For private equity funds, compliance presents a clear and present danger

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1 For private equity funds, compliance presents a clear and present danger Prepared by: Matthew Reynolds, National Director of Financial Services Consulting, McGladrey LLP , matt.reynolds@mcgladrey.com Jeffrey Blumberg, Partner, Fox, Swibel, Levin & Carroll, LLP David J. Morris, Partner, Fox, Swibel, Levin & Carroll, LLP May 2014 Private equity fund managers are at the epicenter of a regulatory revolution. Historically, private equity funds operated with relatively little attention from regulators. Now, the Securities and Exchange Commission (SEC) has created a new division within the Office of Compliance Inspections and Examinations specifically to focus on private equity and hedge funds and the SEC plans to increase examiners by 70 percent to fill this new division. It is easy for a fund manager to assume that, since its business practices have not changed in any substantive way, and since it has not been the subject of any unfavorable regulatory attention previously, the firm is in little danger. That attitude could put the firm out of business. We are already seeing almost daily reports of private fund managers fiduciary violations. The SEC is putting fee and valuation methodologies and expense reimbursement practices that have been common practice for years under intense scrutiny. More importantly, the SEC is also taking a much tougher line on private equity funds fundamental regulatory registration requirements. Regulatory registration requirements are not the only compliance issues facing private equity funds, but they are the most dangerous. Should the SEC find that your fund is operating as an unlicensed broker-dealer or investment adviser, penalties can include fines, disgorgement of revenue or a mandatory return of all capital to your investors. In short, operating as an unlicensed broker-dealer or investment adviser can put your firm out of business. Following is a broad overview of the registration regulations. Any private equity fund that is unsure whether it is properly registered should seek immediate guidance. An overview of registration requirements The operations of private equity funds (as well as many other types of pooled investment vehicles) can subject the fund to various registration requirements under both state and federal securities laws. Certain activities can require federal registration as a broker-dealer, and others can require federal registration as an investment

2 adviser. In addition, most states have their own securities laws (commonly called blue sky laws) that relate to broker-dealer or investment adviser registration requirements; however, an extensive review of state brokerdealer and investment adviser registration requirements is beyond the scope of this discussion. 1. Broker-dealer registration Under section 15(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), brokers and dealers are required to register with the Securities and Exchange Commission (the SEC). Section 3(a) of the Exchange Act broadly defines a broker as any person engaged in the business of effecting transactions in securities for the account of others. The SEC has identified a number of activities that may constitute effecting transactions in securities within the meaning of section 3(a): y Participating in certain facets of a securities transaction, including solicitation, negotiation or execution of the transaction y Receiving compensation that depends upon, or is it related to, the outcome or size of a securities transaction y Handling securities of funds of others in connection with a securities transaction y Otherwise engaging in the business of effecting or facilitating securities transactions (SEC Guide to Broker-Dealer Registration, available at bdguide.htm.) While engaging in any one of these activities may cause a person to fall within the definition of a broker-dealer, the SEC particularly scrutinizes the receipt of transaction-based compensation, calling it a hallmark of brokerdealer activity. (CommandTRADE, LP, SEC No-Action Letter (Dec. 28, 2005)). Application of the broker-dealer registration requirement to the private equity fund context Two recent events highlight the intersection between the federal broker-dealer registration requirement and the activities of private equity fund managers. First, in March 2013, the SEC took action against a private equity fund, its chief executive and its unregistered placement agent for violating section 15(a) of the Exchange Act. (In re the Matter of Ranieri Partners, LLC and Donald W. Phillips, SEC Release No (March 8, 2013)). Second, in April 2013, David Blass, chief counsel to the SEC s Division of Trading and Markets, spoke at length about broker-dealer registration issues that managers of private funds should consider. While Mr. Blass stated that his remarks, delivered in a speech to an American Bar Association committee, reflected his personal views only, many industry participants view the remarks as indicative of the SEC s position. Indeed, after the speech, Mr. Blass commented that his speech was intended to raise private fund manager awareness of broker-dealer registration issues. ( Private Fund Sales and Marketing: A Conversation with Senior Staff from the SEC Division of Trading and Markets, Practising Law Institute webinar, Sept. 26, 2013). The intersection between federal broker-dealer registration requirements and the activities of private equity fund managers occurs most frequently in two contexts. One concerns payments made in connection with the sale of private equity fund interests, and the other concerns the receipt by managers of transaction-based fees in connection with the acquisition or disposition of portfolio companies. We discuss each of these in turn. The sale of fund interests Mr. Blass indicated that marketing interests in a private fund, soliciting or negotiating securities transactions, and handling customer funds and securities are all activities that may require private fund management 2

