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Proskauer on Private Equity Litigation

Tag Archives: Portfolio Companies

2018 Annual Review and 2019 Outlook Highlights Private Equity Fund Litigation Risk Areas

In our recently released 2018 Annual Review and 2019 Outlook for Hedge Funds, Private Equity Funds and Other Private Funds, we note that innovative market disruptors, a maturing credit cycle, and a philosophical change in how the industry views and utilizes litigation are likely to lead to increased litigation risk for advisers (and their funds) … Continue Reading

Proskauer Private Investment Funds Group Releases 2018 Annual Review and Outlook

Proskauer’s Private Investment Funds Group today released its 2018 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 recommended … Continue Reading

SEC Settles with Private Equity Fund Adviser over Alleged Conflicts of Interest

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 … Continue Reading

SEC Staff Issues Risk Alert on the Six Most Frequent Fee and Expense Compliance Issues

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 … Continue Reading

SEC Announces 2018 Compliance Outreach Program Seminar for Investment Advisers and Investment Companies

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

The Top Ten Regulatory and Litigation Risks for Private Funds in 2018

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 … Continue Reading

Veil-Piercing Under California Law – Heightened Risks for Fund Managers

We recently posted about the risks associated with veil-piercing claims and the ways in which fund managers can protect themselves from exposure to these claims. Our first post on veil-piercing focused on Delaware standards, while this post discusses California law. California law differs in several important respects from Delaware law on this topic. If a … Continue Reading

Veil Piercing/Alter Ego Determinations – How Fund Managers Can Protect Themselves

A veil piercing claim can be a worst-case scenario for a private fund manager dealing with a struggling portfolio company investment – the company fails, and ensuing legal claims are brought not only against the portfolio company, but also against the fund and its GPs. How can fund managers manage that risk? Limited liability is … Continue Reading

Valuation of Illiquid Portfolio Investments – Avoiding Regulatory Risks with Form and Substance

For private fund managers, the valuation of privately-held securities has been subject to heightened regulatory scrutiny. As the IPO on-ramp for private “unicorn” investments has lengthened, fund managers may hold illiquid investments for longer-than-expected time periods—and valuation-related risks increase as the time lengthens between purchase and exit.  This is the second of two blog posts … Continue Reading

SEC Speaks: 2017 Enforcement and Exam Trends for Private Funds

At the recent SEC Speaks program, sponsored by PLI, senior SEC staff members provided valuable insight into the SEC’s 2017 priorities for private funds.  While the tenor of this year’s discussion seemed to focus more on retail investors, the staff discussed several topics that private fund advisers should keep in mind from both an enforcement … Continue Reading

The Top Ten Regulatory and Litigation Risks for Private Funds in 2017

Private investment funds and advisers are likely to face new regulatory challenges and increased litigation risks in 2017, not only because of a change in the administration, but also because many advisers have not corrected and aligned past practices with current regulatory guidance.  In this post, we have highlighted ten areas that should be on … Continue Reading

Fund Restructurings: How to Navigate a Conflict-Rich Environment

The number of private equity fund restructurings is likely to rise in the coming years.  The current economic expansion will inevitably come to an end (at 87 months and counting, this expansion is already the third longest post-WWII) making exits more challenging, just as the terms expire on funds raised during the “golden era” (2003-2007). … Continue Reading

SEC Announces Record Number of Investment Adviser Cases for FY 2016

The Securities and Exchange Commission today announced its enforcement results for fiscal year 2016, reaching new highs in the number of actions filed and money ordered forfeited through disgorgement and penalties.  The SEC noted that it brought the most ever cases involving investment advisers or investment companies, including 8 enforcement actions related to private equity advisers, an area … Continue Reading

Putting a Premium on Illiquidity: Some Reflections on the SEC’s Scrutiny of Valuation Practices and Disclosures

Valuation is typically near the top of the list when the SEC’s enforcement division and exam staff disclose their priority topics for private funds.  We expect that trend to continue and, if anything, the focus on valuation is likely to increase, especially as the market for unicorns shakes out. That said, the SEC rarely challenges … Continue Reading

