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Category Archives: SEC

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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

Second Circuit Upholds Insider Trading Conviction, Finding Sufficient Confidentiality Duty and Personal Benefit

Last week, the Second Circuit upheld a criminal conviction for insider trading, holding that signing a Non-Disclosure Agreement (NDA) with a target company created a sufficient duty of trust and confidence to support a conviction. The defendant in United States v. Chow, an executive at a foreign private equity firm, was convicted for tipping a … 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

Three Critical Questions That Will (Hopefully) be Answered by the SEC’s Lawsuit against Ripple

Late last year, the SEC filed a litigated action in the U.S. District Court for the Southern District of New York against Ripple Labs Inc. and two of its executive officers (collectively, “Ripple”), alleging that Ripple raised over $1.3 billion in unregistered offerings of the digital asset known as XRP. Ripple opted not to file … 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

SEC Revises Marketing Rule for Registered Investment Advisers

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

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

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

SEC Enforcement’s 2020 Annual Report Reflects Shifting Priorities for Fund Managers: Four Key Takeaways

On Monday the SEC announced its enforcement results for FY 2020, accompanied by a report from the Director of its Division of Enforcement. This report confirms what we have seen over the past year for private fund managers: although OCIE has been more active on adviser examinations, we’ve seen a bit less enforcement activity. Yet … Continue Reading

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

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

Asserting Reliance on Compliance Consultants as a Defense: Admissibility and Effectiveness

Asset managers commonly engage regulatory compliance consultants to aid them in addressing regulatory requirements and implementing compliance programs. The work of those compliance professionals can be drawn into SEC enforcement actions in various contexts.  See, e.g., ZPR Investment Mgmt. Inc. v. SEC (compliance consultant resigned when advice not followed and testified in proceeding). One such context … Continue Reading

SEC Expands the “Accredited Investor” and “QIB” Definitions and the Permitted Scope of “Testing the Waters”

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

Private Equity and Cybersecurity: A Guide to Preparing for and Responding to a Breach

A cyber breach can have serious legal, financial, and reputational consequences for a fund sponsor, as described in our previous post. As such, cybersecurity threats must be treated as business risks, not just a potential IT problem. Senior management at fund sponsors should take the lead to ensure that the sponsor is taking appropriate actions … Continue Reading

Proskauer Partner Joshua Newville Discusses the SEC’s Focus on Valuation of Private Fund Investments

Proskauer partner Josh Newville discussed the SEC’s focus on valuation of private fund investments at the recent Securities Enforcement Forum West 2020. The global COVID-19 crisis has added a layer of complexity to the valuation process, requiring special care. As we predicted in our 2020 Top Ten Regulatory and Litigation Risks for Private Funds, ongoing … Continue Reading

Five Principles For Accurate and Reliable Portfolio Company Valuations

We have seen the SEC increase its focus on valuation of privately-held portfolio companies recently. The SEC’s increased focus is in line with our prediction made in the Top Ten Regulatory and Litigation Risks for Private Funds in 2020 post from the start of this year, and we expect the trend to continue. The global … Continue Reading

ESG-Focused Fund Strategies Face SEC Scrutiny on Disclosures and Internal Procedures

As investors drive demand for investment products focused on environmental, social and governance (ESG) factors, fund managers have increasingly offered ESG-focused or “sustainable investing” funds. However, a recent speech by SEC Commissioner Elad Roisman has highlighted regulatory concerns for fund managers in the ESG space, particularly with respect to disclosures and internal compliance.… Continue Reading

Private Equity Adviser Settles with SEC for Misallocation of Internal Expenses Relating to “Third-Party Tasks”

The SEC issued an order imposing sanctions against private equity adviser Rialto Capital Management, LLC (“Rialto”) for violations of the Advisors Act relating to expense allocation. The settlement addressed Rialto’s allocation of expenses for certain “third-party tasks” performed by in-house employees, which was allowed under the relevant fund documents with consent of the limited partner … Continue Reading

SEC Cracks Down on Retirement Fund Advisers’ Undisclosed Compensation and Conflicts

In August 2020, the SEC issued two orders against VALIC Financial Advisors Inc. (VFA) related to VFA’s management of 403(b) and 457(b) plans. These matters arise out of two of the SEC’s enforcement initiatives, the Teachers and Military Service Members’ Initiative and the Share Class Selection Disclosure Initiative. VFA is a registered investment adviser and … Continue Reading

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

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

Privacy in the Time of Pandemic: COVID-19 Provides Opportunity to Revisit Regulation S-P Privacy Policies

With more people working remotely than ever before in light of COVID-19, firms in the private equity and hedge fund space should review their Regulation S-P privacy and information-safeguarding policies to ensure they are compliant and ready for a prolonged period of remote work. In particular, in view of SEC guidance, firms should focus on … Continue Reading

Misuse of Private Fund Assets Leads to SEC Enforcement and Industry Bar for Fund Manager

In a cautionary tale about the career-limiting risks of SEC sanctions, a private fund adviser and its owner were found to have misused over $1 million of fund assets, resulting in a bar from the investment industry as well as a civil penalty. Monsoon Capital, LLC (Monsoon) is an SEC-registered investment adviser founded and owned … Continue Reading
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