Proskauer on Private Fund Litigation

Category Archives: Asset Management

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

FinCEN’s $390 Million case against Capital One – And What it Means for AML Enforcement

By Seetha Ramachandran and Hena M. Vora on March 25, 2021 Posted in Asset Management, Disputes, Enforcement, White Collar

As the financial services industry prepares for expanded criminal and civil enforcement under the Bank Secrecy Act (“BSA”) with the passage of the Anti-Money Laundering Act of 2020, FinCEN’s recent case against Capital One shows how FinCEN’s approach to AML enforcement is evolving.… 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

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

By Timothy W. Mungovan, Jonathan M. Weiss, Michael R. Hackett, Alexandra V. Bargoot and Adam L. Deming on March 2, 2021 Posted in Asset Management, Compliance, Disputes, Enforcement, Private Equity, Private Equity Litigation, Regulation

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

2020 Proskauer Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Funds

By Asset Management Team on February 18, 2021 Posted in Asset Management, Compliance, Cybersecurity, Disputes, Enforcement, Hedge Funds, Private Equity, Regulation, SEC, Venture Capital, White Collar

Proskauer’s Private Investment Funds Group released its 2020 Annual Review. The yearly report provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge fund spaces, as well as certain recommended practices that investment advisers should consider when preparing for 2021. Read the … Continue Reading

Portfolio Company Insolvency: Risk Mitigation Strategies for Fund Sponsors and Board Designees

By Jonathan M. Weiss and Alexandra V. Bargoot on February 17, 2021 Posted in Asset Management, Compliance, Disputes, Private Equity Litigation

COVID-19 continues to disrupt normal business operations, creating liquidity problems and negative working capital for many companies. As fund sponsors take actions to help their portfolio companies navigate through this time, they should also sensitize directors to insolvency issues and the associated litigation risks. As we have previously highlighted, both funds and fund managers may … Continue Reading

SEC Revises Marketing Rule for Registered Investment Advisers

By Anthony M. Drenzek, Robert E. Plaze, Michael Suppappola and Christopher Wells on February 9, 2021 Posted in Asset Management, Business Development Companies, Compliance, Hedge Funds, Private Equity, SEC

The SEC recently finalized a new rule under the Investment Advisers Act of 1940 to govern advertisements by registered investment advisers and payments to solicitors. The amendments create a single marketing rule that (i) revises the definition of an “advertisement,” (ii) sets forth seven general principles governing the use of advertisements, (iii) conditions the use … Continue Reading

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

By Timothy W. Mungovan, Jonathan M. Weiss, Michael R. Hackett, Alexandra V. Bargoot and Adam L. Deming on February 8, 2021 Posted in Asset Management, Compliance, Disputes, Enforcement, Private Equity, Private Equity Litigation, Regulation

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

An Overview of OFAC’s Ongoing Guidance: Chinese Military Companies Trading Ban

By Seetha Ramachandran and David W. Heck on February 2, 2021 Posted in Asset Management, Compliance, Disputes, Enforcement, Securities Law, White Collar

Over the past few weeks, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has issued further guidance in the form of Frequently Asked Questions (FAQs) and General Licenses that clarify the terms of the Order and its Chinese Military Sanctions Program. To a large degree, OFAC’s guidance confirms that the agency will interpret … Continue Reading

Crypto Asset Regulation: Is the US or UK Keeping Up Best With This Emerging Market?

By Joshua M. Newville, Dorothy Murray, Nicholas Petrie and David W. Heck on January 8, 2021 Posted in Asset Management, Compliance, Enforcement, Regulation, SEC

One driver for the first widely adopted cryptocurrency Bitcoin was to create a store of value that existed outside of government control. It is therefore no surprise that attempts to regulate the rapidly developing crypto asset market have required great efforts from regulators and legislators around the world to keep apace. In this blog, we … Continue Reading

OCIE Issues Risk Alert on Common Deficiencies Observed in Adviser Compliance Programs

By Anthony M. Drenzek, Robert Leonard, Michael Mavrides and Robert E. Plaze on December 14, 2020 Posted in Asset Management, Compliance, OCIE, Regulation, SEC

On November 19, 2020, the SEC’s Office of Compliance Inspections and Examinations published a risk alert providing an overview of notable compliance issues observed in registered investment advisers’ compliance programs. The alert will serve as a useful checklist for advisers seeking to identify weaknesses in their own compliance programs and preparing for the inevitable SEC … Continue Reading

SEC Enforcement’s 2020 Annual Report Reflects Shifting Priorities for Fund Managers: Four Key Takeaways

By Joshua M. Newville, Samuel J. Waldon, Brian A. Hooven and Ariella Muller on November 4, 2020 Posted in Asset Management, Enforcement, OCIE, Private Equity Litigation, SEC, Securities Law

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 … Continue Reading

Asserting Reliance on Compliance Consultants as a Defense: Admissibility and Effectiveness