SEC Whistleblower Settlement Reminds Fund Sponsors to Review Organizational Policies and Procedures

A recent SEC settlement of whistleblower charges should serve as a useful reminder for private fund sponsors to conduct a comprehensive review of their policies and procedures. On August 10, 2016, the SEC announced that BlueLinx Holdings Inc., an Atlanta-based building products distributor, had settled charges that it violated securities laws by using severance agreements … Continue Reading

Webcast: The New Regulatory Landscape for Financial Institutions

Is your organization equipped to stay on top of regulator demands?  Join Proskauer’s Tim Mungovan, co-head of the Private Equity & Hedge Fund Litigation Group, and Marsh’s FINPRO U.S. Chief Innovation Officer Machua Millett on June 15 at 2:00 p.m. ET for a webinar on the new regulatory landscape for financial institutions. The webcast will … Continue Reading

SEC Announces Settlement with Adviser Found to Have Acted as an Unregistered Broker

The SEC is continuing its pattern of establishing “standards of conduct” for the private equity industry through speeches, enforcement actions, and public settlements. After foreshadowing its concerns in various speeches over the last three years, the SEC recently returned its attention to the “unregistered broker” issue.  In a settlement announced last week, the SEC asserted … Continue Reading

Theranos, the SEC’s Pursuit of Unicorns, and Taking the Reins of Internal Controls

In the wake of a host of negative developments, Theranos Inc. is reportedly under investigation by the Department of Justice and the Securities and Exchange Commission.  The SEC and DOJ inquiries are likely to focus on whether Theranos misled investors about the state of its technology and operations.  Even beyond potential misrepresentation issues, we believe … Continue Reading

Regulatory Compliance Association’s Enforcement, Compliance & Operations (ECO) 2016 Symposium

Partners Timothy W. Mungovan (co-head of Private Equity & Hedge Fund Litigation Group) and Christopher M. Wells (head of Hedge Funds Group)  have been invited to join a large collection of senior regulators at the Regulatory Compliance Association’s Enforcement, Compliance & Operations (ECO) 2016 Symposium.  The conference will take place on Tuesday May 17 at … Continue Reading

SEC Enforcement’s Increased Focus on Private Equity

On May 12, 2016, SEC Director of Enforcement Andrew Ceresney gave a keynote address on Private Equity Enforcement.  Ceresney reiterated the SEC’s view that private equity is a key area for enforcement, and that recent actions show that it is particularly focused on undisclosed fees and expenses and increasing transparency in the industry.  Ceresney also … Continue Reading

Portfolio Company Litigation: Some Practical Considerations for Board-Designees of Private Funds

Individuals affiliated with private fund managers are increasingly being named as defendants in lawsuits involving fund portfolio companies, particularly where the fund controls one or more seats on the portfolio company’s board, or where an individual affiliated with the fund sponsor serves as a senior executive at the portfolio company. When an individual affiliated with … Continue Reading

Unicorns Under Scrutiny: The SEC Previews Its “Long Arm” Of The Law

As we previously discussed, SEC Chair Mary Jo White recently delivered the keynote address at the Silicon Valley Initiative hosted by the SEC-Rock Center for Corporate Governance at Stanford University.   While the speech and its focus on unicorns attracted some initial media attention, the subsequent response has been surprisingly muted given that Chair White provided … Continue Reading

A Commonsense Explanation of the SEC’s Regulation of Private Investment Funds

The SEC’s regulation of the private investment funds industry has generated significant attention and commentary, as well as a fair amount of hand-wringing.  From our perspective as lawyers, however, there is a relatively commonsense explanation for the SEC’s approach.  Rather than acting with a heavy-hand by imposing a comprehensive set of “regulations,” the SEC is … Continue Reading

Sun Capital Court Finds Co-Investing Funds Part of Controlled Group and Liable for Portfolio Company’s Pension Liabilities

A recent decision by a Massachusetts federal court judge could expand liability for co-investing private funds.  On remand from the First Circuit, the District Court in Sun Capital Partners III, LP v. New England Teamsters and Trucking Industry Pension Fund held that co-investing funds were part of a portfolio company’s “controlled group” and therefore potentially … Continue Reading
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