Last year, we highlighted the risks of filing a Section 220 books and records request post-litigation, citing a case where the Delaware Chancery Court found that such use was an improper attempt to “sue first, ask questions...more
On January 13, 2020, the United States Supreme Court denied certiorari to an appeal of a June 2019 order from the United States Court of Appeals for the D.C. Circuit that dismissed an action seeking to invalidate certain...more
2/27/2020
/ Broker-Dealer ,
Compelling Governmental Interest ,
Denial of Certiorari ,
Financial Industry Regulatory Authority (FINRA) ,
First Amendment ,
Investment Adviser ,
Investment Advisers Act of 1940 ,
MSRB ,
Pay-To-Play ,
Political Contributions ,
Quid Pro Quo ,
Regulatory Requirements ,
Rule G-37 ,
Securities and Exchange Commission (SEC) ,
Time-Barred Claims
The private fund industry is more in the public eye than ever before. Private capital and private markets have experienced massive growth over the last two decades, substantially outpacing the growth of public equity. We have...more
2/19/2020
/ Anti-Money Laundering ,
Capital Markets ,
CFTC ,
Cryptocurrency ,
Global Economy ,
Initial Public Offering (IPO) ,
Investment Banks ,
OCIE ,
Private Equity ,
Private Funds ,
SEC Examination Priorities ,
Securities and Exchange Commission (SEC) ,
Venture Capital
Last week, the SEC's Office of Compliance Inspections and Examinations released its 2020 Exam Priorities with a number of areas of interest to private fund managers. OCIE reported that it examined 15% of registered investment...more
1/15/2020
/ Anti-Money Laundering ,
Conflicts of Interest ,
Cybersecurity ,
Disclosure Requirements ,
Environmental Social & Governance (ESG) ,
Investment Adviser ,
OCIE ,
Personally Identifiable Information ,
SEC Examination Priorities ,
Securities and Exchange Commission (SEC) ,
Standard of Conduct
Since the Second Circuit’s 2014 decision in United States v. Newman triggered a debate about the personal benefit requirement, several bills have been introduced in Congress to define insider trading. The most recent effort...more
Under rule 206(4)-2 of the Advisers Act, otherwise known as the Custody Rule, it is a fraudulent practice for a registered investment adviser to have custody of client funds or securities, unless the adviser takes certain...more
12/12/2019
/ Auditor Independence ,
Compliance ,
Custody Rule ,
Enforcement Actions ,
Financial Statements ,
Form ADV ,
GAAP ,
Investment Adviser ,
Investment Advisers Act of 1940 ,
PCAOB ,
Regulation S-X ,
Securities and Exchange Commission (SEC) ,
Willful Violations
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...more
11/12/2019
/ Affiliates ,
Anti-Fraud Provisions ,
Conflicts of Interest ,
Disgorgement ,
Enforcement Actions ,
Excessive Fees ,
Fee Disclosure ,
Fee-Sharing ,
Investment Adviser ,
Investment Advisers Act of 1940 ,
Securities and Exchange Commission (SEC)
Yesterday the SEC announced its enforcement results for FY 2019, accompanied by a report from the Co-Directors of its Division of Enforcement. While the total number of actions increased slightly from 2018, the percentage of...more
A settlement last week involving a private equity fund sponsor is a reminder that compliance with fee calculation provisions and valuation policies and procedures are crucially important for fund managers. Even when an error...more
10/3/2019
/ Capital Contributions ,
Cease and Desist Orders ,
Enforcement Actions ,
Fund Sponsors ,
Investment Advisers Act of 1940 ,
Management Fees ,
Policies and Procedures ,
Private Equity ,
Sanctions ,
Securities and Exchange Commission (SEC) ,
Valuation
A recent case in a North Dakota district court is a reminder to private equity funds and managers that, under certain conditions, they may be held responsible for actions of a fund’s portfolio companies. Courts allow...more
9/17/2019
/ Alter Ego ,
Corporate Veil ,
Fund Managers ,
Majority Shareholders ,
Piercing the Corporate Veil ,
Portfolio Companies ,
Private Equity ,
Private Equity Firms ,
Private Equity Funds ,
Shareholders ,
Venture Capital
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...more
9/4/2019
/ Employee Retirement Income Security Act (ERISA) ,
Financial Institutions ,
Hedge Funds ,
Investment Advisers Act of 1940 ,
