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
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 the top of every private fund adviser’s list for 2017 – and how to assess and manage the associated risks.
Whistleblower Alert – OCIE to Examine Registered Investment Advisers for Overbroad Confidentiality or Severance Agreements
The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently published a risk alert noting that the SEC exam staff intends to examine registrants’ compliance with the Dodd-Frank Act’s whistleblower provisions. OCIE intends to examine registered advisers for compliance, in light of recent enforcement cases the SEC has filed
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 that contravened Dodd-Frank provisions prohibiting employers from impeding whistleblower reporting.
Whistleblower Concerns for Private Fund Advisers – Seven Mistakes To Avoid
As we have previously observed, private fund advisers face a difficult challenge when SEC guidance (in the form of a speech or a public enforcement order) indicates that certain long-standing practices may be contrary to the securities laws. What does an adviser do when its past practices appear, in hindsight, to have fallen short?
While there are a number of potential “fixes”, including rebating fees, amending the fund documents, amending the Form ADV, and changing prospective practices, doing nothing is a particularly bad strategy. These situations are potential whistleblower events, even if the adviser is not yet aware of any whistleblower. Advisers must recognize that their personnel might be motivated (economically and otherwise) to bypass internal reporting and report directly to the SEC. Similarly, investors and others may go directly to the SEC. When management becomes aware of a potential violation, there is usually a short time window to address the issue before it becomes a bigger problem. Over the past two months, the SEC has issued over $26 million in whistleblower awards, including a $17 million award. And the SEC is actively pursuing cases against investment advisers relating to improper fees and inadequate disclosures, including a number of cases filed in the past month (see here, here, here, and here).
Letting an issue linger is not an option, because—chances are—the regulators will eventually examine the issue. Below are some key mistakes to avoid when addressing issues relating to the SEC’s whistleblower program.