The Capital Commitment

Proskauer on Private Equity Litigation

SEC Staff Issues Risk Alert on the Six Most Frequent Fee and Expense Compliance Issues

On April 12, 2018, the SEC’s Office of Compliance Inspections and Examinations issued a risk alert listing the most common compliance issues concerning fees and expenses charged by SEC-registered investment advisers.  Advisers should review their practices, policies and procedures to ensure compliance with their advisory agreements and representations to clients in light of the fee and expense issues noted in the risk alert.

Here are the top six:

  • Fee-Billing Based on Incorrect Account Valuations.
  • Billing Fees in Advance or with Improper Frequency.
  • Applying Incorrect Fee Rates.
  • Omitting Rebates and Applying Discounts Incorrectly.
  • Disclosure Issues Involving Advisory Fees.
  • Adviser Expense Misallocations.

For additional guidance, please read our full client alert on this topic.

Proskauer Adds Former SEC Enforcement Counsel, Samuel Waldon, As Partner Strengthening Its Securities Litigation Offering

We are pleased to announce that partner Samuel Waldon has joined Proskauer’s Litigation Department in DC, enhancing the Firm’s securities litigation and regulatory enforcement practices.  Among his other areas of focus, Sam will bolster the firm’s Asset Management Litigation team.

“In today’s ever evolving regulatory landscape, Sam’s extensive experience at the SEC and his deep knowledge of federal securities law will be a valuable asset to our clients,” said Tim Mungovan, Chair of Proskauer’s Litigation Department.

Mr. Waldon joins Proskauer from the U.S. Securities and Exchange Commission (SEC), where he served as Assistant Chief Counsel in the Enforcement Division for eight years.  Providing guidance on all types of enforcement matters, his focus included FCPA, asset management, insider trading and financial fraud matters, as well as issues relating to the Freedom of Information, Bank Secrecy, Privacy, Right to Financial Privacy and Electronic Communications Privacy Acts.  Mr. Waldon received his B.A., summa cum laude, from Virginia Tech and his J.D., with honors, from University of Texas School of Law.

SEC Announces 2018 Compliance Outreach Program Seminar for Investment Advisers and Investment Companies

On Tuesday, February 13th, the Securities and Exchange Commission (SEC) announced the opening of registration for its 2018 national compliance outreach seminar for investment companies and investment advisers. The event is intended to help Chief Compliance Officers (CCOs) and other senior personnel at investment companies and investment advisory firms to enhance their compliance programs.  Continue Reading

The Top Ten Regulatory and Litigation Risks for Private Funds in 2018

With the public equity markets at an all-time high and private equity fund raising setting new records, it might seem counterintuitive to forecast litigation and regulatory risks.  The opposite is true.  Disputes typically follow capital, and the steeper the growth curve, the greater the risk of litigation and regulatory scrutiny.  With that backdrop, we are pleased to present our Top Ten Regulatory and Litigation Risks for Private Funds in 2018.

1. Regulatory Scrutiny Involving Cryptocurrencies and ICOs

Cryptocurrencies and other instruments based on blockchain technology – such as Initial Coin Offerings (ICOs) – are in the regulators’ sights.  The SEC has asserted jurisdiction over products structured as ICOs and is pursuing violations of the anti-fraud provisions and registration violations involving ICOs and cryptocurrencies.  A number of enforcement attorneys in the SEC’s new Cyber Unit are focused on ICO and cryptocurrency investigations, with more cases in the pipeline.  In addition, the CFTC has declared virtual currencies to be “commodities” subject to its oversight under the Commodity Exchange Act and has brought a number of actions under the anti-fraud provisions of the CEA against industry participants.  Fund managers with investments in or exposure to these areas should prepare for questions about disclosures and increasing regulatory scrutiny and spillover relating to those investments.  Continue Reading

Chairman Clayton Asks Lawyers to Knock it Off with the Unregistered Coin Offerings

In his recent remarks at the Securities Regulation Institute, SEC Chairman Jay Clayton had some stern words for market professionals, especially lawyers, involved in initial coin offerings (ICOs).  He expressed concern that lawyers in the space “can do better” in their role as gatekeepers to the securities markets, particularly in advising clients whether the “coin” being offered is a security requiring registration.

Continue Reading

Five Things to Think About Before a Surprise SEC Exam

If a team from the SEC arrives at your office and says, “We are conducting an on-site examination and would like to talk to the CCO right now,” are you prepared? A handful of registered investment advisers have faced surprise SEC exams in recent months. These exams come in two flavors: either a “for cause” exam arising from SEC staff concerns relating to a specific ongoing issue, or a standard exam that for some reason has a surprise component.

There are several logistical items that a fund manager might consider before the SEC shows up unannounced in the lobby, regardless of the substance of the SEC’s inquiry. Thinking and planning ahead can minimize unnecessary stress and confusion in the moment. Fund managers should consider the following questions: Continue Reading

Proskauer Private Investment Funds Group Releases Annual Review and Outlook

Proskauer’s Private Investment Funds Group recently released its 2017 Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Private Funds.  This yearly publication provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge funds space, as well as certain recommended practices that investment advisers to hedge funds, private equity funds and other private funds should consider when preparing for 2018.

Highlights from the annual review include:

  • SEC examination priorities and initiatives and enforcement developments related to the private fund industry, as articulated by SEC officials and corroborated by industry participants, including a review of actions in the areas of performance marketing, valuation, conflicts of interest and investment allocation;
  • A review of regulators’ continued focus on whistleblower programs, including an overview of the SEC’s continued scrutiny of separation agreements and the CFTC’s amendments to its own whistleblower program;
  • An analysis of the current state of insider trading law, including an analysis of the U.S. Supreme Court’s decision in Salman v. United States, the Court’s first ruling in the area of insider trading in nearly 20 years, and the Second Circuit’s approach to the personal-benefit requirement in United States v. Martoma;
  • Ongoing proposed tax changes, including an overview of the evolving tax landscape and a discussion of the recently released GOP tax plan;
  • A review of Big Data, including an examination of securities, technology and privacy laws that may impact the use of Big Data;
  • Regulatory developments in the area of cybersecurity, including new areas of focus for SEC enforcement initiatives and sources of industry guidance issued by the SEC staff;
  • Industry developments in the areas of blockchain and bitcoin technology, including a discussion of state law developments concerning blockchain implementation and an overview of the SEC’s report on the application of the federal securities laws to initial coin offerings;
  • Regulatory developments in the European Union, including an update on the Brexit process and a review of both the Alternative Investment Fund Managers Directive and the impending implementation of the General Data Protection Regulation in each of the EU Member States; and
  • A comprehensive overview of required regulatory filings across the many agencies overseeing the private funds industry, including a quick reference table for monthly filings in 2018.
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