The Capital Commitment

Proskauer on Private Fund Litigation

SEC Proposes ESG Reporting and Disclosure Requirements for Private Fund Advisers

On May 25, the Securities and Exchange Commission issued proposed rules under the Investment Advisers Act of 1940 for advisers to private funds that consider environmental, social or governance factors (“ESG”) as part of one or more significant investment strategies. The proposed rules would require advisers employing ESG strategies to report additional information about those strategies to the SEC and provide additional, more detailed disclosure to clients.

For details on who these new rules would apply to and how, read the full client alert here.

Portfolio Company Risk: Plaintiffs Set Sights on Sponsors and Board Directors

As our other Top Ten posts have demonstrated, there is no shortage of risks for private fund sponsors to navigate in today’s economic and regulatory environment. Nevertheless, they need to prioritize the risk that hits closest to home – lawsuits by private litigants seeking to pull sponsors, their funds, and their board director designees into litigation. These suits most frequently arise out of portfolio companies and most notably sale, business combination, or other liquidity or change of control events at a fund’s portfolio company. We have seen a considerable uptick in these types of lawsuits over the last several years, and we expect the trend to continue – and likely accelerate.      Continue Reading

SEC Reopens Comment Period for Proposed Private Fund Adviser Rules

On May 9th, the U.S. Securities and Exchange Commission (“SEC”) announced that it will reopen the public comment period on its proposed rules relating to private fund advisers. The comment period will now remain open until 30 days after the publication of this announcement in the Federal Register.

For more details on this timely announcement, please read the full article here.

SEC Risk Alert Highlights Renewed Focus on Insider Trading and MNPI Policies and Procedures for Fund Managers

Last month, we predicted that a renewed focus by the SEC on insider trading, MNPI and related internal controls would be one of the Top Ten Regulatory and Litigation Risks for Private Funds in 2022. Last week, the SEC’s Division of Examinations (“EXAMS”) issued a timely risk alert relating to Investment Adviser Material Non-Public Information (MNPI) Compliance Issues.

The SEC’s EXAMS risk alert specifically highlighted a handful of common deficiencies noted under Section 204A of the Advisers Act and Rule 204A-1 under the Advisers Act (the “Code of Ethics Rule”).

Continue Reading

SEC to Hire More Staff in Crypto Assets and Cyber Unit and Ratchet Up Scrutiny of Industry

The SEC is expanding its team policing the crypto space by adding enforcement staff to its Crypto Assets and Cyber Unit.  We previously noted that regulatory focus on new technologies in the decentralized finance space and further developments on the application of securities laws to digital assets were two of our top ten regulatory developments for asset managers this year.  This post highlights what these developments may mean for fund managers in this space.

Read the full post on our Blockchain and the Law blog.

The Bottom Line of the SEC Proposed Private Fund Rules

On February 9, 2022, the U.S. Securities and Exchange Commission (the “SEC”) proposed new rules and amendments to existing rules under the U.S. Investment Advisers Act of 1940, as amended, that would have notable practical implications for private funds advisers, in many cases regardless of the adviser’s registration status. At a high level, the proposed rules include significant requirements and restrictions for private fund advisers pertaining to, among other things: quarterly statements to investors, adviser-led secondaries transactions and prohibitions on certain adviser practices and activities. Recently, Proskauer hosted a two-part series on the Bottom Line exploring the issues raised by these proposals.

To supplement this series, we have presented a collection of questions and answers further exploring some of the issues.

Download the Q&A here.

Conflicts of Interest: How High Will the Bar be Raised?

The SEC last month proposed rules under the Advisers Act indicating a dramatic shift in how the SEC intends to reduce conflicts of interest involving private fund managers and their investors. As we previously noted in the context of increased disclosure obligations, the SEC’s recent approach previews a sea change redefining the relationship between private fund managers and their investors. For decades, the SEC has sought to address potential conflicts through a combination of disclosure and informed consent, in light of the sophisticated nature of private fund limited partners. However, the SEC’s proposal now pivots from that approach, concluding that certain fund manager practices are inherently conflicted and therefore in some cases necessitate that the fund manager undertake specific actions, or in other cases must be flatly prohibited. As the SEC put it in their Proposing Release, “We have observed certain industry practices over the past decade that have persisted despite our enforcement actions and that disclosure alone will not adequately address.” Continue Reading

SEC Proposes Extensive New Rules Applicable to SPACs and de-SPAC Transactions

We previously noted that SEC Chair Gary Gensler suggested the SEC would adopt new rules governing SPACs because, in his view, SPACs are very similar to initial public offerings but lack protections available to traditional IPO investors.  And now, the SEC has taken concrete steps to treat “like cases alike” by announcing proposed rules and amendments governing SPACs explicitly designed to treat SPACs more like IPOs.  Our corporate colleagues have created a helpful summary of the proposed rules and amendments.

Please continue to follow The Capital Commitment for further updates on SPACs and developments in the other Top Ten Regulatory Risks for Private Funds in 2022.

SEC Division of Examinations Announces 2022 Examination Priorities

On March 30, 2022, the Division of Examinations of the U.S. Securities and Exchange Commission (the “SEC”) announced its examination priorities for fiscal year 2022. The annual publication of the Division’s examination priorities is intended to align with the Division’s four pillars of promoting and improving compliance, preventing fraud, monitoring risk, and informing policy, and provide investors and SEC-registered investment advisers transparency into those areas it believes bring heightened risks to investors, registrants, and the markets. For a full briefing on this year’s report, please read the full article by clicking below.

Read the full client alert here.

The Trend of Increasing Disclosure Obligations for Private Funds Continues in 2022

Last month, the SEC proposed new rules under the Advisers Act that, if implemented, would be the most significant enhancement of disclosure obligations for private fund managers since the Dodd-Frank Act.  Citing investor protection and transparency concerns for limited partners as investors, these proposals signal the Commission’s intent to add additional tools to the fund manager enforcement and examination toolbox. Continue Reading

LexBlog

This website uses third party cookies, over which we have no control. To deactivate the use of third party advertising cookies, you should alter the settings in your browser.

OK