The Capital Commitment

Proskauer on Private Fund Litigation

SEC Targets Fund Auditor in Latest Battle Over Valuation Practices

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 valuation issues. Continue Reading

Coronavirus Disruption: Regulatory and Litigation Risks for Private Fund Managers

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 and step in to provide liquidity to businesses. However, operations, fundraising, deal sourcing, and performance will likely be negatively affected, at least in the near-term, by the economic deterioration caused by COVID-19. Continue Reading

Considerations for Private Fund Managers to Weather the Storm of COVID-19

As COVID-19 continues to spread around the world, it has become apparent that it is having a significant impact on the global financial market, at least for the short- to medium-term. While the only constant is change, there are steps private fund managers can take that will help them weather the storm and best position themselves for the future.

Read the full alert here.

Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help managae ongoing operations.

Cybersecurity and Fraud Risks for Fund Managers in the Wake of Coronavirus

COVID-19 has created many new concerns for private fund managers; however, managers should be particularly mindful of heightened cybersecurity and fraud risks. With increased numbers of employees teleworking, there are increased vulnerabilities for cybercriminal intrusions creating privacy-related risks for fund portfolio information, LP confidential data, and other sensitive electronically-stored materials. Continue Reading

When is a Cross Trade a Principal Trade? SEC Brings Enforcement Action Against a Fund Manager That Appears not to Have Understood

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 in writing that it was acting as a principal and obtaining the client’s consent. In addition to Lone Star, the SEC also sanctioned its founder, sole managing member, CEO, and portfolio manager for violations of Section 206(3) under the Advisers Act and Rule 206(4)-7 thereunder relating to principal transactions.

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Vice Chancellor Veers Away from Delaware Section 220 Precedent

Last year, we highlighted the risks of filing a Section 220 books and records request post-litigation, citing a case where the Delaware Chancery Court found that such use was an improper attempt to “sue first, ask questions later.”

Recently, the Delaware Chancery Court opined on this issue again in Lebanon County Employees’ Retirement Fund v. AmerisourceBergen Corporation – this time, the Vice Chancellor took a more expansive view in favor of the parties seeking information under Section 220. Section 220 of the Delaware General Corporation Law allows stockholders to inspect books and records of a Delaware corporation for any proper purpose and to compel inspection if such inspection is refused. Continue Reading

U.S. Supreme Court Denies Bid to Review Dismissal of Challenge to Pay-To-Play Rule

On January 13, 2020, the United States Supreme Court denied certiorari to an appeal of a June 2019 order from the United States Court of Appeals for the D.C. Circuit that dismissed an action seeking to invalidate certain under the First Amendment, among other arguments. This denial leaves in place a ruling in favor of the U.S. Securities and Exchange Commission’s (SEC) authority to prohibit pay-to-play practices in the investment management industry. Continue Reading

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