By James Anderson, Joshua M. Newville, Robert E. Plaze and Samuel J. Waldon on October 15, 2020 Posted in Asset Management, Compliance, Disputes, Enforcement, SEC, Securities Law

Asset managers commonly engage regulatory compliance consultants to aid them in addressing regulatory requirements and implementing compliance programs. The work of those compliance professionals can be drawn into SEC enforcement actions in various contexts. See, e.g., ZPR Investment Mgmt. Inc. v. SEC (compliance consultant resigned when advice not followed and testified in proceeding). One such context … Continue Reading

European ESG Disclosure Requirements for Asset Managers

By Kirsten E. Lapham on September 24, 2020 Posted in Asset Management, Compliance, Private Equity, Regulation

New rules in Europe concerning sustainability-related disclosures in the financial sector will come into force from March 2021. Our UK regulatory specialists summarize the key aspects of the new ESG rules which will impact a wide range of financial services participants, including non-EU (i.e. U.S. fund managers) that market funds in the EEA. Read the full … Continue Reading

SEC Expands the “Accredited Investor” and “QIB” Definitions and the Permitted Scope of “Testing the Waters”

By Anthony M. Drenzek on September 21, 2020 Posted in Asset Management, Business Development Companies, Hedge Funds, Private Equity, Regulation, SEC, Securities Law

The Securities and Exchange Commission (SEC) recently approved amendments to the definition of an accredited investor found in Rule 501(a) of the Securities Act of 1933 that will facilitate the ability of funds and other issuers to raise capital through private placements. Several commenters on the SEC’s proposed rule cautioned that a rise in civil … Continue Reading

FinCEN Explains What Guides Its Enforcement Decisions

By Seetha Ramachandran and Hena M. Vora on September 16, 2020 Posted in Asset Management, Disputes, Enforcement, Regulation, White Collar

On August 18, 2020, the Financial Crimes Enforcement Network (FinCEN), which is the primary regulator and administrator of the Bank Secrecy Act (BSA), issued a statement on enforcement of the BSA. The requirements of the BSA typically apply to financial institutions, but in certain circumstances the Act applies to nonfinancial businesses and individuals.… Continue Reading

Private Equity and Cybersecurity: A Guide to Preparing for and Responding to a Breach

By Alexandra V. Bargoot, Margaret A. Dale and Samuel J. Waldon on September 15, 2020 Posted in Asset Management, Compliance, Cybersecurity, Disputes, OCIE, Private Equity, SEC

A cyber breach can have serious legal, financial, and reputational consequences for a fund sponsor, as described in our previous post. As such, cybersecurity threats must be treated as business risks, not just a potential IT problem. Senior management at fund sponsors should take the lead to ensure that the sponsor is taking appropriate actions … Continue Reading

Proskauer Partner Joshua Newville Discusses the SEC’s Focus on Valuation of Private Fund Investments

By Joshua M. Newville on September 11, 2020 Posted in Asset Management, Compliance, Examinations, OCIE, Private Equity, SEC

Proskauer partner Josh Newville discussed the SEC’s focus on valuation of private fund investments at the recent Securities Enforcement Forum West 2020. The global COVID-19 crisis has added a layer of complexity to the valuation process, requiring special care. As we predicted in our 2020 Top Ten Regulatory and Litigation Risks for Private Funds, ongoing … Continue Reading

A Fund Managers’ Guide to Maximizing D&O and E&O Insurance Coverage

By John Failla, Nathan Lander, Bradford Green and Joshua M. Newville on August 28, 2020 Posted in Asset Management, Compliance, Hedge Funds, Private Equity

“A Fund Managers’ Guide to Maximizing D&O and E&O Insurance Coverage” examines best practices for fund managers—particularly in the current economic climate—for negotiating and obtaining strong insurance protection and maximizing recovery when claims arise. As the economic impact of COVID-19 continues to reverberate across all global industries, there is an increased risk of claims being … Continue Reading

UK’s Financial Conduct Authority Warns That Fund Managers Are at Increased Risk of Cyber Attacks

By Kirsten E. Lapham on August 27, 2020 Posted in Asset Management, Compliance, Cybersecurity, News, Private Equity, Regulation

With 46% of UK business reporting a cyber attack during 2019/2020 and 32% reporting at least one a week – see the UK Government’s Cyber Security Breaches Survey 2020 – the UK’s Financial Conduct Authority (“FCA”) has issued a timely warning to market participants of increasing cyber security threats in the wake of COVID-19.… Continue Reading

ESG-Focused Fund Strategies Face SEC Scrutiny on Disclosures and Internal Procedures

By Joshua M. Newville and Kirsten E. Lapham on August 25, 2020 Posted in Asset Management, Compliance, OCIE, Private Equity, Regulation, SEC, Securities Law

As investors drive demand for investment products focused on environmental, social and governance (ESG) factors, fund managers have increasingly offered ESG-focused or “sustainable investing” funds. However, a recent speech by SEC Commissioner Elad Roisman has highlighted regulatory concerns for fund managers in the ESG space, particularly with respect to disclosures and internal compliance.… Continue Reading