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Category Archives: Venture Capital

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Snap Judgment: Unicorns Under Pressure and Addressing Risks of Private Lawsuits

By Joshua M. Newville, William D. Dalsen and Alexandra V. Bargoot on Posted in Disputes, Hedge Funds, Mergers & Acquisitions, Private Equity, Private Equity Litigation, SEC, Venture Capital
The recent IPOs of Snap, Inc. and Blue Apron indicate that while the IPO pipeline continues to flow, there may be a cautionary tale for “unicorns” – venture-backed companies with estimated valuations in excess of $1 billion. After Snap went public in March, it posted a $2.2 billion loss in its first quarter, yielding a … Continue Reading

Valuation of Illiquid Portfolio Investments – Avoiding Regulatory Risks with Form and Substance

By Joshua M. Newville, Timothy W. Mungovan and Anthony M. Drenzek on Posted in Compliance, Disputes, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
For private fund managers, the valuation of privately-held securities has been subject to heightened regulatory scrutiny. As the IPO on-ramp for private “unicorn” investments has lengthened, fund managers may hold illiquid investments for longer-than-expected time periods—and valuation-related risks increase as the time lengthens between purchase and exit.  This is the second of two blog posts … Continue Reading

Cyber Attack Protection Steps for Investment Firms

By Kristen J. Mathews on Posted in Compliance, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, Uncategorized, Venture Capital
We are reaching out to our investment firm clients to advise them of an email “spear phishing” scam that has targeted investment firms recently, attempting to lure their personnel into inadvertently revealing their email account credentials to criminal fraudsters, and making wire transfers to the criminal’s account instead of the intended account. There has been … Continue Reading

SEC Announces 2017 Compliance Outreach Program Seminars for Investment Companies and Investment Advisers

By Anthony M. Drenzek on Posted in Compliance, Examinations, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
On Thursday, March 23rd, the Securities and Exchange Commission announced the opening of registration for its compliance outreach program seminars for investment companies and investment advisers.  The seminars will be offered in four U.S. cities and are intended to help Chief Compliance Officers (CCOs) and other senior personnel enhance compliance programs at investment companies and … Continue Reading

SEC Speaks: 2017 Enforcement and Exam Trends for Private Funds

By Joshua M. Newville, Anthony M. Drenzek and Michael R. Hackett on Posted in Compliance, Disputes, Examinations, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
At the recent SEC Speaks program, sponsored by PLI, senior SEC staff members provided valuable insight into the SEC’s 2017 priorities for private funds.  While the tenor of this year’s discussion seemed to focus more on retail investors, the staff discussed several topics that private fund advisers should keep in mind from both an enforcement … Continue Reading

The Top Ten Regulatory and Litigation Risks for Private Funds in 2017

By Timothy W. Mungovan, Joshua M. Newville, Michael R. Hackett, Anthony M. Drenzek and William D. Dalsen on Posted in Business Development Companies, Compliance, Disputes, Examinations, Fund Restructurings, Hedge Funds, Mergers & Acquisitions, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital, Whistleblower
Private investment funds and advisers are likely to face new regulatory challenges and increased litigation risks in 2017, not only because of a change in the administration, but also because many advisers have not corrected and aligned past practices with current regulatory guidance.  In this post, we have highlighted ten areas that should be on … Continue Reading

SEC Shake-Up: President-Elect Trump Expected to Make Key Appointments

By Michael R. Hackett, Timothy W. Mungovan, Joshua M. Newville and Anthony M. Drenzek on Posted in Business Development Companies, Compliance, Disputes, Examinations, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
In the wake of the election of Donald Trump as the 45th President of the United States, Mary Jo White has announced her intent to step down from her role as Chair of the Securities and Exchange Commission.  Chair White, the 31st and one of the longest-serving Chairs of the SEC, will be leaving her … Continue Reading

Fund Restructurings: How to Navigate a Conflict-Rich Environment

By Timothy W. Mungovan and Michael R. Hackett on Posted in Compliance, Disputes, Fund Restructurings, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Venture Capital
The number of private equity fund restructurings is likely to rise in the coming years.  The current economic expansion will inevitably come to an end (at 87 months and counting, this expansion is already the third longest post-WWII) making exits more challenging, just as the terms expire on funds raised during the “golden era” (2003-2007). … Continue Reading

