Securities Law Quesiton (Practice Area)

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PLATONiC
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Securities Law Quesiton (Practice Area)

Postby PLATONiC » Fri May 07, 2010 12:17 am

Hey guys,

I'm considering securities law as an option. I'm a little curious about the practice:

1. How in-depth is the practice? I know this is vague, so let me qualify this question a little more: There are very complex tax implications for hedge funds; does the securities lawyer take care of the tax-aspects of the transactions? Or does a securities lawyer simply pass this part of the transaction to a tax-lawyer? So, in other words, is a securities lawyer able to take care of all aspects of a securities transaction, or is it the case that a team of lawyers have to work together in order to complete a project?

2. I'm hoping that I'll be able to network my way through finance if I were to pursue a career in securities law. Not that I'm interested in working in the actual field, but I'm hoping that I can get in contacts with a lot of fund managers who would be willing to include my savings into their funds. Is it very unlikely for a lawyer to establish this type of relationship with their clients?

3. Is NY the only place to go when it comes to finding a lot of securities law work? How does Chicago and LA compare to NY?

Thanks guys!

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Matthies
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Re: Securities Law Quesiton (Practice Area)

Postby Matthies » Sat May 08, 2010 7:19 pm

PLATONiC wrote:Hey guys,

I'm considering securities law as an option. I'm a little curious about the practice:

1. How in-depth is the practice? I know this is vague, so let me qualify this question a little more: There are very complex tax implications for hedge funds; does the securities lawyer take care of the tax-aspects of the transactions? Or does a securities lawyer simply pass this part of the transaction to a tax-lawyer? So, in other words, is a securities lawyer able to take care of all aspects of a securities transaction, or is it the case that a team of lawyers have to work together in order to complete a project?

2. I'm hoping that I'll be able to network my way through finance if I were to pursue a career in securities law. Not that I'm interested in working in the actual field, but I'm hoping that I can get in contacts with a lot of fund managers who would be willing to include my savings into their funds. Is it very unlikely for a lawyer to establish this type of relationship with their clients?
3. Is NY the only place to go when it comes to finding a lot of securities law work? How does Chicago and LA compare to NY?

Thanks guys!


First off I know nothing about securities law, so can't offer any advice and 1 or 3.

But I just spent all day Friday in a "how not to get disbarred class" run by my states office of attorney regulation and one of the things discussed was your hypo number 2. The short answer is it can be done with the proper disclosures, the long answer is it does not look good if you get grieved. Very basically if you get into a fund that you would not have normal be able to get into because your the funds lawyer it leads to a presumption that there might be a conflict of interest here. Will you give investors the legally correct answer if it would mean the fund your personally representing would lose you money (think Enron lawyers here). Not so much of a problem if your just an investor, but when you get into the situation where your an investor AND the lead council for the fund, well as they say it don't look to good.

Danteshek
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Re: Securities Law Quesiton (Practice Area)

Postby Danteshek » Sat May 08, 2010 7:39 pm

Do you have a finance knowledge base (i.e CFA exams etc)? Have you worked in finance? If not, how are you planning to acquire that knowledge? If you're not a complete noob and get good grades, you might have a shot at the SEC summer honors internship. That would be a good place to start, assuming you're interested in public service.

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Re: Securities Law Quesiton (Practice Area)

Postby PLATONiC » Sun May 09, 2010 2:16 am

I have no finance background - academically. I was told that I don't need any prior training in finance for digging into the securities law field. I'm more so concerned with getting the contacts to get my funds in the future.

Danteshek
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Re: Securities Law Quesiton (Practice Area)

Postby Danteshek » Sun May 09, 2010 2:51 am

I have no idea what you're talking about. Get your funds??? Is this how you think you're going to generate business??? By investing your trust fund with a lot of different fund managers???

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Re: Securities Law Quesiton (Practice Area)

Postby PLATONiC » Sun May 09, 2010 11:03 pm

Danteshek wrote:I have no idea what you're talking about. Get your funds??? Is this how you think you're going to generate business??? By investing your trust fund with a lot of different fund managers???


That's ridiculous... haha. What I meant was that I maintain relationships with clients who happen to be fund managers (i.e. hedge funds, mutual funds, etc.). Certain funds are extremely exclusive, and it is very difficult to get into them (with my own money, not the money that I have in the trust account on behalf of my clients). If I have good relationships with my clients, then they'd either be able to let me be a part of the investment schemes that they're setting up or connect me with their peers who happen to be jump-starting a hedge fund and what not.

