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Category Archives: Securities Law

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

By Robert Leonard, Michael Mavrides, Joshua M. Newville, Jonathan Richman, Christopher Wells and Julia Alonzo on Posted in Disputes, Enforcement, Hedge Funds, Private Equity, SEC, Securities Law
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

Bloomberg Law: Growth of ESG-Related Investments & Regulatory Action

By Kirsten E. Lapham, Joshua M. Newville and Jonathan M. Weiss on Posted in Asset Management, Compliance, Enforcement, Regulation, Securities Law
As interest in environmental, social, and corporate governance (ESG) related funds grows, the regulatory landscape surrounding ESG in the US and the E.U. continues to evolve. Proskauer’s Kirsten Lapham, Joshua Newville and Jonathan Weiss share key implications for the asset management industry. Read the full Bloomberg Law article here.  … Continue Reading

2021 SEC Enforcement Results – Takeaways for Fund Managers

By Joshua M. Newville and Samuel J. Waldon on Posted in Enforcement, Regulation, SEC, Securities Law
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

By Joshua M. Newville and Samuel J. Waldon on Posted in Asset Management, Compliance, Regulation, SEC, Securities Law
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

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

By Julia M. Ansanelli, Joshua M. Newville, Seetha Ramachandran and Samuel J. Waldon on Posted in Compliance, Enforcement, Regulation, SEC, Securities Law, White Collar
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

By Michael Mavrides, Robert Leonard, Joshua M. Newville, Jonathan Richman and Samuel J. Waldon on Posted in Disputes, Enforcement, Hedge Funds, Private Equity, SEC, Securities Law, White Collar
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

By Joshua M. Newville and Samuel J. Waldon on Posted in Asset Management, Compliance, Disputes, Enforcement, Regulation, SEC, Securities Law, SPACs
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

By Joshua M. Newville, Samuel J. Waldon and Erica T. Jones on Posted in Asset Management, Compliance, Disputes, Enforcement, Examinations, Private Equity, Regulation, SEC, Securities Law
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

By Robert E. Plaze on Posted in Business Development Companies, Compliance, Hedge Funds, Private Equity, Regulation, Securities Law
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

Cryptocurrencies and Other Digital Assets: A New Regime

By Margaret A. Dale, Michael R. Hackett, Kirsten E. Lapham, William Komaroff, Timothy W. Mungovan, Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Seetha Ramachandran, Ana Vermal, Samuel J. Waldon, Jonathan M. Weiss, Anthony M. Drenzek, James Anderson, Alexandra V. Bargoot, William D. Dalsen, Adam L. Deming, David W. Heck, Hena M. Vora and Lucy C. Wolf on Posted in Compliance, Disputes, Enforcement, Private Equity, Regulation, SEC, Securities Law
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

By Jonathan Richman on Posted in Enforcement, SEC, Securities Law, White Collar
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

Increased Regulatory Scrutiny of Private Funds

By Margaret A. Dale, Michael R. Hackett, Kirsten E. Lapham, William Komaroff, Timothy W. Mungovan, Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Seetha Ramachandran, Ana Vermal, Samuel J. Waldon, Jonathan M. Weiss, Anthony M. Drenzek, James Anderson, Alexandra V. Bargoot, William D. Dalsen, Adam L. Deming, David W. Heck, Hena M. Vora and Lucy C. Wolf on Posted in Compliance, Enforcement, Examinations, OCIE, Private Equity, Securities Law
President Biden has signaled a shift to a more assertive SEC Enforcement program with the nomination, and expected confirmation, of Gary Gensler as the next Chair of the SEC.  Mr. Gensler previously served as the Chairman of the CFTC from 2009 to 2014, where he established a reputation as a forceful regulator. This reputation suggests … Continue Reading

Top Ten Regulatory and Litigation Risks for Private Funds in 2021

By Margaret A. Dale, Michael R. Hackett, Kirsten E. Lapham, William Komaroff, Timothy W. Mungovan, Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Seetha Ramachandran, Ana Vermal, Samuel J. Waldon, Jonathan M. Weiss, Anthony M. Drenzek, James Anderson, Alexandra V. Bargoot, William D. Dalsen, Adam L. Deming, David W. Heck, Hena M. Vora and Lucy C. Wolf on Posted in Asset Management, Compliance, Cybersecurity, Disputes, Enforcement, Examinations, Hedge Funds, Mergers & Acquisitions, OCIE, Private Credit, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, White Collar
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

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

By Samuel J. Waldon, Joshua M. Newville and Timothy W. Mungovan on Posted in Disputes, Enforcement, SEC, Securities Law
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

An Overview of OFAC’s Ongoing Guidance: Chinese Military Companies Trading Ban

By Seetha Ramachandran and David W. Heck on Posted in Asset Management, Compliance, Disputes, Enforcement, Securities Law, White Collar
Over the past few weeks, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has issued further guidance in the form of Frequently Asked Questions (FAQs) and General Licenses that clarify the terms of the Order and its Chinese Military Sanctions Program. To a large degree, OFAC’s guidance confirms that the agency will interpret … 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

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

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
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