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Proskauer on Private Fund Litigation

Category Archives: Private Equity

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The Countdown Starts: Compliance Dates Set for Private Fund Adviser Rules

Earlier today, the SEC’s Private Fund Adviser Rules were published in the Federal Register. As with all federal regulations, publication in the Federal Register begins the countdown to the Rules’ compliance dates. These dates are listed in the table below. Please see our prior alerts for an overview of the Rules’ provisions, a summary of … Continue Reading

Lawsuit Challenges Private Fund Adviser Rules

On Friday, September 1, 2023, a lawsuit was filed with the federal Court of Appeals in the Fifth Circuit challenging the validity and enforceability of the recently adopted Private Fund Adviser Rules under the Investment Advisers Act of 1940 (the “Advisers Act”).  (Please see our prior alerts for a description of the Rules’ provisions and … Continue Reading

The Trend Continues: Increased Regulatory Focus on Privacy & Cybersecurity for Private Funds

Recent enforcement actions highlight the increased regulatory scrutiny that private funds may face with respect to internal cybersecurity protocols and responses to cyber-crimes and cyber incidents under new and updated cybersecurity laws. … Continue Reading

Regulators’ Increased Focus on GP-Led Secondaries and Continuation Funds

As IPOs and other traditional paths to liquidity for private assets have become more challenging, GP-led secondary transactions have emerged as a powerful and popular tool across closed-end private funds, leading to explosive growth over the last five years. And while macro factors influence their prevalence year over year, these transactions remain broadly popular across the … Continue Reading

Energy Transition: A New Risk Climate for Investors

Go to any private equity event in the last 12 months, and “energy transition” will have been discussed, meaning the shift in energy production away from fossil‑based systems to low or zero carbon ones. As fund managers continue to raise funds focused on investments in this sector, we see no reason for this trend to … Continue Reading

Ripples Following the SPAC Wave: Litigation and Regulatory Risks

It’s a pattern we often see in boom-and-bust cycles—disputes rising in the period after a wave crests. SPAC deal volume hit an unprecedented high in 2021, but then slowed down in 2022 alongside IPOs. However, the fallout from the SPAC wave will continue to unfold this year, generating increased regulatory attention and a growing number of … Continue Reading

Messaging Missteps: SEC’s Increasing Focus on Off-Channel Communications

The SEC’s Enforcement Division is conducting a sweep investigation of large investment advisers regarding their employees’ use of “off-channel” communications.  The sweep, which has been widely reported in the press, focuses on text messages from personal phones, personal email, WhatsApp and other platforms not typically captured or monitored by advisers.  The sweep is causing considerable … Continue Reading

SEC Overreach: Insurers Underwrite?

Implications of SEC attempt to curb indemnification for private fund managers The SEC spent 2022 making multiple and sweeping proposals to amend rules under the Advisers Act, many of which have the ability to significantly re-shape market standards for private funds.  Here, we focus on the SEC’s proposal to undo a common protection for private … Continue Reading

The New Reality: Valuation in a Volatile Market

Amid rising interest rates, tightening credit markets, geopolitical concerns in Europe and Asia, stubborn inflation and continuing supply chain issues, there is a growing sense of economic uncertainty.  This uncertainty will no doubt increase the frequency of valuation disputes in the year ahead. We generally see valuation disputes spring from four primary sources: Valuation disputes … Continue Reading

Crypto Contagion – Managing Risk on Multiple Fronts

Crypto firm bankruptcies and resulting disruption in the crypto ecosystem will continue to exacerbate liquidity and regulatory concerns in this space. Signs of contagion are evident as prices of almost every cryptocurrency type have halved in recent months.  Since all participants supporting the crypto ecosystem are at risk, managing that risk is critical.… Continue Reading

Portfolio Companies in Distress: Navigating the Risks from SVB and Other Threats to Liquidity and Solvency

