The Capital Commitment

Proskauer on Private Fund Litigation

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The Portfolio Company Playbook: Chapter 4 – Navigating Direct Liability Risks to the Fund

As litigation claims against portfolio companies have increased, so have accompanying claims asserted directly against funds (and their sponsors). Plaintiffs’ reasoning for including funds as defendants is no mystery: funds often have greater financial resources than the defendant portfolio company, particularly where the portfolio company is in distress, and thus represent the proverbial “deep pockets.” … Continue Reading

The Portfolio Company Playbook – Chapter 3: Navigating Risk from Company Employee Claims

Another source of litigation risk for fund sponsors are claims brought by portfolio company employees.  Sponsors should be aware of these risks, particularly when the portfolio company is in distress or is considering a sale or other transaction affecting the disposition of shares in the company.  We have set forth below just a few examples … Continue Reading

Navigating Brexit: What Funds Should Look Out for as the Dust Begins to Settle

As a result of Brexit, UK-regulated firms will already have grappled with loss of passporting and equivalence measures, and the need to navigate national regimes and relocate staff. As of today, EU firms operating in the UK have a temporary permissions regime with the UK having set out its approach to equivalence, but this remains … Continue Reading

Private Credit Lenders Should Remain Vigilant in 2021

Private credit lenders began 2020 facing the dual challenges of an increased risk of defaults and a lack of strong financial covenants, and the pandemic sparked a significant increase in defaults to 8.1% in Q2. However, borrower defaults in Q3 and Q4 were lower than anticipated following the COVID-fueled spike in Q2, due in part to … Continue Reading

Focus on ESG Will Continue to Grow Under Biden Administration

In 2021, the global impact of environmental, social and corporate governance (“ESG”) investing will continue to grow, with key implications for the asset management industry. The new European regime on sustainability-related disclosures in the financial sector will roll out in March 2021, affecting both European and non-European asset managers alike. In the U.S., where there … Continue Reading

Return to Civil and Criminal Collaboration in White Collar under Biden Administration

Under the Biden Administration, we expect the Department of Justice to reinvigorate the policies aimed at increasing coordination between the criminal and civil divisions.  In a 2015 Memorandum – the “Yates Memo” – former Deputy Attorney General Sally Yates pushed for “early and regular communication” between civil and criminal division attorneys in their pursuit of … Continue Reading

Cryptocurrencies and Other Digital Assets: A New Regime

Cryptocurrencies and digital assets will continue to be an area of intense regulatory focus, but a new administration may bring new regulations. SEC Chairman Gensler has extensive experience with cryptocurrencies and blockchain, including a teaching stint at MIT. However, Gensler has alternated between censure and praise, referring to cryptocurrencies and blockchain both as an “innovative irritant” … Continue Reading

New Focus and Compliance Approach Needed for Privacy and Cybersecurity

In 2020, we saw an increased regulatory focus on cybersecurity. Though former SEC Chairman Clayton largely took the view that existing statutes and regulations were sufficient, the Division of Examinations increased exam activities in the space while agencies like FinCEN increased enforcement against violators. We can expect to see a continued focus on cybersecurity going … Continue Reading

Portfolio Companies Continue to be a Source of Litigation Risk

A significant ownership stake in a portfolio company has always raised the specter of claims against funds, sponsors, and sponsor-appointed board designees, if for no other reason than they are perceived by the plaintiffs’ bar to be deep pockets.  This risk has only increased in recent years, as it has become less taboo – indeed, … Continue Reading

Valuation in Times of Market Disruption

Valuation practices will continue to be the subject of disputes. Particularly in times of economic disruption and market volatility, buyers and sellers are more likely to have substantial differences of opinions on valuation, which often lead to the use of earn-outs and resulting post-closing disputes. Use of a cost basis for recently acquired assets may … Continue Reading

The Ripples Behind the SPAC Wave

The past year saw a burst in popularity of SPACs. More than half of companies that went public in 2020 did so using a SPAC on their way to raising over $80 billion in proceeds, and so far in 2021 SPAC offerings far outpace traditional IPOs. SPACs allow companies to go public with greater speed … Continue Reading

