Proskauer on Private Fund Litigation

Tag Archives: Conflicts of Interest

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 for clues as to what … Continue Reading

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 … Continue Reading

Treating “Like for Like”: SPAC Disclosure, Marketing and Gatekeeping in 2022

We reported last year that unprecedented SPAC deal volume signaled an increased risk for disputes given their unique structure, including risks associated with disclosure requirements, material non-public information, valuation, and conflicts of interest. Our assessment proved prescient, as the SEC began to flex its enforcement muscles vis-à-vis SPACs as the year progressed, and took specific … Continue Reading

SEC Proposes Advisers Act Reforms Focusing on Private Fund Investor Protections

By Monica Arora, Howard J. Beber, David T. Jones, Michael Mavrides, Stephen T. Mears, Robin Painter, Robert E. Plaze, Michael Suppappola, David W. Tegeler, Christopher Wells and Vanessa K. Rakel on February 17, 2022 Posted in Asset Management, Compliance, Disputes, Enforcement, Hedge Funds, Mergers & Acquisitions, Private Equity, Regulation, SEC, Securities Law

On February 9, 2022, the U.S. Securities and Exchange Commission (the “SEC”) proposed new rules and amendments to existing rules under the U.S. Investment Advisers Act of 1940 that would have notable practical implications for private fund advisers, in many cases regardless of the adviser’s registration status. The Proposed Rules include prohibitions or mandates regarding … Continue Reading

Top Ten Regulatory and Litigation Risks for Private Funds in 2022

Last year, we wrote, “The regulatory and litigation risks for private funds are greater than at any time since the financial crisis in 2008.” That statement is even more true today. The Wall Street Journal recently published separate front-page stories on an SEC initiative to oversee large private companies and the explosive growth of the private … Continue Reading

SEC Chair Gensler Signals SEC Policies for Private Funds

By Robert E. Plaze and David J. Marcinkus on November 16, 2021 Posted in Enforcement, Hedge Funds, Private Equity, Regulation, SEC, Securities Law

On November 10, 2021, SEC Chair Gensler gave an important speech identifying his regulatory priorities for private funds. Registered advisers should take note of the areas of concern Chair Gensler identified as we approach the new year. Read the full client alert here.… 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 September 20, 2021 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

The Portfolio Company Playbook: Chapter 4 – Navigating Direct Liability Risks to the Fund

By Timothy W. Mungovan, Michael R. Hackett, Jonathan M. Weiss and Adam L. Deming on July 22, 2021 Posted in Asset Management, Compliance, Disputes, Enforcement, Private Equity, Private Equity Litigation, Regulation

As litigation claims against portfolio companies have increased, so have accompanying claims asserted directly against funds (and their sponsors). Plaintiffs’ reasoning for including funds as defendants is no mystery: funds often have greater financial resources than the defendant portfolio company, particularly where the portfolio company is in distress, and thus represent the proverbial “deep pockets.” … 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 July 6, 2021 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

SPACs: Sure, Proceedings Are Coming

By Dorothy Murray on June 9, 2021 Posted in Asset Management, Disputes, SPACs

Proskauer’s Asset Management Litigation partner Dorothy Murray recently authored an article on litigation risks of SPACs. Dorothy details why the recent popularity of this latest incarnation of so-called “blank cheque” companies will inevitably lead to disputes, and the reasons are all connected to the very features that make SPACs so attractive in the first place. … Continue Reading

The Portfolio Company Playbook – Chapter 3: Navigating Risk from Company Employee Claims

By Timothy W. Mungovan, Jonathan M. Weiss, Michael R. Hackett and Adam L. Deming on May 25, 2021 Posted in Asset Management, Compliance, Disputes, Enforcement, Private Equity, Private Equity Litigation, Regulation

Another source of litigation risk for fund sponsors are claims brought by portfolio company employees. Sponsors should be aware of these risks, particularly when the portfolio company is in distress or is considering a sale or other transaction affecting the disposition of shares in the company. We have set forth below just a few examples … Continue Reading

SEC Division of Examinations Announces its Examination Priorities for 2021

By Robert E. Plaze, Stephen T. Mears, Joshua M. Newville, Anthony M. Drenzek and Benjamin Catalano on March 16, 2021 Posted in Compliance, Examinations, Hedge Funds, Private Equity, Regulation, SEC

On March 3, 2021, the SEC’s Division of Examinations announced its examination priorities for 2021. Compared to last year, this year’s edition contains an expanded section specifically addressed to private funds. For private fund managers, the exam staff states that it will target a list of issues, including: Preferential treatment of certain investors by advisers to … Continue Reading

The Portfolio Company Playbook – Chapter 2: Navigating Risk from Conflicts of Interest

By Timothy W. Mungovan, Jonathan M. Weiss, Michael R. Hackett, Alexandra V. Bargoot and Adam L. Deming on March 2, 2021 Posted in Asset Management, Compliance, Disputes, Enforcement, Private Equity, Private Equity Litigation, Regulation

Private funds frequently negotiate for special rights when making an investment in a portfolio company, such as the right to appoint one or more board directors, voting rights, and liquidation preferences. Fund sponsors often focus solely on the positive aspects of these special rights, such as increased control, without considering fully other implications. As the … Continue Reading

2020 Proskauer Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Funds

By Asset Management Team on February 18, 2021 Posted in Asset Management, Compliance, Cybersecurity, Disputes, Enforcement, Hedge Funds, Private Equity, Regulation, SEC, Venture Capital, White Collar

