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Proskauer on Private Fund Litigation

Category Archives: SEC

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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

SEC Reopens Comment Period for Proposed Private Fund Adviser Rules

On May 9th, the U.S. Securities and Exchange Commission (“SEC”) announced that it will reopen the public comment period on its proposed rules relating to private fund advisers. The comment period will now remain open until 30 days after the publication of this announcement in the Federal Register. For more details on this timely announcement, … Continue Reading

SEC Risk Alert Highlights Renewed Focus on Insider Trading and MNPI Policies and Procedures for Fund Managers

Last month, we predicted that a renewed focus by the SEC on insider trading, MNPI and related internal controls would be one of the Top Ten Regulatory and Litigation Risks for Private Funds in 2022. Last week, the SEC’s Division of Examinations (“EXAMS”) issued a timely risk alert relating to Investment Adviser Material Non-Public Information … Continue Reading

SEC to Hire More Staff in Crypto Assets and Cyber Unit and Ratchet Up Scrutiny of Industry

The SEC is expanding its team policing the crypto space by adding enforcement staff to its Crypto Assets and Cyber Unit.  We previously noted that regulatory focus on new technologies in the decentralized finance space and further developments on the application of securities laws to digital assets were two of our top ten regulatory developments … 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 Proposes Extensive New Rules Applicable to SPACs and de-SPAC Transactions

We previously noted that SEC Chair Gary Gensler suggested the SEC would adopt new rules governing SPACs because, in his view, SPACs are very similar to initial public offerings but lack protections available to traditional IPO investors.  And now, the SEC has taken concrete steps to treat “like cases alike” by announcing proposed rules 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

Regulatory Shake-Out on Digital Assets: An Industry Waits for Additional Guidance

A threshold question in many cryptocurrency inquiries is whether the digital assets qualify as securities under the federal securities laws. If so, then they are subject to a full suite of federal securities regulations. If not, they still may be subject to AML and other DOJ regulations regarding currencies, as well as the Commodity Futures … Continue Reading

ESG: Practical Points For Where Market Practice and Legal Trends Collide

If 2021 was the year in which regulators and investors enthusiastically embraced environmental, social and governance (“ESG”) considerations, by creating new legal and regulatory frameworks, then 2022 will be the year for asset managers to identify and confront the practical challenges of integrating legal requirements and stakeholder expectations into investment policy and performance.… Continue Reading

Treating “Like for Like”: SPAC Disclosure, Marketing and Gatekeeping in 2022

We reported last year that unprecedented SPAC deal volume signaled an increased risk for disputes given their unique structure, including risks associated with disclosure requirements, material non-public information, valuation, and conflicts of interest. Our assessment proved prescient, as the SEC began to flex its enforcement muscles vis-à-vis SPACs as the year progressed, and took specific … Continue Reading

SEC Proposes Advisers Act Reforms Focusing on Private Fund Investor Protections

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 that would have notable practical implications for private fund advisers, in many cases regardless of the adviser’s registration status. The Proposed Rules include prohibitions or mandates regarding … Continue Reading

Decentralized Finance: The Next Frontier of SEC Enforcement

The SEC’s push to regulate the next generation of blockchain-based applications will likely give rise to disputes and enforcement actions, particularly in the developing decentralized finance (DeFi) space. Although DeFi has the potential to enhance or replace traditional financial products by speeding execution and reducing transaction costs using blockchain technology, the SEC presumes that actors … Continue Reading

Top Ten Regulatory and Litigation Risks for Private Funds in 2022

Last year, we wrote, “The regulatory and litigation risks for private funds are greater than at any time since the financial crisis in 2008.” That statement is even more true today. The Wall Street Journal recently published separate front-page stories on an SEC initiative to oversee large private companies and the explosive growth of the private … Continue Reading

California District Court Upholds SEC’s Novel “Shadow Trading” Theory

The SEC prevailed on a motion to dismiss a closely watched lawsuit alleging that a company employee had engaged in insider trading based on news about a not-yet-public corporate acquisition when he purchased securities of a third-party company that was not involved in the deal. The January 14, 2022 decision in SEC v. Panuwat (N.D. … Continue Reading

2021 SEC Enforcement Results – Takeaways for Fund Managers

On November 18, 2021, the SEC’s Division of Enforcement announced its Enforcement Results for Fiscal Year 2021, and there are a few key takeaways for fund managers. In spite of the continued headwinds posed by the global COVID-19 pandemic, the Commission brought 697 enforcement actions in FY 2021. The Commission also filed 434 new enforcement … 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

MNPI Update – SEC Pursues “Shadow Trading” Insider Trading Case

The SEC recently charged a former employee of a biopharmaceutical company with insider trading in advance of an acquisition but with a unique twist: Trading the securities of a company unrelated to the merger. The employee, Matthew Panuwat, did not trade his own company’s or the acquiring company’s securities, but instead purchased stock options for … 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

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
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