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 … Continue Reading

Top Ten Regulatory and Litigation Risks for Private Funds in 2023

Everything, everywhere, all at once, as a descriptor, captures the litigation and regulatory risks for the asset management industry in 2023. Every corner of the market faces greater risks than at any time since 2008. After years of breakneck growth fueled by low interest rates and a largely laissez faire regulatory regime, significant change is … Continue Reading

Current Issues Relating to Silicon Valley Bank Closure

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 or capital call facilities, net … Continue Reading

SEC Examinations in 2023 to Focus on “Riskier Private Funds” and New Marketing Rule

On February 7, 2023, the Division of Examinations of the U.S. Securities and Exchange Commission released its 2023 Examination Priorities (“Annual Priorities”). Released at the beginning of each calendar year, the priorities tend to repeat the previous year’s priorities, and consumers of these regulatory tea leaves need to search closely for clues as to what … Continue Reading

In The Zone? When Directors of Portfolio Companies Have to Take Creditor Interests into Account

Representatives of asset managers often take up positions on the boards of portfolio companies. We have written posts before on some of the litigation and regulatory risks that can arise, both for the asset managers and the individuals including: Portfolio Company Risk: Plaintiffs Set Sights on Sponsors and Board Directors, The Trend of Increasing Disclosure Obligations … Continue Reading

SEC Proposes ESG Reporting and Disclosure Requirements for Private Fund Advisers

On May 25, the Securities and Exchange Commission issued proposed rules under the Investment Advisers Act of 1940 for advisers to private funds that consider environmental, social or governance factors (“ESG”) as part of one or more significant investment strategies. The proposed rules would require advisers employing ESG strategies to report additional information about those … Continue Reading

Portfolio Company Risk: Plaintiffs Set Sights on Sponsors and Board Directors

As our other Top Ten posts have demonstrated, there is no shortage of risks for private fund sponsors to navigate in today’s economic and regulatory environment. Nevertheless, they need to prioritize the risk that hits closest to home – lawsuits by private litigants seeking to pull sponsors, their funds, and their board director designees into … Continue Reading

The Bottom Line of the SEC Proposed Private Fund Rules

On February 9, 2022, the U.S. Securities and Exchange Commission (the “SEC”) proposed new rules and amendments to existing rules under the U.S. Investment Advisers Act of 1940, as amended, that would have notable practical implications for private funds advisers, in many cases regardless of the adviser’s registration status. At a high level, the proposed … Continue Reading

Conflicts of Interest: How High Will the Bar be Raised?

The SEC last month proposed rules under the Advisers Act indicating a dramatic shift in how the SEC intends to reduce conflicts of interest involving private fund managers and their investors. As we previously noted in the context of increased disclosure obligations, the SEC’s recent approach previews a sea change redefining the relationship between private … Continue Reading

SEC Division of Examinations Announces 2022 Examination Priorities

On March 30, 2022, the Division of Examinations of the U.S. Securities and Exchange Commission (the “SEC”) announced its examination priorities for fiscal year 2022. The annual publication of the Division’s examination priorities is intended to align with the Division’s four pillars of promoting and improving compliance, preventing fraud, monitoring risk, and informing policy, and … Continue Reading

The Trend of Increasing Disclosure Obligations for Private Funds Continues in 2022

Last month, the SEC proposed new rules under the Advisers Act that, if implemented, would be the most significant enhancement of disclosure obligations for private fund managers since the Dodd-Frank Act.  Citing investor protection and transparency concerns for limited partners as investors, these proposals signal the Commission’s intent to add additional tools to the fund … Continue Reading

Insider Trading, MNPI and Related Internal Controls: A Renewed Focus by SEC

Over the past few years, the SEC has brought fewer insider trading and Material Non-Public Information (MNPI)-related cases compared to historical numbers. We expect to see a reversal of that trend in 2022. The SEC has provided some hints of its renewed focus on insider trading. First, even though the overall number of insider trading … Continue Reading
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