign” against the group. “We are not and will not be defined by ideological special interests,” he said, “who would like to eliminate discourse that leads to economic vitality, jobs and fiscal stability for the states.”

Color of Change is aiming its latest effort at ALEC members Johnson & Johnson, State Farm and AT&T, which sponsored last year’s ALEC conference to the tune of $50,000. Other progressive groups are targeting pharmaceutical giants Pfizer and GlaxoSmithKline.

Robinson claims ALEC has long provided corporations a behind-the-scenes vehicle for their legislative agendas.

“When corporations are giving money to a group like ALEC, they shouldn’t get a free pass on ALEC’s policies,” said Robinson.

A delivery man stacks cases of Guinness and Heineken beer in New York.Mark Lennihan/AP

NY City Bar White Collar Crime Institute

The National Law Review is pleased to bring you information about the inaugural White Collar Crime Institute, on Monday, May 14, 2012 from 9 a.m. to 5 p.m. in New York City, NY.

This excellent review of developments in criminal and regulatory enforcement has been organized by our White Collar Criminal Law Committee, chaired John F. Savarese of Wachtell Lipton Rosen & Katz. Our program will feature keynote addresses by Preet Bharara, United States Attorney for the Southern District of New York, and Eric Schneiderman, Attorney General of the State of New York. The panels on key legal and strategic issues will include senior government officials, federal judges, academics, general counsel of leading New York based corporations and financial institutions, and top practitioners in the field. We have crafted the program to maximize their value for white collar practitioners and corporate counsel.

Plenary sessions will focus on:

Providing perspectives of top general counsel concerning the challenges they confront in this new era of expanded corporate prosecutions
Discussions of the increasing importance of media coverage in these cases and its impact on prosecutorial decision-making.

Break-out sessions will address:

Techniques for winning trials
Ethical issues presented by white-collar corporate investigations
Trends in white-collar sentencing, and
The special challenges of handling cross-border investigations.

Organized Labor’s Big Day: Are You Ready?

The National Law Review recently published an article by R. Scott Summers of Dinsmore & Shohl LLP regarding Changes that Affect Private Sector Employers:

On April 30, 2012, just a few short weeks away, two critical changes that will affect just about every private sector employer are slated to go into effect. Whether your organization has a union, or is union-free, these changes could have important implications for your workplace policies and will affect the way you handle issues during union organizing campaigns.

As of April 30, 2012, most private sector employers¹ – union and non-union – will be required to post a notice entitled “Employee Rights Under the National Labor Relations Act (NLRA).” The original effective date for posting this notice was January 31, 2012, but that date was pushed back until this spring. Among other things, the notice informs employees that they have the right to:

organize a union
discuss wages, benefits and other terms and conditions of employment with co-workers
strike and picket
choose not to participate in such activities.

The notice also lists examples of unlawful employer conduct and provides information about how to file unfair labor charges against an employer.

None of the various legal challenges to this controversial National Labor Relations Board (NLRB) posting rule have yet been effective. Earlier this month a U.S. District Court Judge upheld the NLRB’s rule requiring the posting. The Judge noted among other things, that the employers had not established that they would suffer irreparable harm if the posting requirement were allowed to take effect. This was particularly the case, according to the judge, in light of her prior order invalidating the portion of the NLRB’s rule that made the mere failure to post the notice an unfair labor practice. The Judge also noted that the public interest also favored denying the employers’ requested injunction because the notice was intended to increase employees’ awareness of their rights, which the judge observed was “undoubtedly in the public interest.”There is another legal challenge to the posting rule pending in a federal District Court in South Carolina, but no decision has been issued in that case and there is no reason to expect one will be issued before April 30.

The poster is available on the NLRB’s web site at www.nlrb.gov. Also, various businesses which offer reproductions of government-required employment postings have already developed products that incorporate the new NLRB posting.

In addition to the requirement of posting a notice of employee rights under the NLRA, the NLRB has recently confirmed its plan to launch a website designed to inform nonunion employees of their rights under the NLRA. The NLRB’s focus in launching the website is to reach and educate nonunion employees about their right to engage in protected, concerted activity under the NLRA. As a supplement to the website, the NLRB plans to distribute educational brochures containing examples of issues that have arisen in past and current cases before the NLRB. The brochures, which will be offered in English and Spanish, will be distributed through advocacy groups and other federal agencies, such as the Department of Labor.