3 personnel to be affiliated with a registered broker-dealer. In particular, Mr. Blass directed caution where a fund manager pays its internal personnel transaction-based compensation for sales of fund interests, or where a fund manager has internal personnel whose only or primary function is to sell interests in the fund. Caution is also required where a fund manager seeks to engage a third party to sell interests in the fund. In early 2013, the SEC took action against a private equity fund, its executive and its unregistered placement agent for violating section 15(a) of the Exchange Act. (In re Ranieri Partners (March 8, 2013)). Determining that the private equity fund paid transaction-based compensation to an unregistered placement agent, the SEC assessed fines against the fund, its executive and the placement agent. Private equity funds managers need to ensure that all third party placement agents are registered broker-dealers. The receipt and payment of transaction-based fees for portfolio company transactions Mr. Blass acknowledged that the SEC is aware that some private equity fund managers collect, in addition to advisory fees assessed on a regular basis during the term of the management engagement (commonly called management fees), transaction-based fees for the managers performance of so-called investment banking activities, such as structuring or negotiating the acquisition or disposition of a portfolio company, including through a leveraged-buyout or IPO. Mr. Blass commented that such practice appears to involve a fund manager effecting transactions in securities, which under section 15(a) of the Exchange Act may only be performed by a registered broker-dealer. Consistent with the SEC s historical approach that the receipt of transaction-based compensation is a hallmark of broker-dealer activity, Mr. Blass mentioned that registration would not be required where transaction-based fees offset the amount of regular management fees otherwise payable to the fund manager. On Jan. 31, 2014, the SEC issued a no-action letter permitting persons engaged in the business of effecting securities transactions solely in connection with the transfer of ownership and control of a privately held company to a buyer that will actively operate the company or the business conducted with the assets of the company (M&A Brokers) without registering as a broker-dealer. (M&A Brokers, SEC No-Action Letter (Jan. 31, 2014), the M&A Brokers Letter). The significance of the M&A Brokers Letter for managers of private equity funds centers around the payment by the fund managers of transaction-based compensation to third-parties that help source deals for the fund. While the potential registration obligation in that situation falls squarely on the third party sourcing the deals, the fund and its manager would likely be included in any SEC action in the same manner that the Ranieri fund was included in the action against the unlicensed placement agent. Under the M&A Brokers Letter, an M&A Broker may facilitate mergers, acquisitions, business sales and business combinations on behalf of buyers or sellers of privately-held companies in consideration for transaction-based compensation as long as the M&A Broker satisfies the following 10 conditions: y The M&A Broker may not have the ability to bind a party to a transaction. y The M&A Broker may not provide financing for a transaction, directly or indirectly, including through any affiliates. y The M&A Broker may not have custody, control or possession of or handle funds or securities issued or exchanged in condition with the transaction. y The transaction may not involve a public offering, and no party to the transaction may be a shell company other than a business combination-related shell company. y If the M&A Broker represents both the buyer and seller, it must provide clear written disclosure detailing the parties it represents and obtain written consent to the representation from both parties. 3

4 y The M&A Broker may only facilitate a transaction with a group of buyers if the M&A Broker does not assist in the formation of the group of buyers. y The M&A Broker may not facilitate a transaction that will result in the transfer of interests to a passive buyer. y Any securities received by the buyer or M&A Broker in the transaction must be a Rule 144(a)(3) (adopted under the Securities Act of 1933, as amended) restricted security. y Neither the M&A Broker nor any of its officers, directors or employees may be barred or suspended from association with a broker-dealer. y The buyer of the target company must be the person who will control and actively operate the company or business conducted with the assets of the business. It is important to note that while the SEC has taken the position that M&A Brokers are not required to register with the SEC as brokers, many states have regulatory regimes that would require some sort of registration for this type of activity occurring in the state. Broker-dealer registration considerations Application process Broker-dealers must be registered with the SEC and one