Everything, everywhere, all at once is our risk thesis for 2023, but one must not forget about concentration risk. This issue has rocketed up diligence agendas for LPs and GPs alike as the collapse of Silicon Valley Bank proved it really was the bank for venture capital.The entry of SVB into receivership on March 10, 2023 highlighted just how central it had become to U.S. venture capital, providing deposit and credit facilities not just to asset managers, but also to many (and in some cases the vast majority) of their portfolio companies and investors. While deposit accounts were protected in full, companies unable to access those accounts for several days faced significant disruption. Further, while borrowers were still bound by terms of credit agreements, there was no immediate obligation on the Federal Deposit Insurance Corporation (FDIC) as receiver to honor drawdown requests (although the bridge bank did announce it would honor credit facilities). Net asset value (NAV) lines, subscription lines and investors’ own deposit and credit lines were also affected. The deposits and loans of SVB were acquired from FDIC by First Citizens Bank on March 27, 2023.
Securities Law
Top Ten Regulatory and Litigation Risks for Private Funds in 2023
Everything, everywhere, all at once, as a descriptor, captures the litigation and regulatory risks for the asset management industry in 2023. Every corner of the market faces greater risks than at any time since 2008. After years of breakneck growth fueled by low interest rates and a largely laissez faire regulatory regime, significant change is here.
SEC Examinations in 2023 to Focus on “Riskier Private Funds” and New Marketing Rule
On February 7, 2023, the Division of Examinations of the U.S. Securities and Exchange Commission released its 2023 Examination Priorities (“Annual Priorities”). Released at the beginning of each calendar year, the priorities tend to repeat the previous year’s priorities, and consumers of these regulatory tea leaves need to search closely…
2022 SEC Enforcement Results – Takeaways for Fund Managers
Yesterday the SEC’s Division of Enforcement announced its Enforcement Results for Fiscal Year 2022, and there are a few key takeaways for fund managers.
Keeping Up With Kim Kardashian’s SEC Charges
The SEC spread its reach to Hollywood this month – on October 3, 2022, the SEC announced charges against Kim Kardashian for her social media promotions of EMAX, a digital token issued by EthereumMax. The SEC found that Kardashian violated the anti-touting provision of the federal securities laws by failing…
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…
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 (MNPI) Compliance Issues.
The SEC’s EXAMS risk alert specifically highlighted a handful of common deficiencies noted under Section 204A of the Advisers Act and Rule 204A-1 under the Advisers Act (the “Code of Ethics Rule”).
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…
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 fund managers and their investors. For decades, the SEC has sought to address potential conflicts through a combination of disclosure and informed consent, in light of the sophisticated nature of private fund limited partners. However, the SEC’s proposal now pivots from that approach, concluding that certain fund manager practices are inherently conflicted and therefore in some cases necessitate that the fund manager undertake specific actions, or in other cases must be flatly prohibited. As the SEC put it in their Proposing Release, “We have observed certain industry practices over the past decade that have persisted despite our enforcement actions and that disclosure alone will not adequately address.”
SEC Division of Examinations Announces 2022 Examination Priorities
On March 30, 2022, the Division of Examinations of the U.S. Securities and Exchange Commission (the “SEC”) announced its examination priorities for fiscal year 2022. The annual publication of the Division’s examination priorities is intended to align with the Division’s four pillars of promoting and improving compliance, preventing fraud, monitoring…