Investment Company Act of 1940 ,
Legislative Agendas ,
Leveraged Buyout ,
Portfolio Companies ,
Private Equity Funds ,
Private Investment Funds ,
Proposed Legislation ,
Public Disclosure ,
Securities and Exchange Commission (SEC)
Today, we are launching a proprietary database tracking all SEC enforcement actions involving private equity advisers. The database contains key information from the actions, including summaries of key issues, settlement...more
7/23/2019
/ Broker-Dealer ,
Compliance ,
Conflicts of Interest ,
Disclosure Requirements ,
Disgorgement ,
Enforcement Actions ,
Investment Adviser ,
Investment Funds ,
Popular ,
Private Equity ,
Securities and Exchange Commission (SEC)
On July 3, 2019, SEC Chairman Jay Clayton issued a “Statement Regarding Offers of Settlement” (the “Statement”), announcing important changes to how the SEC will consider future requests for waivers from disqualifications in...more
7/9/2019
/ Bad Actors ,
Disqualification ,
Enforcement Actions ,
Registration ,
Regulation D ,
Safe Harbors ,
Section 5 ,
Securities Act of 1933 ,
Securities and Exchange Commission (SEC) ,
Settlement ,
Settlement Negotiations
A recent action where the SEC focused on the presumably conservative undervaluation of assets suggests that it is more than willing to use valuation as a hook to deter “smoothing” of returns. As we previously noted, while the...more
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...more
Last week the SEC announced a settlement of fraud claims against the founder of Jumio, Inc, a private mobile payments company, for misstating the company’s financial results and using those financials to sell his company...more
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...more
2/21/2019
/ Cryptocurrency ,
Cybersecurity ,
Enforcement Actions ,
Fund Managers ,
Initial Coin Offering (ICOs) ,
Investment Adviser ,
Litigation Funding ,
OCIE ,
Regulatory Oversight ,
Securities and Exchange Commission (SEC) ,
Securities Exchange Act ,
Token Sales
While the SEC consistently announces that valuation is a “key area of focus,” it is uncommon for regulators to “second guess” valuation determinations in the absence of other potential violations. However, recent actions...more
On Friday, the WSJ published an article detailing how companies are monetizing smartphone location data by selling it to hedge fund clients. The data vendor featured in the WSJ article obtains geolocation data from about...more
11/7/2018
/ Anti-Fraud Provisions ,
Breach of Contract ,
Computer Fraud and Abuse Act (CFAA) ,
Cybersecurity ,
Data Collection ,
Data Protection ,
Electronic Communications ,
Fund Managers ,
Material Nonpublic Information ,
Personally Identifiable Information ,
Popular ,
Smartphones
Former SDNY U.S. Attorney Preet Bharara and SEC Commissioner Jackson recently announced, via NY Times op-ed, the creation of the Bharara Task Force on Insider Trading. Based on the premise that U.S. insider trading laws are...more
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...more
The SEC announced a pair of settled orders on Tuesday extending additional provisions of the securities laws over ICOs and other digital assets – the agency’s first ever enforcement actions of their kind. As the SEC has been...more
9/17/2018
/ Broker-Dealer ,
Cryptocurrency ,
Digital Assets ,
Enforcement Actions ,
Initial Coin Offering (ICOs) ,
Investment Advisers Act of 1940 ,
Investment Company Act of 1940 ,
Investment Contract ,
Investors ,
Negligent Misrepresentation ,
Securities and Exchange Commission (SEC) ,
Securities Exchange Act ,
Token Sales
The theft of millions of bitcoins and related failure of cryptocurrency exchange Mt. Gox—recently written about in the Wall Street Journal—provides a perfect example of how cryptocurrency-related issues can blossom into one...more
On June 4, we posted a summary of SEC Enforcement Co-Director Steven Peikin observations during his recent keynote address at the New York City Bar Association’s 7th Annual White Collar Crime Institute. Co-Director Peikin...more
During his recent keynote address at the New York City Bar Association’s 7th Annual White Collar Crime Institute, SEC Enforcement Co-Director Steven Peikin imparted a few suggested “do’s and don’ts” for effective...more