or more states and become a member of an appropriate self-regulatory organization (SRO). For broker-dealers that are not members of a securities exchange as defined by the Exchange Act, the de facto SRO is the Financial Industry Regulatory Authority, Inc. (FINRA). The application process for membership with FINRA encompasses the registration with the SEC and state securities agencies nationwide. This process is referred to as the New Member Application or NMA process. The word application is a misnomer in this context. The New Member Application is actually the filing of numerous forms electronically on FINRA s WebCRD system. The documents include, but are not limited to: y Form BD FINRA form detailing the business, employees and history of the broker-dealer. y Forms U-4 and fingerprints detailed applications of individual registrants of a broker-dealer. This form describes the background, work history, licenses and (potentially) any client or regulatory infractions by the individual. Additionally, fingerprints for all registered individuals must be taken and filed with FINRA which are forwarded on to the Federal Bureau of Investigation for screening. y Applicant business plan with details on employees, expenses, client acquisition, business lines to be pursued and any modeling for pro-forma purposes. -- Pro-forma profit and loss statement -- Pro-forma net capital calculation (discussed below) y Designation of accountant every broker-dealer is required to have a financial audit completed within 60 days of its fiscal year end by a Public Company Accounting Oversight Board (PCAOB) approved auditor. The PCAOB is a private nonprofit corporation that was born from the Sarbanes-Oxley Act of y A complete set of written supervisory procedures (WSPs) addressing the business lines the applicant is contemplating and the applicable FINRA rules for those business lines. y Securities Investor Protection Corporation application and fees broker-dealers are required to be registered with SIPC. y SEC registration. The NMA process is known to be an arduous process that generally takes six to eight months to complete. Although FINRA is required to provide approval or denial of membership within 180 days of a completed application, there is tremendous leeway in what constitutes completed. Further, the time required for an 4

5 applicant to prepare all required documentation, business plans, WSPs and find appropriately licensed principals (discussed later) may take several months. To expedite the process, most applicants utilize third party service providers (consultants or attorneys) to file and chaperone the application through the process. This practice is so widely leveraged that FINRA has issued guidance and instructions on how it will work with these agents. Net capital If upon consideration the decision is made that registration as a broker-dealer is required, there are a number of factors that must be considered. The first is the amount of net capital the broker-dealer must maintain at all times as prescribed by SEC Rule 15c3-1, the Uniform Net Capital Rule. Net capital is defined as equity, qualified subordinated liabilities and credits, less nonallowable assets and haircuts (defined percentages of securities market value). Every broker-dealer is required to maintain a minimum net capital as defined by Rule 15c3-1, based on the activities undertaken by the broker-dealer. Net capital requirements can range, but generally are between $5,000 and $250,000. Private equity fund managers who adhere to certain business practices included in Rule 15c3-1(a)(2)(vi) are only required to maintain $5,000 in minimum net capital. Broker-dealers relying on this rule may not receive, hold or owe funds or securities to or from customers, carry customer accounts or engage in any activities defined by the SEC in Rule 15c3-1 as requiring additional net capital. For transactions that require a closing between a buyer and seller of securities, best practice dictates that transactions are performed in a third party qualified escrow account operated by either the buyer or seller, and the broker-dealer have no access to the funds or securities. Most private equity fund managers that elect to or are obligated to register as broker-dealers can arrange their operations such that the applicable required minimum net capital is $5,000. Licensing As discussed earlier, broker-dealers are required to be supervised by appropriately licensed and experienced supervisors and principals. NASD Rule 1021(e) requires that each applicant have a minimum of two principals, except in the case of sole proprietors. The total number of principals a firm would need to operate, and their specific licensing, is based on the structure of the broker-dealer, the products and services it provides and its clientele. For private equity fund managers that are required to register as a broker-dealer, there are generally three principals required to operate the business. First, the broker-dealer must have at least one general securities principal. This individual, who must pass the FINRA Series 24 licensing exam, will be responsible for all aspects of supervision of the firm s activities and implementation of its supervisory procedures. Typically, the president, or some other senior executive of the firm, this person will be held ultimately accountable by regulators for the success or failure of the supervisory platform and the firm s interactions with customers. Second, every broker-dealer must have a financial and operations principal. This individual, who must pass the FINRA Series 27 licensing exam, is responsible for preparation and maintenance of the broker-dealer s books and records. This includes the calculation and filing of the net capital calculation on a monthly or quarterly basis. Finally, all broker-dealers must designate a chief compliance officer (CCO). Although no securities license is currently required to be registered as a CCO, FINRA looks closely at the experience of each individual who fills this position. This individual is responsible for the oversight of the compliance program at each broker-dealer. In many situations, a single individual may fill more than one of these roles. 5