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Re: Securities Law Quesiton (Practice Area)

Postby Anonymous User » Sun May 09, 2010 11:14 pm

PLATONiC wrote:
Danteshek wrote:I have no idea what you're talking about. Get your funds??? Is this how you think you're going to generate business??? By investing your trust fund with a lot of different fund managers???


That's ridiculous... haha. What I meant was that I maintain relationships with clients who happen to be fund managers (i.e. hedge funds, mutual funds, etc.). Certain funds are extremely exclusive, and it is very difficult to get into them (with my own money, not the money that I have in the trust account on behalf of my clients). If I have good relationships with my clients, then they'd either be able to let me be a part of the investment schemes that they're setting up or connect me with their peers who happen to be jump-starting a hedge fund and what not.


Sure that's possible. But be advised that to qualify for many funds (due to securities regulations) you need to be a "sophisticated investor" and/or contribute a minimum dollar figure to the fund (even for the so-called "friends and family" rounds), which can range from 20k-100k. Hedge Funds are especially restrictive given that each fund is capped at 100(?) investors to side-step regulation, so they only want heavy money coming in.

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Re: Securities Law Quesiton (Practice Area)

Postby PLATONiC » Sun May 09, 2010 11:19 pm

Anonymous User wrote:
PLATONiC wrote:
Danteshek wrote:I have no idea what you're talking about. Get your funds??? Is this how you think you're going to generate business??? By investing your trust fund with a lot of different fund managers???


That's ridiculous... haha. What I meant was that I maintain relationships with clients who happen to be fund managers (i.e. hedge funds, mutual funds, etc.). Certain funds are extremely exclusive, and it is very difficult to get into them (with my own money, not the money that I have in the trust account on behalf of my clients). If I have good relationships with my clients, then they'd either be able to let me be a part of the investment schemes that they're setting up or connect me with their peers who happen to be jump-starting a hedge fund and what not.


Sure that's possible. But be advised that to qualify for many funds (due to securities regulations) you need to be a "sophisticated investor" and/or contribute a minimum dollar figure to the fund (even for the so-called "friends and family" rounds), which can range from 20k-100k. Hedge Funds are especially restrictive given that each fund is capped at 100(?) investors to side-step regulation, so they only want heavy money coming in.


:D +1

The thing is, I doubt that I'd be able to establish client-relationships at a sophisticated level unless I achieve senior associate status if not partnership. The "accredited investor" requirement for hedge funds is a net worth of 1M or annual income of $200,000 for the past two years. I'm assuming that I'd be able to obtain this type of savings by the time I'm a senior associate/partner since my fiance will also be having a relatively large income.

What I'm most concerned about is the conflict of interest cases... anybody else have additional insight on this matter? Like, what constitutes conflict of interest in this situation? If I'm advising a client on fund X, would it be a conflict of interest for me to use my client to invest in fund Y (which he also happens to manage)? I know that someone could arguably say that the two funds could be related, but then again they could also be exclusive.

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Re: Securities Law Quesiton (Practice Area)

Postby sullidop » Sun May 09, 2010 11:23 pm

PLATONiC wrote:
Anonymous User wrote:
PLATONiC wrote:
Danteshek wrote:I have no idea what you're talking about. Get your funds??? Is this how you think you're going to generate business??? By investing your trust fund with a lot of different fund managers???


That's ridiculous... haha. What I meant was that I maintain relationships with clients who happen to be fund managers (i.e. hedge funds, mutual funds, etc.). Certain funds are extremely exclusive, and it is very difficult to get into them (with my own money, not the money that I have in the trust account on behalf of my clients). If I have good relationships with my clients, then they'd either be able to let me be a part of the investment schemes that they're setting up or connect me with their peers who happen to be jump-starting a hedge fund and what not.


Sure that's possible. But be advised that to qualify for many funds (due to securities regulations) you need to be a "sophisticated investor" and/or contribute a minimum dollar figure to the fund (even for the so-called "friends and family" rounds), which can range from 20k-100k. Hedge Funds are especially restrictive given that each fund is capped at 100(?) investors to side-step regulation, so they only want heavy money coming in.


:D +1

The thing is, I doubt that I'd be able to establish client-relationships at a sophisticated level unless I achieve senior associate status if not partnership. The "accredited investor" requirement for hedge funds is a net worth of 1M or annual income of $200,000 for the past two years. I'm assuming that I'd be able to obtain this type of savings by the time I'm a senior associate/partner since my fiance will also be having a relatively large income.

