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Category Archives: Securities Law

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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

Five Principles For Accurate and Reliable Portfolio Company Valuations

By James Anderson and Joshua M. Newville 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

Poison Pills In the Wake of COVID-19: A Refresher on Terms and Variations of Shareholder Rights Plans

By David W. Heck, Michael E. Ellis, Louis Rambo and Samuel J. Waldon on Posted in Compliance, Hedge Funds, Private Equity, Regulation, Securities Law
Shareholder rights plans, commonly known as “poison pills,” are arrangements that can be used by companies to stave off hostile takeovers or activist investors seeking to exert control over a company without paying a control premium. A typical rights plan, if triggered, would allow all shareholders except the triggering person to purchase additional shares in … 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

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

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

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, 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

House Passes Proposed Legislation Defining Insider Trading

By Jonathan Richman and Joshua M. Newville on Posted in Compliance, Hedge Funds, SEC, Securities Law
Since the Second Circuit’s 2014 decision in United States v. Newman triggered a debate about the personal benefit requirement, several bills have been introduced in Congress to define insider trading. The most recent effort is H.R. 2534, the Insider Trading Prohibition Act, which the House of Representatives passed overwhelmingly last week. The bill would codify certain … Continue Reading

Proskauer Private Investment Funds Group Releases 2019 Annual Review and Outlook

By Anthony M. Drenzek on Posted in Compliance, Disputes, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
Proskauer’s Private Investment Funds Group recently released its 2019 Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Private Funds. This yearly publication provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge funds space, as well as certain … Continue Reading

SEC Enforcers Continue to Focus on Undisclosed Fees

By Joshua M. Newville and Brian A. Hooven on Posted in Compliance, OCIE, Regulation, SEC, Securities Law, Uncategorized
In a series of enforcement cases over the past few months, the SEC has continued to bring actions focused on undisclosed fees charged to clients. Many of these cases have charged firms with fraud and other violations based on fees that were not adequately disclosed. While some attention has focused on retail wealth managers, institutional … Continue Reading

SEC Releases FY 2019 Enforcement Results: Increases in Investment Adviser Actions and Maintained Focus on Individual Accountability

By Samuel J. Waldon, Joshua M. Newville and Adam L. Deming on Posted in Disputes, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law
Yesterday the SEC announced its enforcement results for FY 2019, accompanied by a report from the Co-Directors of its Division of Enforcement.  While the total number of actions increased slightly from 2018, the percentage of cases involving investment advisers or investment companies increased more dramatically, growing from 22% in 2018 to 36% in 2019, with … Continue Reading

SEC Announces the Formation of Asset Management Advisory Committee

By Anthony M. Drenzek, Hena M. Vora and Michael R. Hackett on Posted in Compliance, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
As a further indication of the SEC’s focus on the asset management industry, on November 1, 2019 the Commission formally established an Asset Management Advisory Committee. This follows the SEC’s recent announcement of its intent to establish the committee.… Continue Reading

New York Establishes Six-Year Statute of Limitation for Prosecution of Claims under the Martin Act

By Anthony M. Drenzek and Seetha Ramachandran on Posted in Disputes, Private Equity Litigation, Regulation, Securities Law
On August 25, 2019, New York Governor Andrew Cuomo signed New York State Senate Bill S6536 which established a six-year statute of limitations for the prosecution of certain crimes related to fraudulent practices in respect to stocks, bonds and other securities and conducting business in the State of New York. As discussed below, the legislation … Continue Reading

Fund Sponsor’s Fee Calculation Mistake Leads to SEC Enforcement

By Joshua M. Newville, Samuel J. Waldon and Lucy C. Wolf on Posted in Regulation, SEC, Securities Law
A settlement last week involving a private equity fund sponsor is a reminder that compliance with fee calculation provisions and valuation policies and procedures are crucially important for fund managers.  Even when an error is the result of simple negligence, the SEC will take enforcement action when fee calculations do not strictly comply with the … Continue Reading
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