On March 3, 2021, the SEC’s Division of Examinations announced its examination priorities for 2021. Compared to last year, this year’s edition contains an expanded section specifically addressed to private funds. For private fund managers, the exam staff states that it will target a list of issues, including:

  • Preferential treatment of certain investors by advisers to private funds that have experienced issues with liquidity, including imposing gates or suspensions on fund withdrawals;
  • Portfolio valuations and the resulting impact on management fees;
  • Adequacy of disclosure and compliance relating to cross trades, principal investments, or distressed sales;
  • Conflicts around liquidity, such as adviser led fund restructurings or stapled secondary transactions;
  • Risks surrounding non-performing loans and defaults for funds that have a higher concentration of structured products, such as collateralized loan obligations and mortgage backed securities;
  • The impact of recent economic conditions on portfolio companies owned by private funds (e.g., real estate related investments).

Read the full client alert here.

Posted in Compliance, Examinations, Hedge Funds, Private Equity, Regulation, SEC
Tags: Anti-Money Laundering (AML), Compliance, Conflicts of Interest, digital assets, ESG, examination priorities, investment risks, Portfolio Companies, private fund managers, private funds, Registered advisers, Registered Broker-Dealers, Registered Funds, SEC’s Division of Examinations
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Photo of Stephen T. Mears Stephen T. Mears

Stephen T. Mears is a partner in the Corporate Department and co-head of the Private Funds Group. He concentrates on private investment funds, including venture capital, growth equity and buyout funds. He represents fund sponsors in all aspects of fund formation, operation and…

Stephen T. Mears is a partner in the Corporate Department and co-head of the Private Funds Group. He concentrates on private investment funds, including venture capital, growth equity and buyout funds. He represents fund sponsors in all aspects of fund formation, operation and management, including fund structuring, portfolio investments, sales and distributions, internal governance and management, regulatory compliance and ongoing maintenance and administration. Stephen also represents institutional investors in connection with their participation in private investment funds.

Stephen has recently represented sponsors in raising funds ranging in size from under $100 million to over $2.5 billion.

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Photo of Joshua M. Newville Joshua M. Newville

Joshua M. Newville is a partner in the Litigation Department and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and…

Joshua M. Newville is a partner in the Litigation Department and a member of Proskauer’s White Collar Defense & Investigations Group and the Asset Management Litigation team.

Josh handles securities litigation, enforcement and regulatory matters, representing corporations and senior executives in civil and criminal investigations. In addition, Josh advises registered investment advisers and private fund managers on regulatory compliance, SEC exams, MNPI/insider trading and related risks.

Before joining Proskauer, Josh was senior counsel in the U.S. Securities and Exchange Commission’s Division of Enforcement, where he investigated and prosecuted violations of the federal securities laws. Josh served in the Enforcement Division’s Asset Management Unit, a specialized unit focusing on investment advisers and the asset management industry. His prior experience with the SEC provides a unique perspective to help asset managers manage risk and handle regulatory issues.

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Photo of Benjamin Catalano Benjamin Catalano

Benjamin J. Catalano is a securities regulatory and enforcement lawyer and co-head of the Broker Dealer Practice.

Ben has extensive experience advising financial services companies on compliance with all aspects of federal and state securities laws and self-regulatory organization (SRO) rules. He represents…

Benjamin J. Catalano is a securities regulatory and enforcement lawyer and co-head of the Broker Dealer Practice.

Ben has extensive experience advising financial services companies on compliance with all aspects of federal and state securities laws and self-regulatory organization (SRO) rules. He represents clients in securities litigation and enforcement matters. He also conducts internal investigations and reviews for financial services companies and other corporate clients on a broad range of subjects pertaining to their businesses.

He has represented major U.S. and international financial institutions, including J.P. Morgan Chase & Co.; Nomura Securities International Inc.; Instinet LLC; The Bank of New York Mellon Corp.; Pershing LLC; Neuberger Berman; Goldman Sachs; Credit Suise; Société Générale S.A.; Needham & Company, LLC; Cowen & Co. LLC; BNP Paribas Securities Corp.; Calyon Securities (USA) Inc.; HSH Nordbank Securities; Westpac Securities; Banco Espirito Santo de Investimento, S.A.; Banca IMI; Banque Privée Edmund de Rothschild; Apollo Investment Management, LLC; Ares Capital Corp.; Bain Capital; Toronto Stock Exchange; Montreal Stock Exchange; Tokyo Stock Exchange; Cürex Group Holdings, LLC; The Depository Trust and Clearing Corporation; The Depository Trust Company; and National Securities Clearing Corporation.

Securities Law Compliance

Ben advises U.S. and international banks, broker-dealers, investment advisers, exchanges, clearing agencies and other financial intermediaries on compliance with federal securities laws, state blue sky laws, New York Stock Exchange (NYSE), Financial Industry Regulatory Authority (FINRA) and other SRO rules.