What I'm most concerned about is the conflict of interest cases... anybody else have additional insight on this matter? Like, what constitutes conflict of interest in this situation? If I'm advising a client on fund X, would it be a conflict of interest for me to use my client to invest in fund Y (which he also happens to manage)? I know that someone could arguably say that the two funds could be related, but then again they could also be exclusive.


Depends on the state that you're in. Under the model rules of professional conduct you'd probably have to disclose your investment to clients before representation begins.
http://www.abanet.org/cpr/mrpc/rule_1_7.html

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PLATONiC
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Re: Securities Law Quesiton (Practice Area)

Postby PLATONiC » Sun May 09, 2010 11:27 pm

sullidop wrote:Depends on the state that you're in. Under the model rules of professional conduct you'd probably have to disclose your investment to clients before representation begins.
http://www.abanet.org/cpr/mrpc/rule_1_7.html


Oh hamburgers :(

So it's either I risk losing clients/legal work over being invested in a potentially awesome fund.

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Re: Securities Law Quesiton (Practice Area)

Postby Danteshek » Mon May 10, 2010 12:31 am

Actively managed funds are for suckers. The smart money is in index funds and ETFs. That is probably the most valuable thing I learned after four years in the industry and two CFA exams.

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Re: Securities Law Quesiton (Practice Area)

Postby PLATONiC » Mon May 10, 2010 1:09 am

Danteshek wrote:Actively managed funds are for suckers. The smart money is in index funds and ETFs. That is probably the most valuable thing I learned after four years in the industry and two CFA exams.


Actively managed funds can bring in awesome yields too. I wouldn't really invest into these unless I had a reputable manager, though. This is why I'm curious as to how much client-relationships can contribute to obtaining the right fund manager. ETFs are cool too, though:D

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Re: Securities Law Quesiton (Practice Area)

Postby Danteshek » Mon May 10, 2010 1:17 am

The sooner you realize that you're not good at picking managers, the better. Bernie Madoff was a very "reputable" manager. I think all HF managers are basically crooks.

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Re: Securities Law Quesiton (Practice Area)

Postby Kochel » Mon May 10, 2010 8:47 am

I happen to be a securities law practitioner, mostly in the investment area, as opposed to the broker-dealer area.

About hedge funds: Most are now set up as so-called 3(c)(7) funds (referring to the Investment Company Act). This means that it's not enough to be an "accredited investor;" one needs to be a "qualified purchaser." The requirements for a QP are much higher: for an individual, $5 million in existing investments. However, some older hedge funds are 3(c)(1) funds, for which the lower "accredited investor" standard applies, but those funds are capped at a maximum of 100 investors, so the required investment amounts are usually high. Moral of the story: it will take more than a Biglaw associate's salary to get into most hedge funds.

Securities lawyers working in the hedge fund area don't typically get involved in individual transactions that the fund enters into. (In-house lawyers working at the hedge fund, though, may work on certain transactions, such as derivatives.) They do, however, draft the organizational documents for the fund, which govern how gains, losses and fees are allocated, as well as disclosure documents. Some law firms that do fund formation split the drafting between the corporate and tax departments, with the tax lawyers responsible for the "waterfall" allocation provisions and the corporate lawyers responsible for everything else. Other firms give all the drafting responsibility to the corporate lawyers and pull the tax lawyers in for reinforcement on particular issues. Fund formation requires close collaboration between lawyer and client, which is why so many Biglaw associates leave the firm to work at fund clients.

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Re: Securities Law Quesiton (Practice Area)

Postby PLATONiC » Mon May 10, 2010 10:08 pm

Kochel wrote:I happen to be a securities law practitioner, mostly in the investment area, as opposed to the broker-dealer area.

About hedge funds: Most are now set up as so-called 3(c)(7) funds (referring to the Investment Company Act). This means that it's not enough to be an "accredited investor;" one needs to be a "qualified purchaser." The requirements for a QP are much higher: for an individual, $5 million in existing investments. However, some older hedge funds are 3(c)(1) funds, for which the lower "accredited investor" standard applies, but those funds are capped at a maximum of 100 investors, so the required investment amounts are usually high. Moral of the story: it will take more than a Biglaw associate's salary to get into most hedge funds.

Securities lawyers working in the hedge fund area don't typically get involved in individual transactions that the fund enters into. (In-house lawyers working at the hedge fund, though, may work on certain transactions, such as derivatives.) They do, however, draft the organizational documents for the fund, which govern how gains, losses and fees are allocated, as well as disclosure documents. Some law firms that do fund formation split the drafting between the corporate and tax departments, with the tax lawyers responsible for the "waterfall" allocation provisions and the corporate lawyers responsible for everything else. Other firms give all the drafting responsibility to the corporate lawyers and pull the tax lawyers in for reinforcement on particular issues. Fund formation requires close collaboration between lawyer and client, which is why so many Biglaw associates leave the firm to work at fund clients.