Increased Regulatory Scrutiny of Private Funds

President Biden has signaled a shift to a more assertive SEC Enforcement program with the nomination, and expected confirmation, of Gary Gensler as the next Chair of the SEC.  Mr. Gensler previously served as the Chairman of the CFTC from 2009 to 2014, where he established a reputation as a forceful regulator. This reputation suggests … Continue Reading

Top Ten Regulatory and Litigation Risks for Private Funds in 2021

The regulatory and litigation risks for private funds are greater than at any time since the financial crisis in 2008. Just a few examples prove the point: the pandemic (which caused extraordinary volatility in revenues and valuations for most asset categories); a new administration in Washington D.C. (with a more muscular regulatory agenda); continued proliferation … Continue Reading

The Portfolio Company Playbook – Chapter 2: Navigating Risk from Conflicts of Interest

Private funds frequently negotiate for special rights when making an investment in a portfolio company, such as the right to appoint one or more board directors, voting rights, and liquidation preferences. Fund sponsors often focus solely on the positive aspects of these special rights, such as increased control, without considering fully other implications. As the … Continue Reading

Delaware Supreme Court Provides Further Guidance on Books and Records Requests in AmerisourceBergen

This past year, we highlighted a Delaware Chancery case adopting an expansive view in favor of parties seeking information from companies under Section 220 of the Delaware General Corporation Law.  The Delaware Supreme Court recently affirmed the Chancery Court’s ruling, providing additional appellate guidance on Section 220 and endorsing limits the Chancery Court set on … Continue Reading

The Portfolio Company Playbook – Chapter 1: A Fund Sponsor’s Guide to Navigating Risks, Conflicts, and Regulatory Concerns Arising from Portfolio Companies

Over the last few years, we have seen an uptick in litigation claims against sponsors and funds arising out of their interests in portfolio companies.  A fund sponsor’s participation on a portfolio company board, in particular, is a risk factor for the entire investment structure (the GP, the Management Company, individual members of the GP … Continue Reading

Ten Tips for Navigating Risks and Liability at Portfolio Companies During COVID-19

Many portfolio companies continue to confront business disruptions as a result of the COVID-19 pandemic. Even prior to the pandemic, we were seeing an uptick in litigation claims against sponsors and funds arising out of portfolio companies. The liquidity challenges since March have increased those risks at some companies. For sponsors, many of these risks … Continue Reading

Fund Adviser Receives $1 Million Penalty For Alleged Performance Misstatements in Private Fund Marketing Material

Though SEC scrutiny of performance results in fund marketing materials is nothing new, a recent settlement order suggests that the Commission continues to closely examine representations in marketing materials with respect to past investment performance. Old Ironsides Energy, LLC, a Boston-based registered investment adviser, agreed to pay a $1 million penalty to settle SEC charges … Continue Reading

SEC Targets Fund Auditor in Latest Battle Over Valuation Practices

Going into 2020, we expected scrutiny over valuation methods to be one of the top regulatory risks for private funds. With ongoing economic uncertainty applying pressure, the SEC will continue to focus on valuation issues surrounding portfolio investments. Fund audit firms are not immune to regulatory scrutiny involving their professional obligations with respect to fund … Continue Reading

U.S. Supreme Court Denies Bid to Review Dismissal of Challenge to Pay-To-Play Rule

On January 13, 2020, the United States Supreme Court denied certiorari to an appeal of a June 2019 order from the United States Court of Appeals for the D.C. Circuit that dismissed an action seeking to invalidate certain under the First Amendment, among other arguments. This denial leaves in place a ruling in favor of … Continue Reading

Top Ten Regulatory and Litigation Risks for Private Funds in 2020

The private fund industry is more in the public eye than ever before.  Private capital and private markets have experienced massive growth over the last two decades, substantially outpacing the growth of public equity. We have witnessed that trend continue during the past year, and have worked with our clients to navigate the greater uncertainty … Continue Reading

SEC Releases FY 2019 Enforcement Results: Increases in Investment Adviser Actions and Maintained Focus on Individual Accountability

Yesterday the SEC announced its enforcement results for FY 2019, accompanied by a report from the Co-Directors of its Division of Enforcement.  While the total number of actions increased slightly from 2018, the percentage of cases involving investment advisers or investment companies increased more dramatically, growing from 22% in 2018 to 36% in 2019, with … Continue Reading
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