He counsels clients and assists them in developing comprehensive compliance and supervisory programs in areas such: as advertising and correspondence; anti-money laundering; cross-border trading under Rule 15a-6; financial reporting; insider trading/information barrier procedures; licensing and registration; net capital, custody, and clearance and settlement, including introducing and clearing broker arrangements; market access; recordkeeping; Regulation M and IPO trading restrictions; Regulation NMS and related market structure issues; research restrictions, disclosures and Regulations AC; soft-dollar and commission sharing arrangements; swaps regulation and compliance.

Securities Litigation and Enforcement

Ben represents clients in securities related litigation, enforcement proceedings and investigations.

Ben has represented financial services companies and individuals in numerous enforcement proceedings before the SEC, NYSE Regulation, FINRA and other SROs in various matters including trading and sales practices, insider trading and market manipulation, trade reporting, research analyst conflicts, net capital compliance, supervision and recordkeeping.

He has represented clients in litigations and arbitrations involving suitability, sales practices, unauthorized trading, fraudulent transfers and derivatives transactions. Ben succeeded in obtaining summary judgment in favor of a broker-dealer that inadvertently transferred stolen stock certificates. In a case of first impression under Article 8 of the Uniform Commercial Code, Decker v. Yorkton Securities, Inc., Court of Appeals of the State of California, 1st Appellate District, the Court held that in order to hold a broker liable to a third party with an adverse claim to securities transferred by the broker, the plaintiff must show that the broker had subjective knowledge of a significant probability of the adverse claim.

Ben also counsels clients in SEC and SRO examinations and reviews.

Internal Investigation and Reviews

Ben frequently is called on to conduct internal investigations, examinations and reviews of business practices, employee conduct, supervisory systems and operations of financial services companies and other corporations.

He has served as or acted on behalf of the SEC or SRO mandated independent consultant or third party examiner in a number of securities industry enforcement matters. He also has conducted numerous investigations, examinations and reviews to assess compliance with regulatory requirements in various areas for broker-dealers, investment advisers, securities exchanges and other financial service providers.

Examples of some of the client matters he has handled include the following:

  • Examination of OTC trading and sales practices by a major broker-dealer in response to an SEC administrative proceeding, NYSE hearing panel decision and NASD Acceptance Waiver and Consent (AWC) mandating retention of an independent consultant
  • Examination of Trade Allocation Policies and Procedures by a major broker-dealer in response to an NYSE hearing panel decision mandating retention of an outside consultant
  • Evaluation of remediation methodology and payments in connection with mutual fund sales subject to NAV transfer programs in response to NASD AWC mandating retention of a Third Party Examiner
  • Examination of trade execution and related functions of designated dealers on a major securities exchange
  • Investigation of possible insider trading by an employee of a broker-dealer
  • Investigation of trading in compliance with NYSE Rule 92 by an NYSE member firm
  • Investigation of possible interpositioning by equity traders of a broker-dealer
  • Review of business practices relating to the sale of auction rate securities by a broker-dealer
  • Review of research distribution and trading practices in compliance with Rule 15a-6 by a major international bank and its U.S. broker-deal affiliate
  • Review of anti-money laundering policies and procedures by a major financial services company and its broker-dealer subsidiaries
  • Review of compliance with Regulation NMS by a major broker-dealer
  • Review of business practices of a primary research facilitator in compliance with federal and industry standards for prevention of the misuse of material non-public information
  • Review and implementation of swap dealer business conduct requirements

Prior to the practice of law, Ben was the chief compliance officer for the Capital Markets Division of PaineWebber Incorporated (now UBS Financial Services, Inc.). He began his career in the legal and compliance division of Drexel Burnham Lambert Incorporated.

Selected Articles and Presentations

“Someone Should Have Done Something! A Critical Examination of Liability for Failure to Supervise under Federal Securities Laws,” The Business Lawyer, Vol. 78, Winter 2022-2023.

“The Promise of Unfavorable Research: Ramifications of Regulations Separating Research and Investment Banking for IPO Issuers and Investors,” The Business Lawyer, Vol. 72, Winter 2016-2017.

“Analysis of the SEC’s MiFID II No-Action Relief,” The National Law Review, January 2018.

“Investment Advisers Act Implications for Client Commission (Soft Dollar) Arrangements – Part I,” February 2014, available at https://www.proskauer.com/video/investment-advisers-act-implications-for-soft-dollar-arrangements-part-1

“Investment Advisers Act Implications for Client Commission (Soft Dollar) Arrangements – Part II,” February 2014, available at https://www.proskauer.com/video/investment-advisers-act-implications-for-soft-dollar-arrangements-part-2

“A Look at Regulations for Non-U.S. Investment Advisers and Portfolio Managers Doing Business in the United States,” The Metropolitan Corporate Counsel, May 2012.

“Regulation of Non-U.S. Broker-Dealers Doing Business in the U.S. – Part I,” The Metropolitan Corporate Counsel, April 2008.

“Regulation of Non-U.S. Broker-Dealers Doing Business in the U.S. – Part II,” The Metropolitan Corporate Counsel, May 2008.

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