The Capital Commitment

Proskauer on Private Fund Litigation

Category Archives: Compliance

Subscribe to Compliance RSS Feed

House Passes Proposed Legislation Defining Insider Trading

By Jonathan Richman and Joshua M. Newville on Posted in Compliance, Hedge Funds, SEC, Securities Law
Since the Second Circuit’s 2014 decision in United States v. Newman triggered a debate about the personal benefit requirement, several bills have been introduced in Congress to define insider trading. The most recent effort is H.R. 2534, the Insider Trading Prohibition Act, which the House of Representatives passed overwhelmingly last week. The bill would codify certain … Continue Reading

SEC clamps down on Custody Rule

By Hena M. Vora, Joshua M. Newville, Samuel J. Waldon and Robert E. Plaze on Posted in Compliance, Examinations, Private Equity Litigation, Regulation, SEC
Under rule 206(4)-2 of the Advisers Act, otherwise known as the Custody Rule, it is a fraudulent practice for a registered investment adviser to have custody of client funds or securities, unless the adviser takes certain required steps to protect the assets.  Over the past year the SEC’s Enforcement division has been relatively active investigating … Continue Reading

Proskauer Private Investment Funds Group Releases 2019 Annual Review and Outlook

By Anthony Drenzek on Posted in Compliance, Disputes, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
Proskauer’s Private Investment Funds Group recently released its 2019 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 … Continue Reading

SEC Enforcers Continue to Focus on Undisclosed Fees

By Joshua M. Newville and Brian Hooven on Posted in Compliance, OCIE, Regulation, SEC, Securities Law, Uncategorized
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 on retail wealth managers, institutional … Continue Reading

SEC Announces the Formation of Asset Management Advisory Committee

By Anthony Drenzek, Hena M. Vora and Michael R. Hackett on Posted in Compliance, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
As a further indication of the SEC’s focus on the asset management industry, on November 1, 2019 the Commission formally established an Asset Management Advisory Committee. This follows the SEC’s recent announcement of its intent to establish the committee.… Continue Reading

To Disclose or Not to Disclose: Navigating the Complex Relationship Between Voluntary Self-Disclosure of Sanctions Violations and Enforcement Response

By Seetha Ramachandran and Lucas Kowalczyk on Posted in Compliance, White Collar
In the ever-evolving and complex world of economic sanctions, voluntary self-disclosure is frequently the best long-term strategy for any company that discovers a violation of a sanctions regime. The more difficult task is to assess the costs and benefits of self-disclosure in cases where the conduct falls into a gray area. We explain the complex … Continue Reading

Proposed Senate Bill Would Significantly Impact Certain Private Funds and Their Affiliates

By Anthony Drenzek, Joshua M. Newville and Stephen T. Mears on Posted in Compliance, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law
Recently, a group of Congress members introduced into Congress Senate Bill 2155 named the Stop Wall Street Looting Act of 2019. Although unlikely to be enacted into law as drafted, this proposed legislation would directly and substantially affect a number of fundamental operational aspects of private equity funds and their affiliates.… Continue Reading

Proskauer Launches Private Equity SEC Enforcement Tracker

By Timothy W. Mungovan, Howard J. Beber, Stephen T. Mears, Samuel J. Waldon, Joshua M. Newville and Brian Hooven on Posted in Compliance, Disputes, Private Equity, Private Equity Litigation, Regulation, SEC
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 quick access to comparable cases … Continue Reading

SEC Fines Fund Manager $5 Million Over Undervaluation of Assets

By Joshua M. Newville and Brian Hooven on Posted in Compliance, Disputes, Hedge Funds, Regulation, SEC, Securities Law
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 … Continue Reading

Rocky Mountain Securities Conference: A Review Of Enforcement

By Samuel J. Waldon and Hena M. Vora on Posted in Compliance, Private Equity Litigation, Regulation, SEC, Securities Law
The SEC, in conjunction with the Colorado Bar Association and Colorado Society of Certified Public Accountants, recently sponsored the 51st Annual Rocky Mountain Securities Conference featuring SEC officials and corporate experts from across the nation.  Sam Waldon, partner at Proskauer and former Assistant Chief Counsel in the SEC’s Division of Enforcement, moderated a panel of … Continue Reading

Rent the Runway Walks into the Litigation Spotlight

By Hena M. Vora and Michael R. Hackett on Posted in Business Development Companies, Compliance, Disputes, Private Equity Litigation, Venture Capital
There’s a new unicorn in town, and this time, it isn’t just another tech company. Rent the Runway, also known as RTR, is now officially valued at over $1 billion after its most recent funding round which raised $125 million. The high-end rental clothing brand was launched in 2009 by female founders, including co-founder and CEO Jennifer … Continue Reading

Fraud Claims Against Startup Founder Involving Secondary Market Sales Demonstrate SEC Focus on Privately-Held Companies

By Joshua M. Newville and Brian Hooven on Posted in Compliance, Disputes, Regulation, SEC, Securities Law, Venture Capital
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 transactions and private, VC-funded companies are … Continue Reading

