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Category Archives: SEC

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Crypto Asset Regulation: Is the US or UK Keeping Up Best With This Emerging Market?

By Joshua M. Newville, Dorothy Murray, Nicholas Petrie and David W. Heck on Posted in Asset Management, Compliance, Cryptocurrency, Enforcement, Regulation, SEC
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

By Anthony M. Drenzek, Robert Leonard, Michael Mavrides and Robert E. Plaze on Posted in Asset Management, Compliance, OCIE, Regulation, SEC
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

By Joshua M. Newville, Samuel J. Waldon, Brian A. Hooven and Ariella Muller on Posted in Asset Management, Enforcement, OCIE, Private Equity Litigation, SEC, Securities Law
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

By Anthony M. Drenzek, Robert E. Plaze, Samuel J. Waldon and Joshua M. Newville on Posted in Compliance, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
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

By James Anderson, Joshua M. Newville, Robert E. Plaze and Samuel J. Waldon on Posted in Asset Management, Compliance, Disputes, Enforcement, SEC, Securities Law
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”

By Anthony M. Drenzek on Posted in Asset Management, Business Development Companies, Hedge Funds, Private Equity, Regulation, SEC, Securities Law
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

By Alexandra V. Bargoot, Margaret A. Dale and Samuel J. Waldon on Posted in Asset Management, Compliance, Cybersecurity, Disputes, OCIE, Private Equity, SEC
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

By Joshua M. Newville on Posted in Asset Management, Compliance, Examinations, OCIE, Private Equity, SEC
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

By Joshua M. Newville and James Anderson on Posted in Compliance, Examinations, Private Equity, SEC, Securities Law
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

By Joshua M. Newville and Kirsten E. Lapham on Posted in Asset Management, Compliance, OCIE, Private Equity, Regulation, SEC, Securities Law
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”

By Ariella Muller, Joshua M. Newville and Samuel J. Waldon on Posted in Disputes, Private Equity, Private Equity Litigation, SEC, Securities Law
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

By Alexandra V. Bargoot, Robert E. Plaze, Samuel J. Waldon and Joshua M. Newville on Posted in Asset Management, Compliance, Examinations, OCIE, Private Equity, Regulation, SEC, Securities Law
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

By Anthony M. Drenzek, Robert Leonard, Robert E. Plaze, Michael Suppappola and Samuel J. Waldon on Posted in Compliance, Hedge Funds, OCIE, Private Equity, SEC, Securities Law
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

By Lucy C. Wolf, Margaret A. Dale, William D. Dalsen, Joshua M. Newville and Samuel J. Waldon on Posted in Compliance, Cybersecurity, OCIE, Regulation, SEC, Securities Law
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

By Julia M. Ansanelli, Joshua M. Newville and Samuel J. Waldon on Posted in Asset Management, Disputes, Private Equity Litigation, SEC, Securities Law
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

Private Equity and Cybersecurity: Threats, Consequences, and the Regulatory Framework

By Alexandra V. Bargoot, Anthony M. Drenzek, Samuel J. Waldon and Margaret A. Dale on Posted in Asset Management, Compliance, Cybersecurity, Disputes, Examinations, FINRA, OCIE, Private Equity, Regulation, SEC
Cybersecurity breaches and threats are pervasive concerns for any entity storing valuable data or managing large sums of money: private investment funds are no exception.  Recently three private equity firms suffered breaches that compromised their email accounts and wire transfers, resulting in $1.3 million in losses.  We have seen the SEC follow through on its … Continue Reading

Who Foots the Bill? SEC Cracks Down on Operating Partner Reimbursement Disclosures

By Hena M. Vora, Joshua M. Newville, Samuel J. Waldon and Michael R. Hackett on Posted in Asset Management, Compliance, Disputes, Private Equity, Private Equity Litigation, SEC, Securities Law
The SEC has been active in the private equity space recently after being relatively quiet for some time. A recent enforcement action serves as a reminder for fund sponsors that regulators are continuing to look at fund sponsors’ practices relating to “operating partners,” particularly in the context of disclosures to limited partners.… Continue Reading

Fund Adviser Receives $1 Million Penalty For Alleged Performance Misstatements in Private Fund Marketing Material