Obviously these two initiatives taken in tandem may serve to push non-union workforces to consider unionization. Additionally, the increased awareness of the right to bring a complaint against an employer regardless of one’s union membership will certainly result is an increase in the number of complaints filed with the NLRB.

The other big change, also taking effect on April 30, 2012, is a new rule that will revamp aspects of the union election process. What will this mean for your business?

elections will proceed quicker than ever before
you will have fewer opportunities to raise challenges throughout the election process

These rules illustrate the importance of engaging in union prevention efforts long before organizing begins.

The rule, popularly referred to as the “quickie elections” rule, will change the process for contesting union petitions and limit employers’ opportunities to challenge certain aspects of the election process before a union election. The NLRB’s goal is to speed up the election process by mandating that certain election issues be dealt with after the union election. (See our Jan. 4, 2012 insightNLRB’s New “Ambush Elections” Rule).

Eliminating pre-election appeals, limiting decisions on critical issues until after the election, and speeding up the election process, could substantially reduce the amount of time an employer has to communicate with its employees before an election. In fact, the election “campaign period” could be reduced to just a few weeks. Under the current rules, elections are usually scheduled at least a month after a union petition is filed.

A recent study conducted by the Heritage Group’s labor policy expert James Sherk estimated that the new election rules will dramatically increase the rate of unionization. Sherk cites a Bloomberg Government analysis to observe that a majority of workplace union elections are decided by five or fewer votes. What’s more, “cutting the time between a request for an election and the ballot increases the chances union supporters will prevail,” according to the study. Unions win 87 percent of elections held 11 to 15 days after a request, a rate that falls to 58 percent when the vote takes place after 36 to 40 days, according to the researchers.

The 11 to 15 day timeframe is very close to what the new NLRB rule is expected to achieve. The ambush election rule will trim the time between an election request and the election itself to 10 days or so, a significant drop from the current average of 31 days.

“If a broader set of elections were to occur more quickly,” wrote Bloomberg analysts Jason Arvelo and Ian Hathaway, “the likely outcome would be more organizing drives, a higher success rate for unions and ultimately more union membership.”

Practical Impact for Employers
In the meantime, what is the practical impact of these new rules on employers? To be sure, the new rules will result in employees being more aware of the NLRB and how to file unfair labor practice charges. They will also result in quicker elections in cases with contested unit and eligibility issues. Quicker elections certainly mean less time to communicate with employees during the election period.

Unions often plan organizing drives before they actually request a workplace election, while employers, who may not be aware of the effort, are forced to make their case only during the period between an election request and the actual election. Hence, shortening that period of time is more prohibitive to an employer’s ability to make the case against unionization than a union’s ability to lobby for it. Employees will hear the other side of the story only from management. Employers, not union organizers, will explain that unions often do not achieve their promised wage increases, but they always take up to 2 percent of workers’ wages in dues. Employers will also point out patterns of union corruption and clauses in union constitutions that levy stiff fines against workers who stray from union rules. Employers are free to tell workers what the union organizers do not.

Savvy employers should have strong employee relations policies and programs in place long before a petition. Such programs should establish open communication channels, provide for employee recognition, and implement competitive wages and benefits among other things. Implementing this type of program will not only help avoid a unionization drive in the first instance, but also will help build employee trust and establish efficient lines of communication that could be vital during a shortened pre-election period.

Employers should also consider training managers about permissible and prohibited conduct under the NLRA and conducting their own education programs, advising employees of their rights under the NLRA, and reminding employees of internal complaint procedures available to them.

Conclusion
2012 is already shaping up to be another eventful year at the NLRB. In coming insights we will further comment on the areas discussed here, as well as several other noteworthy trends. These include, among other things, the Board’s continual focus on social media cases and changes to their General Counsel’s willingness to defer to the grievance and arbitration process in some cases. Finally, Chairman Pearce’s stated desire for the Board to become known as “the resource for people with workplace concerns that may have nothing to do with union activities” promises a continuation of the Board’s focus on protected concerted activity cases in the non-union context. As always, we will continue to monitor and analyze these changes and their implications for employers.
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(1) Excluded from coverage under the National Labor Relations Act are public-sector employees, agricultural and domestic workers, independent contractors, workers employed by a parent or spouse, employees of air and rail carriers covered by the Railway Labor Act, and supervisors.

California Women Lawyers 2012 Annual Conference

The National Law Review is pleased to bring you information about the upcoming California Women Lawyers 2012 Annual Conference:

CWL’s 2012 Annual Conference

“Practicing Law in the 21st Century: Women Lawyers in Power Positions”,