SEC Announces Record Number of Investment Adviser Cases for FY 2016

By William D. Dalsen, Timothy W. Mungovan, Joshua M. Newville, Michael R. Hackett and Anthony M. Drenzek on Posted in Compliance, Disputes, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital, Whistleblower
The Securities and Exchange Commission today announced its enforcement results for fiscal year 2016, reaching new highs in the number of actions filed and money ordered forfeited through disgorgement and penalties.  The SEC noted that it brought the most ever cases involving investment advisers or investment companies, including 8 enforcement actions related to private equity advisers, an area … Continue Reading

Private Fund Advisers Must Pay Close Attention to Nuances under Pay-to-Play Restrictions in Light of Upcoming Elections Nationwide

By Robert Leonard, Michael Mavrides, Christopher Wells, Michael Suppappola and Anthony M. Drenzek on Posted in Compliance, FINRA, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
As the elections approach nationwide, advisers to private investment funds with current or prospective state or local government entity investors should be mindful of political activities by their personnel which could raise concerns under existing pay-to-play regulations. While seemingly straightforward in application, the SEC’s pay-to-play regulations have the potential to present a number of complex … Continue Reading

Putting a Premium on Illiquidity: Some Reflections on the SEC’s Scrutiny of Valuation Practices and Disclosures

By Joshua M. Newville, Michael R. Hackett and Timothy W. Mungovan on Posted in Compliance, Disputes, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
Valuation is typically near the top of the list when the SEC’s enforcement division and exam staff disclose their priority topics for private funds.  We expect that trend to continue and, if anything, the focus on valuation is likely to increase, especially as the market for unicorns shakes out. That said, the SEC rarely challenges … Continue Reading

SEC Whistleblower Settlement Reminds Fund Sponsors to Review Organizational Policies and Procedures

By Anthony M. Drenzek, Joshua M. Newville, Timothy W. Mungovan and Michael R. Hackett on Posted in Compliance, Disputes, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital, Whistleblower
A recent SEC settlement of whistleblower charges should serve as a useful reminder for private fund sponsors to conduct a comprehensive review of their policies and procedures. On August 10, 2016, the SEC announced that BlueLinx Holdings Inc., an Atlanta-based building products distributor, had settled charges that it violated securities laws by using severance agreements … Continue Reading

Defend Trade Secrets Act – Implications for Private Funds

By William D. Dalsen on Posted in Compliance, Hedge Funds, Private Equity, Venture Capital
On May 11, 2016, the federal Defend Trade Secrets Act (DTSA) became law.  The DTSA provides trade-secret protections on the federal level that are similar to those available through the Uniform Trade Secrets Act (UTSA) adopted (with variations) in 48 States.  The DTSA will have at least three effects upon private funds, particularly those with … Continue Reading

Webcast: The New Regulatory Landscape for Financial Institutions

By Timothy W. Mungovan on Posted in Compliance, Disputes, FINRA, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
Is your organization equipped to stay on top of regulator demands?  Join Proskauer’s Tim Mungovan, co-head of the Private Equity & Hedge Fund Litigation Group, and Marsh’s FINPRO U.S. Chief Innovation Officer Machua Millett on June 15 at 2:00 p.m. ET for a webinar on the new regulatory landscape for financial institutions. The webcast will … Continue Reading

SEC Announces Settlement with Adviser Found to Have Acted as an Unregistered Broker

By Anthony M. Drenzek, Timothy W. Mungovan, Sean J. Hill and Michael R. Hackett on Posted in Compliance, Mergers & Acquisitions, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
The SEC is continuing its pattern of establishing “standards of conduct” for the private equity industry through speeches, enforcement actions, and public settlements. After foreshadowing its concerns in various speeches over the last three years, the SEC recently returned its attention to the “unregistered broker” issue.  In a settlement announced last week, the SEC asserted … Continue Reading

Application of the Joint Proposed Incentive Compensation Rule to Investment Advisers

By Anthony M. Drenzek on Posted in Compliance, Hedge Funds, Private Equity, Regulation, SEC, Securities Law, Venture Capital
On May 16, 2016, six federal agencies issued a joint release inviting public comment on a proposed rule to prohibit or condition certain incentive-based compensation arrangements. This proposed rule was mandated by section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and is a revision of the proposed rule the agencies … Continue Reading