The Top Ten Regulatory and Litigation Risks for Private Funds in 2019

By Timothy W. Mungovan, Samuel J. Waldon, Joshua M. Newville, Michael R. Hackett, Anthony Drenzek, William Dalsen, Brian Hooven, Alexandra V. Bargoot, Lucy Wolf and Hena M. Vora on Posted in Compliance, Disputes, Examinations, Hedge Funds, Mergers & Acquisitions, OCIE, Private Credit, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Uncategorized, Venture Capital
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 … Continue Reading

SEC Staff Announces 2019 OCIE Examination Priorities

By Anthony Drenzek on Posted in Compliance, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
The SEC’s Office of Compliance Inspections and Examinations has released its annual priorities publication for 2019.  Containing both a look back at the program’s accomplishments for fiscal year 2018 and a look forward into its initiatives for 2019, this annual report sets out important guidance for private fund managers in administering their compliance programs and … Continue Reading

Valuation of Illiquid Securities as a Focus of Recent Enforcement Actions

By Joshua M. Newville and Brian Hooven on Posted in Compliance, Disputes, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law
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 we have noted here before, … Continue Reading

Proskauer Private Investment Funds Group Releases 2018 Annual Review and Outlook

By Anthony Drenzek on Posted in Compliance, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
Proskauer’s Private Investment Funds Group today released its 2018 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 … Continue Reading

WSJ Article on Geolocation Data Highlights Risks for Fund Managers

By Joshua M. Newville and Jeffrey Neuburger on Posted in Compliance, Hedge Funds, Regulation
On Friday, the WSJ published an article detailing how companies are monetizing smartphone location data by selling it to hedge fund clients.  The data vendor featured in the WSJ article obtains geolocation data from about 1,000 apps that fund managers use to predict trends involving public companies.  However, as we’ve noted, the use of alternative … Continue Reading

Bharara Task Force on Insider Trading

By Joshua M. Newville and Samuel J. Waldon on Posted in Compliance, Hedge Funds, Regulation, SEC, Securities Law
Former SDNY U.S. Attorney Preet Bharara and SEC Commissioner Jackson recently announced, via NY Times op-ed, the creation of the Bharara Task Force on Insider Trading.  Based on the premise that U.S. insider trading laws are unclear and hopelessly out of date, the task force intends to propose new insider trading reforms to help clarify … Continue Reading

Mt. Gox Debacle Showcases Cryptocurrency Litigation Concerns

By Joshua M. Newville and Brian Hooven on Posted in Compliance, Hedge Funds, Private Equity, Private Equity Litigation
The theft of millions of bitcoins and related failure of cryptocurrency exchange Mt. Gox—recently written about in the Wall Street Journal—provides a perfect example of how cryptocurrency-related issues can blossom into one of our Top Ten Regulatory and Litigation Risks.  The WSJ article chronicles the journey of Kim Nilsson—one of the victims of the $400 … Continue Reading

Unicorns: The Tale Continues

By Joshua M. Newville, William Dalsen and Alexandra V. Bargoot on Posted in Compliance, Disputes, Examinations, Mergers & Acquisitions, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
Potential disputes involving unicorns have been a hot topic for the last several years.  We predicted that would continue this year in in our webinar and related blog post: The Top Ten Regulatory and Litigation Risks for Private Funds in 2018.  In April, the Regional Director of the SEC’s San Francisco office, Jina Choi, confirmed … Continue Reading

Voluntary Remediation and the SEC: Six Key Elements and Three Potential Pitfalls

By Samuel J. Waldon and Laura Stafford on Posted in Compliance, Examinations, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC
A recent settled SEC order, In re Arlington Capital Management, Inc. and Joseph F. LoPresti, highlights the potential benefits of voluntarily taking steps to remediate conduct or practices that could run afoul of the SEC’s rules and standards. If done correctly, voluntary remediation can result in meaningful reductions in the sanctions sought by the SEC. … Continue Reading

Regulatory Scrutiny of the ICO Market – What Fund Managers Should Know

By Joshua M. Newville, Anthony Drenzek and Brian Hooven on Posted in Compliance, Disputes, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
Last week, former CFTC Chairman Gary Gensler explained in remarks at M.I.T. that he believes the second and third most widely used virtual currencies—Ether and Ripple—may have been issued and traded in violation of securities regulations. This comes on the heels of a crackdown on cryptocurrency-related securities by the SEC, which is particularly focused on … Continue Reading

SEC Settles with Private Equity Fund Adviser over Alleged Conflicts of Interest

By Anthony Drenzek and Michael R. Hackett on Posted in Compliance, Disputes, Examinations, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law
As a sign that the SEC is continuing to actively pursue private equity fund advisers, on April 24, 2018, the SEC announced a settlement with private equity fund adviser WCAS Management Corporation (WCAS) related to allegations of undisclosed conflicts of interest. The specific conflicts resulted from an allegedly undisclosed contractual arrangement whereby a portion of … Continue Reading

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

By Robert E. Plaze, Joshua M. Newville, Robert Leonard and Anthony Drenzek on Posted in Compliance, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
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 … Continue Reading
LexBlog