Current Issues Relating to Silicon Valley Bank Closure

On Friday, March 10, 2023, Silicon Valley Bank (“SVB”) became the largest U.S. lender since the Great Financial Crisis to enter into receivership with the Federal Deposit Insurance Corporation. SVB was a major provider of depository services and liquidity to various investment funds, managers and their related entities through subscription or capital call facilities, net asset value facilities and management company, GP and co-invest lines. The SVB situation is continuing to evolve and we expect to see material developments in the coming days.

For more details on this current development, read the full client alert here.

Tags: banking crisis, Bankruptcy, California Department of Financial Protection and Innovation, debtor, depository services, FDIC, Federal Deposit Insurance Corporation, financial services, Hedge Funds, Investment Funds, private investment funds, short-term funding, Signature Bank, Silicon Valley Bank (“SVB”), SVB Financial Group, TECHNOLOGY, Venture Capital

SEC Examinations in 2023 to Focus on “Riskier Private Funds” and New Marketing Rule

By Robert E. Plaze, Robert Sutton and Mark S. Audet on February 15, 2023 Posted in Asset Management, Cryptocurrency, Examinations, Hedge Funds, Private Equity, Regulation, SEC, Securities Law

On February 7, 2023, the Division of Examinations of the U.S. Securities and Exchange Commission released its 2023 Examination Priorities (“Annual Priorities”). Released at the beginning of each calendar year, the priorities tend to repeat the previous year’s priorities, and consumers of these regulatory tea leaves need to search closely for clues as to what is new and meaningful. This year the Division helpfully identified certain “Notable New Significant Focus Areas,” which included two priorities affecting private funds.

For details on these two priority areas of focus as well as other annual priorities affecting private fund advisors, please read the full article here.

Tags: 2023 Examination Priorities, Advisers, Advisers Act Rule 206(4)-2, allocation of fees and expenses, Conflicts of Interest, crypto regulations, cryptoassets, Custody Rule, Disclosure, Environmental_social and corporate governance, ESG, new marketing rule, private fund advisors, private funds, risks, SEC Division of Examinations, SPACs

SBF Prosecution Raises Novel Issues for Asset Forfeiture and Victim Restitution

By Seetha Ramachandran on December 19, 2022 Posted in Asset Management, Compliance, Cryptocurrency, Disputes, Enforcement

The crimes charged against SBF are simple — old-fashioned fraud through a Ponzi scheme. His conviction seems inevitable. For the government, the challenging part of this case will be the forfeiture proceedings. Under the Mandatory Victim Restitution Act (MVRA), federal prosecutors have an affirmative obligation to use their “best efforts” to see that crime victims are compensated. In an ideal world, forfeiture and restitution should work in tandem. Prosecutors should use the forfeiture laws to identify, seize, and forfeit assets so that they can be preserved and are available to compensate victims through restitution at the conclusion of a criminal case.

Partner Seetha Ramachandran comments on the challenges facing the DOJ as it pursues asset recovery for victims following the collapse of FTX.

Read the full article on NYU’s Compliance and Enforcement blog.

Tags: Anti-Money Laundering (AML), asset forfeiture, asset management, corporate investigations, criminal enforcement, Criminal Liability, cryptoassets, cryptocurrency, department of justice, digital assets, enforcement actions, forfeiture laws, Mandatory Victim Restitution Act (MVRA), restitution, SEC, SEC Enforcement

2022 SEC Enforcement Results – Takeaways for Fund Managers

By Joshua M. Newville on November 16, 2022 Posted in Compliance, Enforcement, Private Equity, Regulation, SEC, Securities Law, SPACs

Yesterday the SEC’s Division of Enforcement announced its Enforcement Results for Fiscal Year 2022, and there are a few key takeaways for fund managers.

