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Proskauer on Private Fund Litigation

Category Archives: Regulation

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Looking Ahead: Top Litigation and Regulatory Risks for Fund Managers Right Now (Webinar)

The regulatory and litigation risks for private funds are greater than at any time since the financial crisis in 2008. From the continued proliferation of digital assets and cryptocurrencies, to the unprecedented activity in SPACs (many of which are merging with PE-backed portfolio companies), to the increased focus on ESG under the Biden Administration, new … Continue Reading

SEC Is Exploring Reforms Regarding Private Fund Disclosure Of Conflicts Of Interest And Fees and Expenses

On September 14, 2021, U.S. Securities and Exchange Commission Chair Gary Gensler testified before the Senate Committee on Banking, Housing, and Urban Affairs. During his testimony, he stated that the SEC is exploring “potential reforms” regarding investment funds and managers.  Chair Gensler explained that one of the potential reforms under consideration by the SEC was … Continue Reading

Bloomberg Law: Regulatory Oversight of Privacy, Cybersecurity & Private Investment Funds

Privacy and cybersecurity issues continue to garner significant attention in the U.S. and abroad. As private investment funds registered with the SEC and their portfolio companies see increased regulatory scrutiny relating to privacy and cybersecurity in the U.S., Proskauer’s Margaret Dale, Todd Ohlms, Jonathan Weiss, Kelly McMullon and Hena Vora write for Bloomberg Law as … Continue Reading

U.S. Federal Regulators Turn Up the Heat on Cryptocurrency Trading Platforms

With new types of digital assets and related business on the rise, federal authorities have been busy investigating.  Recently, the SEC, FinCEN and the CFTC have imposed some notable settlements involving cryptocurrency trading platforms for allegedly operating without appropriate approvals from financial regulatory authorities.  This may be the start of the next wave of government … Continue Reading

Space SPAC Draws SEC Enforcement Action for Allegedly Misleading Disclosures and Due Diligence Failures

As one of the first of an expected series of potential enforcement actions, the SEC has brought an enforcement action against a SPAC and its major participants, highlighting enhanced regulatory scrutiny of SPACs and underscoring the importance of following appropriate diligence and other practices in the de-SPAC process. Given the rapid growth in this sector … Continue Reading

The Portfolio Company Playbook: Chapter 4 – Navigating Direct Liability Risks to the Fund

As litigation claims against portfolio companies have increased, so have accompanying claims asserted directly against funds (and their sponsors). Plaintiffs’ reasoning for including funds as defendants is no mystery: funds often have greater financial resources than the defendant portfolio company, particularly where the portfolio company is in distress, and thus represent the proverbial “deep pockets.” … Continue Reading

Three Key Considerations for Fund Sponsors when Participating in Bankruptcy Proceedings

We anticipate a more assertive regulatory enforcement program under the Biden administration, particularly focused on fund managers’ conflicts of interest, advisers’ codes of ethics, and related policies and procedures relating to material nonpublic information.  These concerns may be heightened for fund managers participating in bankruptcy proceedings, where competing fiduciary obligations arise, particularly in the context … Continue Reading

SEC Increases Advisers Act Qualified Client Thresholds

Registered advisers should take note that on June 17th, the SEC adjusted the dollar amount thresholds for clients of registered advisers to be deemed to be “qualified clients” under rule 205-3 of the Investment Advisers Act of 1940, which permits registered investment advisers to charge performance-based fees to such clients. Upon the effective date of … Continue Reading

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

Cryptocurrencies and Other Digital Assets: A New Regime

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

New Focus and Compliance Approach Needed for Privacy and Cybersecurity

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

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

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

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

The Portfolio Company Playbook – Chapter 2: Navigating Risk from Conflicts of Interest

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

2020 Proskauer Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Funds

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

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

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

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?

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

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

OCIE Issues Risk Alert on Common Deficiencies Observed in Adviser Compliance Programs

On November 19, 2020, the SEC’s Office of Compliance Inspections and Examinations published a risk alert providing an overview of notable compliance issues observed in registered investment advisers’ compliance programs.  The alert will serve as a useful checklist for advisers seeking to identify weaknesses in their own compliance programs and preparing for the inevitable SEC … Continue Reading
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