6 Ongoing compliance and supervision WSP The ongoing compliance and supervisory requirements for broker-dealers are extensive. As noted in the application process, every broker-dealer is required to maintain WSPs. These policies and procedures define the supervisory plan for all required aspects of the broker-dealer. This ranges from how may be used and supervised to how outside business activities or trading accounts are reviewed and approved to business continuity plan development and testing and client marketing reviews. WSPs must not only define how business is to be supervised, but by whom and how often. Any policy or process that is captured in the WSP must be followed as written or appropriately amended. Any WSP not followed, or disregarded, will result in a Failure to Supervise violation that may be as serious as any intentional malfeasance. Further, a Failure to Supervise violation may have direct censure and monetary consequences for the broker-dealer and the general securities principal and CCO. Reporting There are numerous filings with FINRA and the SEC annually as a broker-dealer. Financial reporting and regulatory compliance reports are highly scrutinized by the regulators. In addition to the annual financial audit discussed earlier, the Financial and Operational Combined Uniform Single (FOCUS) report is required to be filed for a $5,000 net cap broker-dealer quarterly. This report details, among other things, the periodic net capital calculation and financial health of a broker-dealer. Regulators monitor drastic moves, up or down, of excess net capital or revenue. Any contributions or withdrawals of capital affecting net capital will be reviewed and may require notification to, or pre-approval from FINRA and the SEC. Additionally, each broker-dealer is required to ensure that its Form BD is up to date and must report changes promptly in the information therein whenever the information becomes inaccurate or incomplete. Promptly, in this context, is typically within 30 days of the event that makes the information incomplete or inaccurate, if not sooner. Testing Testing of compliance and supervision programs is required annually to meet FINRA Rule 3130 and NASD Rule Additionally, independent testing of the anti-money laundering program is required to meet the AML rules proscribed by FINRA. These are not filed with the regulator, but will be reviewed during regulatory inspections of the broker-dealer. Testing can be performed as an annual event that replicates the process of an onsite mock regulatory exam, or may be structured as an ongoing process throughout the year using internal audit procedures and resources. 2. Investment adviser registration A second registration concern for managers of private equity funds is whether the management company has an obligation to register as an investment adviser with the SEC or one or more state securities regulators. As a general rule at both the federal and the state levels, a firm that engages in the business of and gets paid for advising others on the advisability of investing in, purchasing or selling securities is an investment adviser and will have to register as such. The manager of a private equity fund would certainly meet this definition, so there is a requirement for such managers to register as investment advisers unless they can identify an exemption from such registration. The initial analysis for the manager of a private equity fund would be whether there is a requirement to register as an investment adviser with the SEC. The primary rule at the federal level is that an investment adviser with $100 million or more in regulatory assets under management (AUM) is required to register with the SEC. 6

7 Exemptions from registration There are, however, two exemptions from SEC registration that a private equity manager may be able to claim. First, an investment adviser may be exempt from registration with the SEC if it (i) manages only private funds (i.e., its only clients are pooled investment vehicles and it has no direct relationships with any investment advisory clients other than pooled investment vehicles) and (ii) has less than $150 million in AUM in such private funds. A second exemption that may be available depends on the character of positions held in a private fund s portfolio. There is an exemption from registration as an investment adviser for managers of venture capital funds (as opposed to private equity funds). A venture capital fund, which is a defined term in SEC Rule 203(l)-1, is a private fund 1 that (i) represents that it pursues a venture capital strategy (which is not specifically defined in the SEC rules), (ii) has at least eighty percent (80 percent) of its investable capital (which includes uncalled capital commitments) invested in equity securities issued by qualifying portfolio companies that were acquired directly from the issuer (except for certain investments in short-term holdings) and (iii) does not leverage its