Proskauer on Private Fund Litigation

Category Archives: Enforcement

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

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

By Margaret A. Dale, Michael R. Hackett, Kirsten E. Lapham, William Komaroff, Timothy W. Mungovan, Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Seetha Ramachandran, Ana Vermal, Samuel J. Waldon, Jonathan M. Weiss, Anthony M. Drenzek, James Anderson, Alexandra V. Bargoot, William D. Dalsen, Adam L. Deming, David W. Heck, Hena M. Vora and Lucy C. Wolf on May 3, 2021 Posted in Compliance, Disputes, Enforcement, Private Equity, Regulation, SEC, Securities Law

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

Second Circuit Upholds Insider Trading Conviction, Finding Sufficient Confidentiality Duty and Personal Benefit

By Jonathan Richman on April 12, 2021 Posted in Enforcement, SEC, Securities Law, White Collar

Last week, the Second Circuit upheld a criminal conviction for insider trading, holding that signing a Non-Disclosure Agreement (NDA) with a target company created a sufficient duty of trust and confidence to support a conviction. The defendant in United States v. Chow, an executive at a foreign private equity firm, was convicted for tipping a … Continue Reading

New Focus and Compliance Approach Needed for Privacy and Cybersecurity

By Margaret A. Dale, Michael R. Hackett, Kirsten E. Lapham, William Komaroff, Timothy W. Mungovan, Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Seetha Ramachandran, Ana Vermal, Samuel J. Waldon, Jonathan M. Weiss, Anthony M. Drenzek, Kelly McMullon, James Anderson, Alexandra V. Bargoot, William D. Dalsen, Adam L. Deming, David W. Heck, Hena M. Vora and Lucy C. Wolf on April 8, 2021 Posted in Asset Management, Compliance, Cybersecurity, Enforcement, Examinations, Private Equity, Regulation

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

By Margaret A. Dale, Michael R. Hackett, Kirsten E. Lapham, William Komaroff, Timothy W. Mungovan, Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Seetha Ramachandran, Ana Vermal, Samuel J. Waldon, Jonathan M. Weiss, Anthony M. Drenzek, James Anderson, Alexandra V. Bargoot, William D. Dalsen, Adam L. Deming, David W. Heck, Hena M. Vora and Lucy C. Wolf on April 7, 2021 Posted in Asset Management, Compliance, Disputes, Enforcement, Private Credit, Private Equity, Regulation

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

Increased Regulatory Scrutiny of Private Funds

By Margaret A. Dale, Michael R. Hackett, Kirsten E. Lapham, William Komaroff, Timothy W. Mungovan, Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Seetha Ramachandran, Ana Vermal, Samuel J. Waldon, Jonathan M. Weiss, Anthony M. Drenzek, James Anderson, Alexandra V. Bargoot, William D. Dalsen, Adam L. Deming, David W. Heck, Hena M. Vora and Lucy C. Wolf on March 24, 2021 Posted in Compliance, Enforcement, Examinations, OCIE, Private Equity, Securities Law

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

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

Three Critical Questions That Will (Hopefully) be Answered by the SEC’s Lawsuit against Ripple

By Samuel J. Waldon, Joshua M. Newville and Timothy W. Mungovan on February 22, 2021 Posted in Disputes, Enforcement, SEC, Securities Law

Late last year, the SEC filed a litigated action in the U.S. District Court for the Southern District of New York against Ripple Labs Inc. and two of its executive officers (collectively, “Ripple”), alleging that Ripple raised over $1.3 billion in unregistered offerings of the digital asset known as XRP. Ripple opted not to file … 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

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

President Biden’s SEC Enforcement Program: What Should Private Fund Managers Expect?

By Joshua M. Newville and Samuel J. Waldon on January 20, 2021 Posted in Enforcement, Regulation, SEC

As President Biden continues to assemble his economic team, reports have emerged that President Biden will nominate Gary Gensler as the next Chair of the SEC. The nomination of Mr. Gensler would clearly signal a more assertive SEC when it comes to both regulation and enforcement. And while it is too early to predict exactly … 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

Regulatory Crackdown on Ransomware

By Seetha Ramachandran, Nolan Goldberg and Hena M. Vora on December 14, 2020 Posted in Compliance, Cybersecurity, Enforcement, Regulation

Ransomware is a Serious and Growing Problem In recent years, Ransomware has evolved from merely encrypting files/disabling networks in solicitation of ransom, to sophisticated attacks that often involve actual data access, theft and sometimes, the threat of publication. These sophisticated malware attacks frequently destroy backups and provide criminals even more leverage over their victims, coercing … 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

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

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