Tags: crypto regulations, enforcement action, Environmental_social and corporate governance, ESG, fund managers, investors, Material Non-Public Information (MNPI), MNPI, private fund advisers, SEC Division of Enforcement, SEC Enforcement, SPACs

In The Zone? When Directors of Portfolio Companies Have to Take Creditor Interests into Account

By Dorothy Murray and Julia Alonzo on November 2, 2022 Posted in Asset Management, Compliance, Disputes, Private Equity, Private Equity Litigation, Regulation

Representatives of asset managers often take up positions on the boards of portfolio companies. We have written posts before on some of the litigation and regulatory risks that can arise, both for the asset managers and the individuals including: Portfolio Company Risk: Plaintiffs Set Sights on Sponsors and Board Directors, The Trend of Increasing Disclosure Obligations for Private Funds Continues in 2022, SEC Proposes Advisers Act Reforms Focusing on Private Fund Investor Protections.

Tags: 2006 Companies Act (CA 2006), board directors, board of directors, creditor’s duty, creditors, diversified portfolios, litigation risks, Portfolio Companies, private funds, regulatory risks

Keeping Up With Kim Kardashian’s SEC Charges

By Joshua M. Newville, Margaret A. Dale and Hena M. Vora on October 14, 2022 Posted in Cryptocurrency, Enforcement, SEC, Securities Law

The SEC spread its reach to Hollywood this month – on October 3, 2022, the SEC announced charges against Kim Kardashian for her social media promotions of EMAX, a digital token issued by EthereumMax. The SEC found that Kardashian violated the anti-touting provision of the federal securities laws by failing to disclose the $250,000 payment she received for the ad.

Read the full post on the Corporate Defense and Disputes blog.

Tags: cryptoassets, federal securities laws, SEC, SEC Division of Enforcement, SEC Enforcement, SEC INVESTIGATION, Securities Litigation

SEC Proposes ESG Reporting and Disclosure Requirements for Private Fund Advisers

By Robert E. Plaze, Robert Sutton and Mark S. Audet on June 13, 2022 Posted in Compliance, Enforcement, Hedge Funds, Private Equity, Regulation, SEC

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.

Tags: Disclosure requirements, Environmental_social and corporate governance, ESG, ESG Focused, ESG Impact, ESG Integration, ESG Reporting, Investment Advisers Act of 1940, private fund advisers, private funds, securities and exchange commission, U.S. Securities and Exchange Commission

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

By Steven Baker, Margaret A. Dale, Michael R. Hackett, William Komaroff, Kirsten E. Lapham, Timothy W. Mungovan, Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Seetha Ramachandran, Jonathan M. Weiss, Robert Sutton, Julia Alonzo, James Anderson, Julia M. Ansanelli, Adam L. Deming, Reut N. Samuels and Hena M. Vora on June 2, 2022 Posted in Asset Management, Compliance, Disputes, Enforcement, Private Equity, Private Equity Litigation

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

Tags: breaches of fiduciary duties, Disputes, Fiduciary duties, fund sponsors, Portfolio Companies, private equity sponsors, private funds, shareholders, The Portfolio Company Playbook, Top Ten Regulatory and Litigation Risks for Private Funds

SEC Reopens Comment Period for Proposed Private Fund Adviser Rules

By Howard J. Beber, Michael Mavrides, Robert E. Plaze and Robert Sutton on May 10, 2022 Posted in Asset Management, SEC, Securities Law

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.

Tags: private fund advisers, Private Fund Rules, SEC, SEC Enforcement, SEC Proposed Rules

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

By Joshua M. Newville on May 5, 2022 Posted in Asset Management, Compliance, Enforcement, Examinations, SEC, Securities Law

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”).

Tags: Alternative Data, Code of Ethics, Compliance, fund managers, Insider Trading, Investment Advisers Act, Material Non-Public Information (MNPI), MNPI, registered investment advisers, Risk Alert, SEC, SEC Division of Examinations, SEC enforcement actions, Section 204A, shadow trading

Proskauer on Private Fund Litigation