portfolio beyond fifteen percent (15 percent) of its investable capital (there are a few additional criteria that are not germane to this discussion). A qualifying portfolio company generally means a company whose securities are not publicly reporting or listed on a securities exchange in the United States or in any foreign jurisdiction, that does not borrow in connection with such venture capital fund s investment and is not an investment company, a private fund or exempt from registration as an investment company pursuant to SEC Rule 3a-7. Assuming the manager of a private equity fund is not required to register with the SEC as an investment adviser, the firm must still consider whether it is required to register as an investment adviser with one or more state securities regulators. A complete survey of the state securities laws and regulations is beyond the scope of this article, but every state in the United States except for Wyoming has its own laws and regulations that apply to the registration and operations of investment advisers. The investment adviser statutes and regulations of any state in which a manager maintains a physical place of business that the manager holds out to the public as an office of the firm should be addressed to determine what registrations or filings are necessary. Federal law prohibits any state from requiring the registration of an investment adviser if the firm does not have a place of business in that state and has fewer than six clients who are residents of the state in the preceding 12 months. A significant question for this analysis is whether an investor in a fund managed by the firm is a client for these purposes. Federal law and regulation indicates that the fund is the client, and not the underlying investor, but some states take the position that the investors in a private fund managed by an investment adviser are clients of the investment adviser. You should discuss this with your outside counsel if your firm is registered with one or more state securities regulators rather than with the SEC. To that point, a firm that would not generally be eligible to register with the SEC because it has less than $100 million in AUM may elect to register with the SEC if it has at least $25 million in AUM and is not required to register in the state in which it maintains its principal place of business. A manager of a private equity fund may elect to register as an investment adviser despite being eligible for an exemption at both the state and federal level for marketing reasons (many institutional investors will invest only with firms that are registered as 1 A private fund is an issuer that would be an investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3), but for the exemption provided under either section 3(c)(1) or 3(c)(7) of that Act. 7

8 investment advisers) or to ensure that the laws and regulations of a particular state do not create registration obligations in a state where the manager has no physical operations but does have investors in its fund. RIA registration considerations Application process Although the application process for registration as an investment adviser with the SEC is significantly less complicated than the NMA process described above, it still requires significant preparation. To begin registration with the SEC, an investment adviser need only file Form ADV. This triggers a 45-day window in which the SEC is required to approve the application for registration or begin administrative proceedings to deny it. The real challenge for a firm registering as an investment adviser is not in filing the application, but in implementing a viable compliance culture and program. The Form ADV is divided into two parts. Part 1 captures factual information about the investment adviser and is updated and filed electronically through the Investment Adviser Registration Depository (IARD), a Webbased system operated by FINRA that is very similar to the WebCRD system. It details the adviser s business mix, describes the ownership and management of the adviser and provides information about sanctions or violations the adviser or its personnel may have committed. Part 2 of the Form ADV is a written disclosure document that is also known as the Brochure. It is required to be written in plain English, and provides potential clients of the investment adviser with information about conflicts of interest, fees, investment processes and business practices of the adviser. New applicants are required to file this form electronically along with the Part 1 via the IARD system at during the application process. Documentation The Brochure is a vital part of the adviser s business and documentation, not just part of the application process. Clients rely on this document to assess the adviser s business practices before retaining the adviser, or when material changes occur in the adviser s business. Rule under the Investment Advisers Act of 1940, as amended (the Advisers Act) requires the adviser to deliver: (i) the Brochure to prospective clients for review no later than when the client and the adviser enter into an advisory agreement, (ii) a current Brochure or summary of material changes annually to current clients and (iii) a Brochure supplement for each supervised person that provides advisory services to the client. The SEC has acknowledged that, based on the requirements of the Rule, a registered investment adviser is not required to deliver a Brochure to an investor in a pooled investment vehicle managed by that adviser; however, as a best practice and generally as an industry standard, most registered investment advisers that manage pooled investment vehicles do provide a copy of their Brochure to investors in those vehicles. Rule 206(4)-7 under the Advisers Act requires all registered investment advisers to adopt and implement written policies and procedures. These policies and procedures must be designed to prevent violations of the Advisers Act by the adviser and its supervised individuals. Every registered investment adviser is also required to adopt, maintain and enforce a Code of Ethics (Code) per Rule 204A-1. The Code must include the following at a minimum: y Standards of business conduct that delineate the adviser s fiduciary obligations y The requirement for the adviser s supervised individuals to comply with applicable securities laws 8