Proskauer’s Private Investment Funds Group released its 2020 Annual Review. The yearly report provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge fund spaces, as well as certain recommended practices that investment advisers should consider when preparing for 2021. Read the … 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 October 29, 2020 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

SEC Cracks Down on Retirement Fund Advisers’ Undisclosed Compensation and Conflicts

By Alexandra V. Bargoot, Robert E. Plaze, Samuel J. Waldon and Joshua M. Newville on August 11, 2020 Posted in Asset Management, Compliance, Examinations, OCIE, Private Equity, Regulation, SEC, Securities Law

In August 2020, the SEC issued two orders against VALIC Financial Advisors Inc. (VFA) related to VFA’s management of 403(b) and 457(b) plans. These matters arise out of two of the SEC’s enforcement initiatives, the Teachers and Military Service Members’ Initiative and the Share Class Selection Disclosure Initiative. VFA is a registered investment adviser and … Continue Reading

SEC Releases Risk Alert Identifying Common Private Equity and Hedge Fund Compliance Deficiencies

By Anthony M. Drenzek, Robert Leonard, Robert E. Plaze, Michael Suppappola and Samuel J. Waldon on July 1, 2020 Posted in Compliance, Hedge Funds, OCIE, Private Equity, SEC, Securities Law

On June 23rd, the staff of the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a new risk alert entitled “Observations from Examinations of Investment Advisers Managing Private Funds.” As discussed in the client alert below, the report highlights many practices which have been the subject of SEC enforcement actions with … Continue Reading

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

By Robert E. Plaze, Joshua M. Newville and Lucy C. Wolf on March 18, 2020 Posted in Compliance, Hedge Funds, OCIE, Private Equity, Regulation, SEC, Securities Law

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 … Continue Reading

Proskauer Private Investment Funds Group Releases 2019 Annual Review and Outlook

By Anthony M. Drenzek on November 27, 2019 Posted in Compliance, Disputes, Hedge Funds, OCIE, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Venture Capital

Proskauer’s Private Investment Funds Group recently released its 2019 Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Private Funds. This yearly publication provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge funds space, as well as certain … Continue Reading

SEC Enforcers Continue to Focus on Undisclosed Fees

By Joshua M. Newville and Brian A. Hooven on November 12, 2019 Posted in Compliance, OCIE, Regulation, SEC, Securities Law, Uncategorized

In a series of enforcement cases over the past few months, the SEC has continued to bring actions focused on undisclosed fees charged to clients. Many of these cases have charged firms with fraud and other violations based on fees that were not adequately disclosed. While some attention has focused on retail wealth managers, institutional … Continue Reading

Proposed Senate Bill Would Significantly Impact Certain Private Funds and Their Affiliates

By Anthony M. Drenzek, Joshua M. Newville and Stephen T. Mears on September 4, 2019 Posted in Compliance, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law

Recently, a group of Congress members introduced into Congress Senate Bill 2155 named the Stop Wall Street Looting Act of 2019. Although unlikely to be enacted into law as drafted, this proposed legislation would directly and substantially affect a number of fundamental operational aspects of private equity funds and their affiliates.… Continue Reading

Proskauer Launches Private Equity SEC Enforcement Tracker

By Timothy W. Mungovan, Howard J. Beber, Stephen T. Mears, Samuel J. Waldon, Joshua M. Newville and Brian A. Hooven on July 22, 2019 Posted in Compliance, Disputes, Private Equity, Private Equity Litigation, Regulation, SEC

Today, we are launching a proprietary database tracking all SEC enforcement actions involving private equity advisers. The tracker contains key information from the actions, including summaries of key issues, settlement terms, and relevant statutory provisions. The tracker will be an important resource for us and our clients, providing us with quick access to comparable cases … Continue Reading

DC Circuit Opinion Reaffirms Fiduciary and Disclosure Obligations of Advisers While Rejecting SEC Finding of “Willful” Violations

By Joshua M. Newville, Samuel J. Waldon, Anthony M. Drenzek and Ariella Muller on May 13, 2019 Posted in Disputes, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law

The DC Circuit recently released an opinion addressing the SEC’s administrative findings against registered investment adviser The Robare Group (TRG) for failure to disclose alleged conflicts of interest. Although the court affirmed the SEC’s finding of a violation of Section 206(2) of the Advisers Act, it held that Commission could not find willful violations under … Continue Reading

The Top Ten Regulatory and Litigation Risks for Private Funds in 2019

By Timothy W. Mungovan, Samuel J. Waldon, Joshua M. Newville, Michael R. Hackett, Anthony M. Drenzek, William D. Dalsen, Brian A. Hooven, Alexandra V. Bargoot, Lucy C. Wolf and Hena M. Vora on February 20, 2019 Posted in Compliance, Disputes, Examinations, Hedge Funds, Mergers & Acquisitions, OCIE, Private Credit, Private Equity, Private Equity Litigation, Regulation, SEC, Securities Law, Uncategorized, Venture Capital

An increasingly sophisticated and active OCIE division, innovative market disruptors, a maturing credit cycle, and a philosophical change in how the private fund industry views and utilizes litigation are likely to lead to increased regulatory scrutiny and litigation risk for advisers (and their funds) in 2019. With that backdrop, we are pleased to present our … Continue Reading

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