We're going to move on to Regulation D, just for a couple of minutes with the time we have left prior to taking questions. There are - on slide 25. There really are two developments with respect to Regulation D. One of them, as I'm sure everyone has heard a lot about, is the ability to generally solicit under new rule 506C. I don't think we need to discuss that concept too much during this discussion just because from - and, Charles, you may disagree - I have not seen or heard of many hedge fund managers or private equity mangers taking advantage of this exception.

That's right. I agree.

Now that may change over time as things tend to do, but I think that we'll have to wait and see. If it does, then that's something that people will really dig into but, again, the concept there is that the long-standing prohibition against general solicitation has been somewhat lifted if you follow certain parameters.

The next big one to think about is the new bad actor rule, rule 506C. Under the bad actor rule, in sum, what the rule says is that if you have certain people who have taken part in certain bad acts, then you can no longer rely on that exemption from registration. This is important for advisors to think through because you need to determine who the bad actor rule applies to. In other words, who is a covered person under the rule, and you need to do some diligence into whether this covered person has been a part of a "bad act." There are a number of things that are enumerated, fraud and things like that.

With respect to covered person, when we thought through it, when the rule initially was announced, we thought about employees, certainly. You think about third party placement agents and directors of a payment fund, for example, anyone you think may be closely related to the actual altering. Our approach on that end was to take a more of a broad view as opposed to trying to narrow it down. For example, we're a small firm, so we took the view, just to be safe, that for purposes of our due diligence, that all employees were somehow related to the altering. It's not necessarily true, but it was the easy way and the safe way to look at it.

If you go to slide 27, then there are a short list - there's a short list of situations where there are bad acts that create a problem, criminal convictions, certain types of court orders, things of that nature. The thing to think about this, too, is that there is a retroactive look on these acts. When you are hiring someone as an employee or hiring a third party placement agent, you need to think about the bad actor rule and have that employee or that third party placement agent make certain rests and warranties in a backwards looking way. You need to also include language in the employment agreement and the placement agent agreement regarding covenants not to do things and to certainly let the manager know if some of these events have happened.

Then, the other thing to do is not only do your initial due diligence which we did in the form of a written questionnaire that each person had to sign and affirm that they had not taken part in any of these. Bad acts is also do an update, we do it annually, so in addition to making employees and the other covered persons covenant to tell you if something happens, you need to go out there and ask them again and have them re-certify from time to time.

Right, what a number of people do is part of the AVB1 annual updating process is to survey, via questionnaire, employees to make sure there aren't any disclosure events that have come up during the year that you may not know about where you have to make the disclosure in the AVB1 and then you include some of these bad actor issues.

I think it is important before we hire somebody to go through the issues, and go through, not only the bad actor, but the disclosure issues, and sort of parenthetically, for pay to play, that's a reach back as well. You may, for those people who are affected about it, who are your - going to be an employee - to find out whether they have made any political contributions in the prior, I think it's two years, which may provide some sort of disqualification.

I had a situation where the bad actor sense came up. It was a new advisor that was a spin off of a larger firm, and as far as doing the preparation for the AVB1, it turned out one of the people who was going to be an employee had been criminally convicted within the time period some years ago, though, but within the time period, for something that was kind of stupid but, in fact, the firm decided they did not want to check the box for the disqualification that, in fact, that the person had been criminally convicted, and they terminated the person so that when they actually registered, they didn't want to have to check the box which is a different thing, I think, to some degree for advisors versus broker dealers. Advisors don't want to - being a fiduciary - don't want to have anybody have any the AVB1 disqualifying events that have to be disclosed.

And one final point on that, I'm certain that most of you in your compliance manual have an affirmative obligation for employees to inform the CCO of any legal activity, lawsuits, and things like that. While we do not have or are not aware of any actions on this new rule from the SEC, it seems to me, if you look at the rule, that one does need to take part in an actual inquiry on this. What I mean by that is that rather than rely on your employees to come tell you, I think you need to go to the step of actually seeking out re-certifications and a trust by verify away. If you occasionally run updated background checks on your employees for criminal history or civil litigation history, that's another way to verify periodically.

Who do you run them on? You don't do it for everybody?

We do for all employees.

You do?

Now there are certain things if you're in New York you cannot run. There are new rules where you cannot run credit checks on people. That's new. They're the new rules in New York City. The point is all these things can fit together, but on this rule, I think that you have to take an affirmative step such as via written re-certification as opposed to just waiting on employees to tell you just in terms of a reasonable, factual inquiry [council 00:41:51]

We're coming towards the - I have a little bit more to say on the Reg. D, but I want to encourage people if they have questions to submit them because we want to be able to cover questions that people may have.

Referring to the slide on 29, I think the hot button issue really in this Regulation D is the bad actor disqualifications. For those who consent to actions with the Department of Justice and then they come this SEC who want to get the disqualification lifted which the commission has been doing, but I gather that there's been some more suspect of, "Why should we? If somebody has had a number of consents with the Department of Justice, why should we continue to give them a lifting of the disqualification for that?" Interestingly, a sister agency, the Department of Labor, which does pensions, likewise, gets asked to do a lifting of a certain disqualification they had, and there has been rumblings there of concern. Its if we have people who have had a number - at some of the large financial intuitions - have had a number of consent decrees with the Department of Justice, shouldn't they be disqualified? Shouldn't they be considered a bad actor?