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The Top Ten Regulatory and Litigation Risks for Private Funds in 2017

Top-10-2017_v2Private investment funds and advisers are likely to face new regulatory challenges and increased litigation risks in 2017, not only because of a change in the administration, but also because many advisers have not corrected and aligned past practices with current regulatory guidance.  In this post, we have highlighted ten areas that should be on the top of every private fund adviser’s list for 2017 – and how to assess and manage the associated risks. Continue Reading

SEC Staff Announces 2017 OCIE Examination Priorities

SECOn January 12, 2017, the staff of the Office of Compliance Inspections and Examinations (OCIE) of the Securities and Exchange Commission (SEC) released its annual announcement on examination priorities in the coming calendar year. The 2017 examination priorities are organized around three thematic areas: (i) examining matters of importance to retail investors; (ii) focusing on risks specific to elderly and retiring investors; and (iii) assessing market-wide risks. Continue Reading

Six Reasons Why a Wholesale Repeal of Dodd-Frank is Unlikely

In the days following the November elections, U.S. President-elect Donald J. Trump promised that his Financial Services Policy Implementation team would be working to “dismantle” the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). However, a more recent account in the Wall Street Journal reported Mr. Trump’s transition team as tempering his promise in favor of rescinding or scaling back the individual provisions Republicans find most objectionable.

In light of the current political and macro-economic environment, here are six reasons why a wholesale repeal of Dodd-Frank is unlikely to occur:

  • Congressional Resistance – A wholesale repeal of Dodd-Frank would have to be effectuated through congressional action and would likely face a democratic filibuster. This would require opponents of Dodd-Frank to muster a 60-vote block in the Senate in order to advance the proposal. Legislative horse-trading to achieve specific objectives that are key to the Republican majority may ultimately prove to be more strategically advantageous.
  • Public Perception – Actions of the new administration which could be perceived as advocating for easing the burden on the financial services industry may alienate the middle-class constituency who were significantly impacted by the great recession and who ultimately propelled Mr. Trump to the Presidency.
  • Balance of Cost – Following massive investments in infrastructure and processes, the industry may perceive the costs of undoing the compliance programs put in place subsequent to Dodd-Frank as outweighing the benefits to be derived from decreased regulation.
  • Accepted Expectations – Counterparties have come to accept the safeguards and reporting requirements put in place by Dodd-Frank as constituting baseline expectations in business transactions. A repeal of Dodd-Frank would leave industry participants to reconstruct by contract what may have been previously mandated under law.
  • International Developments – In the wake of the Brexit vote, international financial organizations may be evaluating the relocation of their operational centers to locations in the U.S. The possibility of significant financial regulatory overhauls and the accompanying specter of an unknown business environment may dissuade consideration of the U.S. by such organizations.
  • Absence of a Perceptible Problem – Dodd-Frank was passed on July 21, 2010 with the wake of the great recession providing momentum and popular support for its enactment. Conversely, there is no corresponding economic situation presently existing that critics can point to for its repeal. The DJIA is up approximately 90% since July 2010. The real estate market has remained strong and, even with the recent increase by the Fed, interest rates remain low, allowing consumers access to both homeownership and financing on attractive terms.

In addition to the issues identified above, the incoming Presidential administration and congressional delegation may face additional hurdles in advancing comprehensive legislative initiatives to pare back Dodd-Frank. As the post-election environment cools and the country marches towards inauguration day, the financial services industry can only hope that clarity on the direction of the U.S. regulatory environment begins to emerge.

Outgoing SEC Chair Reflects on the Agency’s Enforcement Program and Advocates for Increased Authority

SECOn November 18, 2016, outgoing SEC Chair Mary Jo White delivered a speech at New York University School of Law entitled “A New Model for SEC Enforcement: Producing Bold and Unrelenting Results.”  Chair White’s remarks covered a broad range of enforcement initiatives and outcomes from her tenure as SEC Chair.  This post summarizes the aspects of Chair White’s remarks most relevant to private fund sponsors.
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SEC Shake-Up: President-Elect Trump Expected to Make Key Appointments

In the wake of the election of Donald Trump as the 45th President of the United States, Mary Jo White has announced her intent to step down from her role as Chair of the Securities and Exchange Commission.  Chair White, the 31st and one of the longest-serving Chairs of the SEC, will be leaving her post at the end of the Obama administration in January.

The outcome of the election and Chair White’s announcemeSECnt are sure to kick off an avalanche of prognostication about her successor, the direction of the SEC, and the fate of some of the laws that govern the securities industry, most principally the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  There is already speculation that President-elect Trump will designate a Chair who is a proponent of smaller government and deregulation to steer the agency charged with overseeing the securities industry.

Beyond designating a Chair, however, President-elect Trump will be in a position to overhaul the makeup of the SEC during his administration.  Upon assuming office, President-elect Trump will be authorized to appoint three of the five SEC Commissioners, in addition to designating the next Chair – with a fourth Commissioner appointment as early as June of 2017.  This is particularly important in an agency that relies on Commissioner votes for each decision, order, rule or similar action.  However, despite his broad appointment powers, President-elect Trump will not be permitted to remove any of the remaining Commissioners, nor will he be permitted to “stack the deck” by appointing only Republicans to fill all of the open Commissioner seats.    Continue Reading

Whistleblower Alert – OCIE to Examine Registered Investment Advisers for Overbroad Confidentiality or Severance Agreements

SEC

The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently published a risk alert noting that the SEC exam staff intends to examine registrants’ compliance with the Dodd-Frank Act’s whistleblower provisions.  OCIE intends to examine registered advisers for compliance, in light of recent enforcement cases the SEC has filed based on violations of the Dodd-Frank whistleblower rules resulting from confidentiality or severance agreements.

Please see Proskauer’s client alert OCIE Staff to Examine Registered Advisers’ Policies and Agreements for Whistleblower Rule Compliance to read more about:

  • the type of documents that SEC examiners might request,
  • what the exam staff is looking for, and
  • what kinds of remedial actions are at stake.

For more information, please see our previous guidance:

OCIE By the Numbers and the Use of Big Data

SECOn October 17, 2016, Marc Wyatt, the Director of the SEC’s Office of Compliance, Inspection and Examinations, gave a keynote address to the National Society of Compliance Professionals titled: Inside the National Exam Program in 2016.  In addition to discussing his general perspective concerning the program, he provided some key statistics that help put OCIE’s exam program in context:

  • OCIE has examination responsibility for over 28,000 registrants, including more than 12,000 investment advisers, approximately 11,000 mutual funds and exchange-traded funds, and over 4,000 broker-dealers.
  • OCIE has a total staff of approximately 1000 individuals.
  • OCIE completed 2,400 total exams in FY 2016.
  • Typically, about 10% of OCIE exams are referred to Enforcement.
  • FINRA and the SEC have historically examined 50% of BDs each year.
  • OCIE has historically examined approximately 10% of registered investment advisers per year.
  • Over the past two years, over 2,000 new investment advisers have registered with the SEC.
  • OCIE has about 450 staff members focused on Investment Adviser/Investment Company (IA/IC) exams.
  • The Private Funds Unit within OCIE currently has four exam managers, and primarily targets the New York, Boston, Chicago and San Francisco areas, each region having a high concentration of registered investment advisers to private funds.
  • There are approximately 4500 private fund advisers registered with the SEC.
  • Jennifer Duggins, co-head of the Private Funds Unit, recently noted that this unit’s goal was to double the number of examiners assigned to the unit from its current staff of 12-14 to a target of 25-30 examiners.

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