Proskauer on Private Fund Litigation

Category Archives: Hedge Funds

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

SEC Division of Examinations Announces its Examination Priorities for 2021

By Robert E. Plaze, Stephen T. Mears, Joshua M. Newville, Anthony M. Drenzek and Benjamin Catalano on March 16, 2021 Posted in Compliance, Examinations, Hedge Funds, Private Equity, Regulation, SEC

On March 3, 2021, the SEC’s Division of Examinations announced its examination priorities for 2021. Compared to last year, this year’s edition contains an expanded section specifically addressed to private funds. For private fund managers, the exam staff states that it will target a list of issues, including: Preferential treatment of certain investors by advisers to … 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

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

Delaware Supreme Court Provides Further Guidance on Books and Records Requests in AmerisourceBergen

By Adam L. Deming on February 9, 2021 Posted in Disputes, Hedge Funds, Private Credit, Private Equity Litigation, Venture Capital

This past year, we highlighted a Delaware Chancery case adopting an expansive view in favor of parties seeking information from companies under Section 220 of the Delaware General Corporation Law. The Delaware Supreme Court recently affirmed the Chancery Court’s ruling, providing additional appellate guidance on Section 220 and endorsing limits the Chancery Court set on … Continue Reading

SEC Announces 2020 National Compliance Outreach Seminar for Investment Companies and Investment Advisers

By Anthony M. Drenzek, Robert E. Plaze, Samuel J. Waldon and Joshua M. Newville on October 29, 2020 Posted in Compliance, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital

On October 7th, 2020, the Securities and Exchange Commission (SEC) announced the rescheduled date of its 2020 national compliance outreach seminar for investment companies and investment advisers. This program is intended to help Chief Compliance Officers and other senior personnel at investment companies and investment advisory firms enhance their compliance programs. The SEC’s Office of … 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

Poison Pills In the Wake of COVID-19: A Refresher on Terms and Variations of Shareholder Rights Plans

By David W. Heck, Michael E. Ellis, Louis Rambo and Samuel J. Waldon on August 31, 2020 Posted in Compliance, Hedge Funds, Private Equity, Regulation, Securities Law

Shareholder rights plans, commonly known as “poison pills,” are arrangements that can be used by companies to stave off hostile takeovers or activist investors seeking to exert control over a company without paying a control premium. A typical rights plan, if triggered, would allow all shareholders except the triggering person to purchase additional shares in … 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

SEC Releases Risk Alert Identifying Common Private Equity and Hedge Fund Compliance Deficiencies

By Anthony M. Drenzek, Robert Leonard, Robert E. Plaze, Michael Suppappola and Samuel J. Waldon on July 1, 2020 Posted in Compliance, Hedge Funds, OCIE, Private Equity, SEC, Securities Law

On June 23rd, the staff of the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a new risk alert entitled “Observations from Examinations of Investment Advisers Managing Private Funds.” As discussed in the client alert below, the report highlights many practices which have been the subject of SEC enforcement actions with … Continue Reading

What Fund Managers Need to Know About Price Gouging Laws

By Christopher E. Ondeck, Colin Kass and John R. Ingrassia on June 11, 2020 Posted in Asset Management, Compliance, Disputes, Hedge Funds, Private Equity, Regulation

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

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

Vice Chancellor Veers Away from Delaware Section 220 Precedent

By Margaret A. Dale, Joshua M. Newville and Hena M. Vora on March 5, 2020 Posted in Disputes, Hedge Funds, Private Credit, Private Equity Litigation, Venture Capital

Last year, we highlighted the risks of filing a Section 220 books and records request post-litigation, citing a case where the Delaware Chancery Court found that such use was an improper attempt to “sue first, ask questions later.” Recently, the Delaware Chancery Court opined on this issue again in Lebanon County Employees’ Retirement Fund v. … 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

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

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 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

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

Delaware Chancery Declines Post-Filing Use of Section 220 Books and Records Inspection Request

By Hena M. Vora, Lucy C. Wolf and Michael R. Hackett on February 26, 2019 Posted in Disputes, Hedge Funds, Private Equity, Private Equity Litigation, Venture Capital

A recent decision by the Delaware Chancery Court suggests that a litigant might forego the ability to file a books and records request if it waits to do so until after the lawsuit is filed. Last month the Delaware Chancery Court dismissed just such an action, characterizing the request for a books and records inspection … 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 M. Drenzek, William D. Dalsen, Brian A. Hooven, Alexandra V. Bargoot, Lucy C. Wolf and Hena M. Vora on February 20, 2019 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 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

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

Bharara Task Force on Insider Trading

By Joshua M. Newville and Samuel J. Waldon on October 15, 2018 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