9 y The obligation that all supervised individuals report personal securities transactions and holdings to the adviser as required by Rule 204A-1 y The requirement that any supervised individual reports a violation of the Code to the adviser s chief compliance officer y A provision requiring the adviser to provide a copy of the Code (and all updates) to all supervised individuals, and a requirement that the supervised individuals receiving the Code confirm receipt in writing Licensing Unlike a broker-dealer, there are no principal exams that are separate from the individual licensing one must obtain to act as an adviser. To be an investment adviser representative (an IAR), an individual must have passed the Series 65 2 examination. Individuals with this license will be affiliated with an investment adviser, and will be considered supervised by the adviser s Code. An important issue to note is that, although the IAR registration process is a state-mandated process, an employee of a registered investment adviser that manages only pooled investment vehicles may not meet the federal definition of an IAR and may, therefore, not be required to register as such in any state. You should consult with your counsel to determine which, if any, of your advisory personnel are required to be registered as IARs. Rule 206(4)-7 requires that the adviser designate a chief compliance officer responsible for implementing and monitoring the firm s compliance policies and procedures and the Code. The designation is made to the SEC and the public via Schedule A of Form ADV. Ongoing compliance and supervision Code of Ethics Under the Advisers Act, an adviser s Code must impose ongoing reporting requirements related to personal trading for access persons of an adviser. Access persons are individuals who have access to nonpublic information related to the purchase or sale of client assets or portfolio holdings of a reportable fund or who is involved in investment recommendations to clients. The adviser s chief compliance officer must receive the following: y Holding reports: access persons must provide a report of all securities holdings within 10 days of becoming an access person, and then annually thereafter y Transaction reports: access persons are required to report all securities transactions within 30 days after the end of the quarter (this is usually accomplished by having an access person s broker provide duplicate statements and confirms to the adviser) y Pre-approval of certain types of investments: access persons must receive approval from the adviser prior to acquiring (directly or indirectly) securities that are the subject of an initial public offering or in a limited offering (including private equity) Reporting The Form ADV must be updated annually. The Form ADV Part 1 and 2 must be updated and filed with the SEC within 90 days after the adviser s fiscal year-end. This is completed via the IARD system. As noted above, the updated Brochure must also be sent directly to clients annually. 2 IARs may also maintain series 7 and 66 licenses in lieu of obtaining a series 65 license in most jurisdictions. In addition, many states allow waivers of the Series 65 license for IARs that hold certain industry designations. You should consult with your outside counsel as to which designations are applicable to which jurisdictions. 9

10 Testing The adequacy of the policies and procedures must be reviewed (tested) at least annually per Rule 206(4)-7. The testing must consider if the policies and procedures were established pursuant to, and meet the requirements of, Rule 206(4)-7, and the effectiveness of their implementation. The ongoing compliance and supervision topics represented in this article reflect only a few of the most relevant aspects of operating the compliance program of a registered broker-dealer or investment adviser. This document is not meant to be used as an inclusive list of all requirements related to compliance or regulatory requirements applicable to any particular business. This article should be used as an informational tool in helping to understand the registration requirements a private equity fund manager faces. Private equity fund managers should consult with an attorney to ascertain if they may be required to register and how they should implement a regulatory compliance program This publication represents the views of the author(s), and does not necessarily represent the views of McGladrey LLP. This publication does not constitute professional advice. This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey, the McGladrey logo, the McGladrey Classic logo, The power of being understood, Power comes from being understood, and Experience the power of being understood are registered trademarks of McGladrey LLP McGladrey LLP. All Rights Reserved.