On Monday the SEC announced its enforcement results for FY 2020, accompanied by a report from the Director of its Division of Enforcement. This report confirms what we have seen over the past year for private fund managers: although OCIE has been more active on adviser examinations, we’ve seen a bit less enforcement activity. Yet in spite of the headwinds posed by the global pandemic, the Commission brought 715 enforcement actions in FY 2020, representing only a 17% decrease from FY 2019. It also obtained record-breaking monetary remedies with total penalties and disgorgement reaching $4.68 billion, an 8% increase from 2019.
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 alleging a material misstatement in its fund marketing materials. In particular, the adviser’s marketing materials allegedly “identified a large, legacy investment with strong, positive returns as an early stage direct drilling investment” (“DDI”) over which the adviser “had direct management in partnership with project operators, when it was actually an investment in a private fund advised by a third party.”
Top Ten Regulatory and Litigation Risks for Private Funds in 2020
T
he 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
SEC Enforcers Continue to Focus on Undisclosed Fees
In a series of enforcement cases over the past few months, the SEC has continued to bring actions focused on undisclosed fees charged to clients. Many of these cases have charged firms with fraud and other violations based on fees that were not adequately disclosed. While some attention has focused
Proskauer Launches Private Equity SEC Enforcement Tracker
Today, we are launching a proprietary database tracking all SEC enforcement actions involving private equity advisers. The tracker contains key information from the actions, including summaries of key issues, settlement terms, and relevant statutory provisions. The tracker will be an important resource for us and our clients, providing us with
SEC Fines Fund Manager $5 Million Over Undervaluation of Assets
A recent action where the SEC focused on the presumably conservative undervaluation of assets suggests that it is more than willing to use valuation as a hook to deter “smoothing” of returns. As we previously noted, while the SEC consistently announces that valuation is a “key area of focus,” it is uncommon for regulators to second guess valuation determinations in the absence of other potential violations. However, failure to adhere to stated valuation policies/procedures is one situation that may lead to heightened regulatory exposure and disputes.
Fraud Claims Against Startup Founder Involving Secondary Market Sales Demonstrate SEC Focus on Privately-Held Companies
Last week the SEC announced a settlement of fraud claims against the founder of Jumio, Inc, a private mobile payments company, for misstating the company’s financial results and using those financials to sell his company shares on the secondary market. This case is a reminder that privately negotiated securities
The Top Ten Regulatory and Litigation Risks for Private Funds in 2019
An increasingly sophisticated and active OCIE division, innovative market disruptors, a maturing credit cycle, and a philosophical change in how the private fund industry views and utilizes litigation are likely to lead to increased regulatory scrutiny and litigation risk for advisers (and their funds) in 2019. With that backdrop, we are pleased to present our Top Ten Regulatory and Litigation Risks for Private Funds in 2019.
Valuation of Illiquid Securities as a Focus of Recent Enforcement Actions
While the SEC consistently announces that valuation is a “key area of focus,” it is uncommon for regulators to “second guess” valuation determinations in the absence of other potential violations. However, recent actions would suggest that the SEC is particularly interested in the valuations and methodologies behind illiquid securities. As
2018 Annual Review and 2019 Outlook Highlights Private Equity Fund Litigation Risk Areas
In our recently released 2018 Annual Review and 2019 Outlook for Hedge Funds, Private Equity Funds and Other Private Funds, we note that innovative market disruptors, a maturing credit cycle, and a philosophical change in how the industry views and utilizes litigation are likely to lead to increased litigation