Theranos, the SEC’s Pursuit of Unicorns, and Taking the Reins of Internal Controls

By Joshua M. Newville and Michael R. Hackett on Posted in Compliance, Disputes, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
In the wake of a host of negative developments, Theranos Inc. is reportedly under investigation by the Department of Justice and the Securities and Exchange Commission.  The SEC and DOJ inquiries are likely to focus on whether Theranos misled investors about the state of its technology and operations.  Even beyond potential misrepresentation issues, we believe … Continue Reading

Regulatory Compliance Association’s Enforcement, Compliance & Operations (ECO) 2016 Symposium

By Timothy W. Mungovan and Christopher Wells on Posted in Compliance, Disputes, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
Partners Timothy W. Mungovan (co-head of Private Equity & Hedge Fund Litigation Group) and Christopher M. Wells (head of Hedge Funds Group)  have been invited to join a large collection of senior regulators at the Regulatory Compliance Association’s Enforcement, Compliance & Operations (ECO) 2016 Symposium.  The conference will take place on Tuesday May 17 at … Continue Reading

Portfolio Company Litigation: Some Practical Considerations for Board-Designees of Private Funds

By Timothy W. Mungovan, Joel Cavanaugh and Michael R. Hackett on Posted in Disputes, Private Equity, Private Equity Litigation, Venture Capital
Individuals affiliated with private fund managers are increasingly being named as defendants in lawsuits involving fund portfolio companies, particularly where the fund controls one or more seats on the portfolio company’s board, or where an individual affiliated with the fund sponsor serves as a senior executive at the portfolio company. When an individual affiliated with … Continue Reading

Unicorns Under Scrutiny: The SEC Previews Its “Long Arm” Of The Law

By Timothy W. Mungovan, Michael R. Hackett and Anthony M. Drenzek on Posted in Compliance, Disputes, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital
As we previously discussed, SEC Chair Mary Jo White recently delivered the keynote address at the Silicon Valley Initiative hosted by the SEC-Rock Center for Corporate Governance at Stanford University.   While the speech and its focus on unicorns attracted some initial media attention, the subsequent response has been surprisingly muted given that Chair White provided … Continue Reading

A Commonsense Explanation of the SEC’s Regulation of Private Investment Funds

By Timothy W. Mungovan, Joel Cavanaugh and Michael R. Hackett on Posted in Compliance, Disputes, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Venture Capital
The SEC’s regulation of the private investment funds industry has generated significant attention and commentary, as well as a fair amount of hand-wringing.  From our perspective as lawyers, however, there is a relatively commonsense explanation for the SEC’s approach.  Rather than acting with a heavy-hand by imposing a comprehensive set of “regulations,” the SEC is … Continue Reading

2016 Hot Topics for Private Fund Sponsors

By Timothy W. Mungovan, Michael R. Hackett and Joel Cavanaugh on Posted in Compliance, Disputes, Hedge Funds, Private Equity, Private Equity Litigation, Regulation, SEC, Venture Capital
This year, private investment funds are likely to face increased regulatory scrutiny and litigation risk. This is due to several market developments, including transparency and compliance initiatives of limited partners. There are several areas that should be on every private fund sponsor’s list. Fees and expenses will continue to be a top priority for the … Continue Reading

6 Questions PE Sponsors Must Ask About Their GPL Policies

By Timothy W. Mungovan, Joel Cavanaugh and Michael R. Hackett on Posted in Compliance, Hedge Funds, Private Equity, Venture Capital
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SEC Sets Compliance Date for Pay-to-Play Rule’s Ban on Third-Party Solicitation of Government Entities

By Timothy W. Mungovan and Michael R. Hackett on Posted in Compliance, Hedge Funds, Private Equity, Regulation, SEC, Venture Capital
On June 25, 2015, the Securities and Exchange Commission (SEC) set a compliance date of July 31, 2015 for the ban on payments to third parties for the solicitation of advisory business from any government entity under Rule 206(4)-5 of the Investment Advisers Act of 1940 (Pay-to-Play Rule). At the same time, the SEC also … Continue Reading
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