Following the collapse of FTX and the civil and criminal enforcement actions arising from FTX’s and its founder’s alleged misconduct, partners Bill Komaroff and Seetha Ramachandran offer their reactions to the superseding indictment of Sam Bankman-Fried (SBF) obtained on March 27, 2023 by the U.S. Attorney’s Office for the Southern

On March 15, 2023 the U.S. Securities and Exchange Commission (“SEC”) released its proposal to amend Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information, while simultaneously issuing two additional cybersecurity-related rule proposals[1] and re-opening the comment period for its previously-proposed cybersecurity risk management rule released in February 2022.[2] This set of sweeping reforms makes it clear, if not already, that the SEC is serious about implementing comprehensive cybersecurity and privacy standards across its regulated entity population—including investment advisers.   

Everything, everywhere, all at once is our risk thesis for 2023, but one must not forget about concentration risk.  This issue has rocketed up diligence agendas for LPs and GPs alike as the collapse of Silicon Valley Bank proved it really was the bank for venture capital.The entry of SVB into receivership on March 10, 2023 highlighted just how central it had become to U.S. venture capital, providing deposit and credit facilities not just to asset managers, but also to many (and in some cases the vast majority) of their portfolio companies and investors.  While deposit accounts were protected in full, companies unable to access those accounts for several days faced significant disruption.  Further, while borrowers were still bound by terms of credit agreements, there was no immediate obligation on the Federal Deposit Insurance Corporation (FDIC) as receiver to honor drawdown requests (although the bridge bank did announce it would honor credit facilities). Net asset value (NAV) lines, subscription lines and investors’ own deposit and credit lines were also affected. The deposits and loans of SVB were acquired from FDIC by First Citizens Bank on March 27, 2023.

On Friday, March 10, 2023, Silicon Valley Bank (“SVB”) became the largest U.S. lender since the Great Financial Crisis to enter into receivership with the Federal Deposit Insurance Corporation. SVB was a major provider of depository services and liquidity to various investment funds, managers and their related entities through subscription

Over the past week, the U.S., UK, and EU imposed sweeping sanctions rolled out by the US, in response to Russia’s invasion of Ukraine, outlined here. Also last week, the Department of Justice announced the launch of Task Force KleptoCapture to enforce these sanctions and seize assets belonging to sanctioned individuals and other criminal actors. Attorney General Merrick B. Garland made clear that the U.S. “will leave no stone unturned in our efforts to investigate, arrest, and prosecute those whose criminal acts enable the Russian government to continue this unjust war.”

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.

On April 28, 2020, Treasury Secretary Mnuchin announced that companies that received loans of more than $2 million through the Paycheck Protection Program (“PPP”) of the CARES Act will be closely scrutinized. Mr. Mnuchin noted that the Small Business Administration (“SBA”) would audit the business to determine whether the certifications

COVID-19 has created many new concerns for private fund managers; however, managers should be particularly mindful of heightened cybersecurity and fraud risks. With increased numbers of employees teleworking, there are increased vulnerabilities for cybercriminal intrusions creating privacy-related risks for fund portfolio information, LP confidential data, and other sensitive electronically-stored materials.

Initial Coin Offerings (“ICOs”) are generating attention from both investors and the SEC. Investors’ interest is indicated by the more than $1.2 billion that ICOs reportedly have raised so far this year.  Meanwhile, the SEC has recently asserted its authority in the space, releasing a report stating that digital tokens