On November 14, 2023, the SEC’s Division of Enforcement announced its Enforcement Results for Fiscal Year 2023. Below are some key takeaways for fund managers:
The Crypto Wars Escalate
The gloves are off. The SEC’s recent enforcement actions against leading crypto exchanges suggest that the SEC has decided that time’s up for the crypto industry as it currently exists in the United States.
After spending years urging industry participants to come in and register, the SEC has made clear, by
The SBF Superseder: A Second Bite at the Scienter Apple
Following the collapse of FTX and the civil and criminal enforcement actions arising from FTX’s and its founder’s alleged misconduct, partners Bill Komaroff and Seetha Ramachandran offer their reactions to the superseding indictment of Sam Bankman-Fried (SBF) obtained on March 27, 2023 by the U.S. Attorney’s Office for the Southern
In Continuation of Longstanding Focus on Cybersecurity, SEC Proposes Significant Amendments to Regulation S-P
On March 15, 2023 the U.S. Securities and Exchange Commission (“SEC”) released its proposal to amend Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Customer Information, while simultaneously issuing two additional cybersecurity-related rule proposals[1] and re-opening the comment period for its previously-proposed cybersecurity risk management rule released in February 2022.[2] This set of sweeping reforms makes it clear, if not already, that the SEC is serious about implementing comprehensive cybersecurity and privacy standards across its regulated entity population—including investment advisers.
SBF Prosecution Raises Novel Issues for Asset Forfeiture and Victim Restitution
The crimes charged against SBF are simple — old-fashioned fraud through a Ponzi scheme. His conviction seems inevitable. For the government, the challenging part of this case will be the forfeiture proceedings. Under the Mandatory Victim Restitution Act (MVRA), federal prosecutors have an affirmative obligation to use their “best efforts”
The Trend of Increasing Disclosure Obligations for Private Funds Continues in 2022
Last month, the SEC proposed new rules under the Advisers Act that, if implemented, would be the most significant enhancement of disclosure obligations for private fund managers since the Dodd-Frank Act. Citing investor protection and transparency concerns for limited partners as investors, these proposals signal the Commission’s intent to add additional tools to the fund manager enforcement and examination toolbox.
Insider Trading, MNPI and Related Internal Controls: A Renewed Focus by SEC
Over the past few years, the SEC has brought fewer insider trading and Material Non-Public Information (MNPI)-related cases compared to historical numbers. We expect to see a reversal of that trend in 2022.
The SEC has provided some hints of its renewed focus on insider trading. First, even though the overall number of insider trading cases was down last year, the SEC brought two “first of kind” cases involving MNPI. The SEC successfully defeated a motion to dismiss its first “shadow trading” insider trading case – charging an individual with trading in the securities of an issuer based on MNPI he had obtained regarding another issuer. And the SEC brought its first case against an alternative data provider when it charged App Annie and its founder with making fraudulent misrepresentations in connection with its use of confidential information.
Space SPAC Draws SEC Enforcement Action for Allegedly Misleading Disclosures and Due Diligence Failures
As one of the first of an expected series of potential enforcement actions, the SEC has brought an enforcement action against a SPAC and its major participants, highlighting enhanced regulatory scrutiny of SPACs and underscoring the importance of following appropriate diligence and other practices in the de-SPAC process. Given the
FinCEN’s $390 Million case against Capital One – And What it Means for AML Enforcement
As the financial services industry prepares for expanded criminal and civil enforcement under the Bank Secrecy Act (“BSA”) with the passage of the Anti-Money Laundering Act of 2020, FinCEN’s recent case against Capital One shows how FinCEN’s approach to AML enforcement is evolving.
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.