Proskauer on Private Fund Litigation

Category Archives: Compliance

What Fund Managers Need to Know About Price Gouging Laws

A new and unprecedented investment environment has been created during the current COVID emergency as every state that has price gouging laws on its books has activated them, and states without official statues are regulating prices by executive order or existing consumer protection and unfair trade practice laws. Never before have price controls been active … Continue Reading

Private Equity and Cybersecurity: Threats, Consequences, and the Regulatory Framework

By Alexandra V. Bargoot, Anthony M. Drenzek, Samuel J. Waldon and Margaret A. Dale on May 20, 2020 Posted in Asset Management, Compliance, Cybersecurity, Disputes, Examinations, FINRA, OCIE, Private Equity, Regulation, SEC

Cybersecurity breaches and threats are pervasive concerns for any entity storing valuable data or managing large sums of money: private investment funds are no exception. Recently three private equity firms suffered breaches that compromised their email accounts and wire transfers, resulting in $1.3 million in losses. We have seen the SEC follow through on its … Continue Reading

Who Foots the Bill? SEC Cracks Down on Operating Partner Reimbursement Disclosures

By Hena M. Vora, Joshua M. Newville, Samuel J. Waldon and Michael R. Hackett on May 7, 2020 Posted in Asset Management, Compliance, Disputes, Private Equity, Private Equity Litigation, SEC, Securities Law

The SEC has been active in the private equity space recently after being relatively quiet for some time. A recent enforcement action serves as a reminder for fund sponsors that regulators are continuing to look at fund sponsors’ practices relating to “operating partners,” particularly in the context of disclosures to limited partners.… Continue Reading

UK Measures to Address Covid-19

By Kirsten E. Lapham on April 13, 2020 Posted in Asset Management, Compliance, Private Equity, Regulation

The Novel Coronavirus (COVID-19) has significant implications for the asset management industry globally, forcing both sponsors and investors to consider the immediate impact on their investments, and to re-prioritize both immediate and longer term issues. In the United Kingdom, the Financial Conduct Authority (“FCA”) issued a series of communications to firms to address the impact … Continue Reading

When is a Cross Trade a Principal Trade? SEC Brings Enforcement Action Against a Fund Manager That Appears not to Have Understood

By Robert E. Plaze, Joshua M. Newville and Lucy C. Wolf on March 18, 2020 Posted in Compliance, Hedge Funds, OCIE, Private Equity, Regulation, SEC, Securities Law

Last month the SEC brought an enforcement action illustrating how cross trades can trip up a manager of a private fund. The SEC’s settlement with investment manager Lone Star Value Management LLC was based on allegations that the manager carried out a series of cross trades among funds it managed without disclosing to the client … 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

OCIE Publishes Cybersecurity and Resiliency Observations

By Robert Leonard, Michael Mavrides, Christopher Wells and Evan Zepfel on February 6, 2020 Posted in Compliance, OCIE, Private Equity Litigation, SEC

On January 27, 2020, the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) published its Cybersecurity and Resiliency Observations. Cybersecurity and data protection for market participants have been key focuses of OCIE for several years. These observations provide useful insights into OCIE’s examination priorities in these areas. OCIE compiled these observations … Continue Reading

House Passes Proposed Legislation Defining Insider Trading

By Jonathan Richman and Joshua M. Newville on December 12, 2019 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 December 11, 2019 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 M. Drenzek on November 27, 2019 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 A. Hooven on November 12, 2019 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 M. Drenzek, Hena M. Vora and Michael R. Hackett on November 6, 2019 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 October 29, 2019 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 M. Drenzek, Joshua M. Newville and Stephen T. Mears on September 4, 2019 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 A. Hooven on July 22, 2019 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 A. Hooven on June 25, 2019 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 June 11, 2019 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 April 23, 2019 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 A. Hooven on April 11, 2019 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

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 M. Drenzek on January 15, 2019 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 A. Hooven on November 26, 2018 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 M. Drenzek on November 15, 2018 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 November 6, 2018 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