By Joshua M. Newville, Robert E. Plaze, Samuel J. Waldon, Brian A. Hooven and Adam L. Deming on Posted in Asset Management, Private Equity Litigation, SEC
Though SEC scrutiny of performance results in fund marketing materials is nothing new, a recent settlement order suggests that the Commission continues to closely examine representations in marketing materials with respect to past investment performance. Old Ironsides Energy, LLC, a Boston-based registered investment adviser, agreed to pay a $1 million penalty to settle SEC charges … Continue Reading

SEC Targets Fund Auditor in Latest Battle Over Valuation Practices

By Adam L. Deming, Joshua M. Newville and Samuel J. Waldon on Posted in Private Equity, Regulation, SEC, Securities Law
Going into 2020, we expected scrutiny over valuation methods to be one of the top regulatory risks for private funds. With ongoing economic uncertainty applying pressure, the SEC will continue to focus on valuation issues surrounding portfolio investments. Fund audit firms are not immune to regulatory scrutiny involving their professional obligations with respect to fund … Continue Reading

Coronavirus Disruption: Regulatory and Litigation Risks for Private Fund Managers

By Hena M. Vora, Samuel J. Waldon, Joshua M. Newville and Michael R. Hackett on Posted in Private Equity Litigation, Regulation, SEC, Securities Law
The impact of the global coronavirus (COVID-19) outbreak has been rapidly evolving, causing disruption in global commerce across a wide range of industries. Private fund managers are not immune to the disruption. According to PitchBook’s latest analysis, private equity and venture ­­capital still have record amounts of dry powder ($2.4 trillion) to weather the storm … Continue Reading

When is a Cross Trade a Principal Trade? SEC Brings Enforcement Action Against a Fund Manager That Appears not to Have Understood

By Robert E. Plaze, Joshua M. Newville and Lucy C. Wolf on Posted in Compliance, Hedge Funds, OCIE, Private Equity, Regulation, SEC, Securities Law
Last month the SEC brought an enforcement action illustrating how cross trades can trip up a manager of a private fund.  The SEC’s settlement with investment manager Lone Star Value Management LLC was based on allegations that the manager carried out a series of cross trades among funds it managed without disclosing to the client … Continue Reading

U.S. Supreme Court Denies Bid to Review Dismissal of Challenge to Pay-To-Play Rule

By Adam L. Deming, Anthony M. Drenzek, Michael R. Hackett, Joshua M. Newville, Robert E. Plaze and Samuel J. Waldon on Posted in Disputes, FINRA, SEC
On January 13, 2020, the United States Supreme Court denied certiorari to an appeal of a June 2019 order from the United States Court of Appeals for the D.C. Circuit that dismissed an action seeking to invalidate certain under the First Amendment, among other arguments. This denial leaves in place a ruling in favor of … Continue Reading

Top Ten Regulatory and Litigation Risks for Private Funds in 2020

By Margaret A. Dale, Michael R. Hackett, Kirsten E. Lapham, Timothy W. Mungovan, Joshua M. Newville, Seetha Ramachandran, Samuel J. Waldon, Jonathan M. Weiss, Anthony M. Drenzek, James Anderson, Alexandra V. Bargoot, William D. Dalsen, Adam L. Deming, David W. Heck, Brian A. Hooven, Christina H. Kroll, Hena M. Vora and Lucy C. Wolf on Posted in Business Development Companies, Compliance, Cryptocurrency, Disputes, Examinations, Hedge Funds, Mergers & Acquisitions, OCIE, Private Credit, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital, White Collar
The private fund industry is more in the public eye than ever before.  Private capital and private markets have experienced massive growth over the last two decades, substantially outpacing the growth of public equity. We have witnessed that trend continue during the past year, and have worked with our clients to navigate the greater uncertainty … Continue Reading

OCIE Publishes Cybersecurity and Resiliency Observations

By Robert Leonard, Michael Mavrides, Christopher Wells and Evan Zepfel on Posted in Compliance, OCIE, Private Equity Litigation, SEC
On January 27, 2020, the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) published its Cybersecurity and Resiliency Observations. Cybersecurity and data protection for market participants have been key focuses of OCIE for several years. These observations provide useful insights into OCIE’s examination priorities in these areas. OCIE compiled these observations … Continue Reading
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