Wow, I'm so glad to have a professional talking about the field on this post:D Thank you. I have some questions for you!

1. Did you have a finance background prior to your JD?

2. If close collaboration isn't as easy through a law firm, then exactly what type of work do securites law associates do for these clients?

3. Do you think working as a securities lawyer is a little more exciting than other areas of practice? I'm assuming that securities lawyers correspond with their clients a little more frequently.

4. How does familiarity with securities law help your general understanding of business?

Thanks a million!

Oh yeah, I suppose that it's virtually impossible to achieve the income levels required for hedge funds and what not, but maybe during partnership...? I dunno, but I'm pretty much exploring my options for the future as an anxious 0L.

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Re: Securities Law Quesiton (Practice Area)

Postby Kochel » Mon May 10, 2010 10:37 pm

PLATONiC wrote:
Kochel wrote:
Securities lawyers working in the hedge fund area don't typically get involved in individual transactions that the fund enters into. (In-house lawyers working at the hedge fund, though, may work on certain transactions, such as derivatives.) They do, however, draft the organizational documents for the fund, which govern how gains, losses and fees are allocated, as well as disclosure documents. Some law firms that do fund formation split the drafting between the corporate and tax departments, with the tax lawyers responsible for the "waterfall" allocation provisions and the corporate lawyers responsible for everything else. Other firms give all the drafting responsibility to the corporate lawyers and pull the tax lawyers in for reinforcement on particular issues. Fund formation requires close collaboration between lawyer and client, which is why so many Biglaw associates leave the firm to work at fund clients.


Wow, I'm so glad to have a professional talking about the field on this post:D Thank you. I have some questions for you!

1. Did you have a finance background prior to your JD?

2. If close collaboration isn't as easy through a law firm, then exactly what type of work do securites law associates do for these clients?

3. Do you think working as a securities lawyer is a little more exciting than other areas of practice? I'm assuming that securities lawyers correspond with their clients a little more frequently.

4. How does familiarity with securities law help your general understanding of business?

Thanks a million!

Oh yeah, I suppose that it's virtually impossible to achieve the income levels required for hedge funds and what not, but maybe during partnership...? I dunno, but I'm pretty much exploring my options for the future as an anxious 0L.


1. No finance background at all--in fact, my Corporate Finance class in law school probably gave me negative experience points. It never mattered at all to my law firm employer.

2. In my experience, outside lawyers are most involved in the fund formation process: drafting organizational documents, negotiating with key investors, setting up the main third-party arrangements (prime broker, administrator, offshore counsel, etc.), Investment Advisers Act compliance (where applicable), etc. Depending on the size of the client/fund and the complexity of its investment strategy, there may be some work from time to time on particular investments, such as derivatives agreements or fund-of-funds investments. But even if you're only involved at the fund formation stage, that will mean lots of client contact and opportunities to display your skills. These clients are whipsmart, sophisticated and unafraid to ask you to move mountains to meet their objectives.

3. This is only one tiny corner of securities law, however. The excitement of hedge fund practice lies mainly in the close collaboration with clients. There's not usually a ton of adversarial work involved, so it's a different kind of excitement than, say, working on a securities offering, which features long hours that are shared with several parties (underwriter, issuer, accountants) who are all chasing a pot of gold at the end of the rainbow. And lawyers who work on actual securities transactions--144A sales, derivatives trading, convertible deals--see genuine, live-action dealmaking on a daily basis.

But other areas of securities law are banal and safe. Mutual fund work is largely driven by annual routines (prospectus updates, board meetings, shareholder reports), and likewise isn't adversarial. Another example is general public company representation, where the bulk of the work consists of advising on quarterly financials filings and proxy statement prep (though occasionally there will be issues about disclosure of material events off-cycle, which can turn into genuine fire drills).

The hitch is that very few lawyers are able to practice in all of these areas. At Biglaw, especially, firms push junior associates to specialize. I specialized in mutual fund work initially, though I now do more general support for my firm's portfolio managers. But the lawyer who works for me does almost exclusively derivatives work--interesting, but somewhat narrow.

