Last week, former CFTC Chairman Gary Gensler explained in remarks at M.I.T. that he believes the second and third most widely used virtual currencies—Ether and Ripple—may have been issued and traded in violation of securities regulations. This comes on the heels of a crackdown on cryptocurrency-related securities by the SEC, which is particularly focused on initial coin offerings (ICOs). For fund managers, we believe the increased regulatory pressure will be felt in some expected, and some not-so-expected, ways. Continue Reading
As a sign that the SEC is continuing to actively pursue private equity fund advisers, on April 24, 2018, the SEC announced a settlement with private equity fund adviser WCAS Management Corporation (WCAS) related to allegations of undisclosed conflicts of interest. The specific conflicts resulted from an allegedly undisclosed contractual arrangement whereby a portion of fees received by a group purchasing organization (GPO) for services it provided to WCAS funds’ portfolio companies would be paid to WCAS. In settlement of the allegations, WCAS agreed to disgorgement of $688,819.78 and a civil monetary penalty of $90,000, as well as a cease and desist and censure.
On April 12, 2018, the SEC’s Office of Compliance Inspections and Examinations issued a risk alert listing the most common compliance issues concerning fees and expenses charged by SEC-registered investment advisers. Advisers should review their practices, policies and procedures to ensure compliance with their advisory agreements and representations to clients in light of the fee and expense issues noted in the risk alert.
Here are the top six:
- Fee-Billing Based on Incorrect Account Valuations.
- Billing Fees in Advance or with Improper Frequency.
- Applying Incorrect Fee Rates.
- Omitting Rebates and Applying Discounts Incorrectly.
- Disclosure Issues Involving Advisory Fees.
- Adviser Expense Misallocations.
For additional guidance, please read our full client alert on this topic.
We are pleased to announce that partner Samuel Waldon has joined Proskauer’s Litigation Department in DC, enhancing the Firm’s securities litigation and regulatory enforcement practices. Among his other areas of focus, Sam will bolster the firm’s Asset Management Litigation team.
“In today’s ever evolving regulatory landscape, Sam’s extensive experience at the SEC and his deep knowledge of federal securities law will be a valuable asset to our clients,” said Tim Mungovan, Chair of Proskauer’s Litigation Department.
Mr. Waldon joins Proskauer from the U.S. Securities and Exchange Commission (SEC), where he served as Assistant Chief Counsel in the Enforcement Division for eight years. Providing guidance on all types of enforcement matters, his focus included FCPA, asset management, insider trading and financial fraud matters, as well as issues relating to the Freedom of Information, Bank Secrecy, Privacy, Right to Financial Privacy and Electronic Communications Privacy Acts. Mr. Waldon received his B.A., summa cum laude, from Virginia Tech and his J.D., with honors, from University of Texas School of Law.
On Tuesday, February 13th, the Securities and Exchange Commission (SEC) announced the opening of registration for its 2018 national compliance outreach seminar for investment companies and investment advisers. The event is intended to help Chief Compliance Officers (CCOs) and other senior personnel at investment companies and investment advisory firms to enhance their compliance programs. Continue Reading
With the public equity markets at an all-time high and private equity fund raising setting new records, it might seem counterintuitive to forecast litigation and regulatory risks. The opposite is true. Disputes typically follow capital, and the steeper the growth curve, the greater the risk of litigation and regulatory scrutiny. With that backdrop, we are pleased to present our Top Ten Regulatory and Litigation Risks for Private Funds in 2018.
1. Regulatory Scrutiny Involving Cryptocurrencies and ICOs
Cryptocurrencies and other instruments based on blockchain technology – such as Initial Coin Offerings (ICOs) – are in the regulators’ sights. The SEC has asserted jurisdiction over products structured as ICOs and is pursuing violations of the anti-fraud provisions and registration violations involving ICOs and cryptocurrencies. A number of enforcement attorneys in the SEC’s new Cyber Unit are focused on ICO and cryptocurrency investigations, with more cases in the pipeline. In addition, the CFTC has declared virtual currencies to be “commodities” subject to its oversight under the Commodity Exchange Act and has brought a number of actions under the anti-fraud provisions of the CEA against industry participants. Fund managers with investments in or exposure to these areas should prepare for questions about disclosures and increasing regulatory scrutiny and spillover relating to those investments. Continue Reading
In his recent remarks at the Securities Regulation Institute, SEC Chairman Jay Clayton had some stern words for market professionals, especially lawyers, involved in initial coin offerings (ICOs). He expressed concern that lawyers in the space “can do better” in their role as gatekeepers to the securities markets, particularly in advising clients whether the “coin” being offered is a security requiring registration.