Cryptocurrencies and digital assets will continue to be an area of intense regulatory focus, but a new administration may bring new regulations. SEC Chairman Gensler has extensive experience with cryptocurrencies and blockchain, including a teaching stint at MIT. However, Gensler has alternated between censure and praise, referring to cryptocurrencies and
Increased Regulatory Scrutiny of Private Funds
President Biden has signaled a shift to a more assertive SEC Enforcement program with the nomination, and expected confirmation, of Gary Gensler as the next Chair of the SEC. Mr. Gensler previously served as the Chairman of the CFTC from 2009 to 2014, where he established a reputation as a forceful regulator. This reputation suggests that we should expect a significant increase in enforcement actions against private fund managers.
Under former Chairman Clayton, private fund advisers benefited indirectly from the SEC’s focus on ”Main Street” investors. More of the SEC’s limited resources were devoted to addressing retail fraud, leaving fewer resources available to focus on private funds. As former Enforcement Director Stephanie Avakian explained recently, the SEC relied more heavily on exams by OCIE (recently renamed the “Division of Examinations”) – through deficiency notices and remediation, rather than enforcement actions – to address perceived private fund compliance violations. Whether the SEC returns to the more assertive “broken windows” approach to regulation under prior administrations remains to be seen.
Top Ten Regulatory and Litigation Risks for Private Funds in 2021
The regulatory and litigation risks for private funds are greater than at any time since the financial crisis in 2008. Just a few examples prove the point: the pandemic (which caused extraordinary volatility in revenues and valuations for most asset categories); a new administration in Washington D.C. (with a more
SEC Division of Examinations Announces its Examination Priorities for 2021
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
Three Critical Questions That Will (Hopefully) be Answered by the SEC’s Lawsuit against Ripple
Late last year, the SEC filed a litigated action in the U.S. District Court for the Southern District of New York against Ripple Labs Inc. and two of its executive officers (collectively, “Ripple”), alleging that Ripple raised over $1.3 billion in unregistered offerings of the digital asset known as XRP. Ripple opted not to file a motion to dismiss the complaint, and based on recent filings it appears that the parties do not believe a pre-trial settlement is likely.
SEC Extends Registration Requirements for Investment Companies and Broker Dealers to ICOs and other Digital Assets
Fund managers take note – after over a year of warning, this month the SEC announced a pair of settlement orders with respect to registration requirements for a fund and broker dealer operating in the crypto and digital assets space. It was the agency’s first ever enforcement actions applying the investment company and broker-dealer registration provisions of the securities laws to businesses involved in digital securities. As we’ve written on Proskauer’s Blockchain and the Law blog, we expect to see the SEC continue to expand its oversight of digital assets as securities.