4. As a general matter the businesses you'll get to know the best are those of your clients. You'll likely develop a pretty good understanding of how a particular industry works (the hedge fund or mutual fund industries, for example). But securities work itself doesn't intrinsically relate to how executives manage companies or make key decisions. You'll get glimpses of these things, of course, but these will likely give you only a patchwork sense of how firms operate. The longer you practice, the more knowledgeable you'll be. But if what you're interested in is finding a bridge between law and business, that's best done by going in-house as a lawyer first, which will put you alongside the business executives on a continuous basis.

As you're looking at firms to interview at, research each firm's areas of expertise. Some firms will be good in the tech space, representing companies from startup to post-IPO. Others will have good bank clients, others will be good in asset management (mutual fund or hedge fund). Keep in mind that a firm's expertise may be based on the books of only one or two partners.

Good luck!

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Re: Securities Law Quesiton (Practice Area)

Postby PLATONiC » Mon May 10, 2010 11:41 pm

That was one seriously awesome post. I wish I could find articles on the net that offer as much insight as that one...

There are a bunch of reasons why I'm interested in a kind of middle-ground between law and business. One of the reasons, as previously stated, is that I might be able to get my hands on personal investment opportunities. But the other is that I'm very interested in starting a boutique law firm. Going in-house does seem to be a good way for me to become knowledgeable on a broader range of areas, but I'm also worried that my legal skills (research skills) will deteriorate after a few years of doing that. See http://www.infirmation.com/articles/one ... le_id=3715. Working as a highly specialized associate/partner might help me maintain the level of sophistication required of boutique law firms. I can definitely see the pros and cons to either option.

Would an MBA in Finance be an interesting choice for a securities lawyer? I know this is a very general question, so let me put this in context:

-As a boutique start-up/solo practitioner, I want to possess a firm understanding of the business environment that my clients are in. I've read that clients appreciate this to some degree, and is excellent in establishing rapport.
-I'm a little bit interested (but not too interested) in being active with my investments. But who knows, because I might just bail out with the Index funds instead.

I also have a feeling, though, that I'm over-thinking all of this, and since I hardly know anything about securities law, I might be trying to fill in whatever void that I might potentially have as a securities lawyer in the future with another degree "MBA," and to a lesser degree, an LLM. I don't mind being criticized for this, and if someone could confirm that this is the case, I'll try to find a way to get over myself and stop.

Oh yeah - does anyone know how much accounting background a securities lawyer needs? I've taken twelve credits in accounting (although I am a philosophy major) because I initially thought that I was going to be majoring in business. How often do securities lawyers need to read the language of accounting?

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Re: Securities Law Quesiton (Practice Area)

Postby Danteshek » Mon May 10, 2010 11:56 pm

Wow Kochel. Thank you for your contribution. I hope you stick around.

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Re: Securities Law Quesiton (Practice Area)

Postby Kochel » Tue May 11, 2010 12:10 am

I wouldn't say you're overthinking things. On the contrary, most people who choose Biglaw for corporate practice have zero idea what a corporate associate does before they actually sign on at 2L OCI. I'm a perfect example. Having gone to law school straight out of college, I couldn't even have told you what a mutual fund was when I graduated, let alone what a mutual fund lawyer does. And now mutual funds are my career. It's good to accumulate foundational knowledge before you start interviewing with law firms; at the very least, you'll make a more informed choice from among firms.

However, I do think it's important at this pre-law stage to keep an open mind about your ultimate career goals. Academic legal study, particularly when based on the case method, offers a distorted picture of corporate lawyering; actual practice is the necessary corrective. Plus, in order to start your own corporate boutique firm, you'll need to acquire experience somewhere else in order to offer corporate clients expertise worth paying for. Focus on that first step--i.e., identifying firms that will offer you the kind of work that will translate well into going in-house or starting your own shop. Also, I'd advise anyone thinking about corporate practice to resist the urge to specialize right away, even if you have specific interests. Choose a firm that gives junior associates a broad base of experience, from M&A to securities to licensing to startup work. Your ultimate exit options from the firm will be determined by how you play your cards in the first couple of years.

As for an MBA in Finance, I say don't go for it. Few clients hire lawyers to perform financial analytics except in specialized situations (forensic accounting, bankruptcy workouts). What lawyers need to know about accounting and finance will be learned on the job. Develop your basic legal skills first--that's what will determine your success as a lawyer, whatever the venue.

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Re: Securities Law Quesiton (Practice Area)

Postby PLATONiC » Wed May 12, 2010 12:49 am

Danteshek wrote:Wow Kochel. Thank you for your contribution. I hope you stick around.


Yes+1 I seriously hope she/he does.

Kochel
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Re: Securities Law Quesiton (Practice Area)

Postby Kochel » Wed May 12, 2010 11:30 am

He'll stick around.




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