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Category Archives: Hedge and Private Equity Funds

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What are Knowledgeable Employees?

Posted in Hedge and Private Equity Funds, Investment Adviser Regulation, Open-Ended Mutual Funds

The SEC’s Division of Investment Management issued updated guidance regarding the definition of “knowledgeable employees” under Rule 3c-5 of the Investment Company Act of 1940.  See Managed Funds Ass’n, SEC No-Action Letter, avail. 2/6/14, https://www.managedfunds.org/wp-content/uploads/2014/02/Staff-Response-to-MFA-3c-5-Letter-Final-Outgoing-2-6-14-no-sigs.pdf The SEC staff explained that “private funds” include private equity funds, hedge funds, and other pooled investment vehicles, excluded from… Continue Reading

Cash Solicitations Allowed Despite Court Bar

Posted in Hedge and Private Equity Funds, Investment Adviser Regulation

The SEC’s Division of Investment Management said it will not object if an investment adviser pays a cash fee for the solicitation of advisory clients, although a federal district court injunctive order precluded it.  RBS Sec. Inc., SEC No-Action Letter, avail. 11/26/13, http://www.sec.gov/divisions/investment/noaction/2013/rbssecurities-11252013-section 206.htm. In granting relief, the staff noted especially that the firm otherwise… Continue Reading

SEC “Presence” Exam Ahead of Schedule

Posted in Hedge and Private Equity Funds, Investment Adviser Regulation

The SEC’s push to conduct narrowly focused examinations of newly registered investment advisers is ahead of schedule and providing it with insights about compliance weaknesses, hedge fund advisers, and private equity companies. To date, the SEC has completed 210 presence exams while 42 are currently open.  Exam teams are focused on compliance associated with marketing… Continue Reading

SEC Announces Exam Priorities

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Hedge and Private Equity Funds, Investment Adviser Regulation, Investment Company Regulation, SEC Compliance, SEC Enforcement

Tis the season for the regulators to announce their examination priorities.  No less than the SEC’s Office of Compliance Inspections and Examinations released its 2014 Examination Priorities for its National Examination Program (“NEP”). In particular, the SEC identified several new issues for registered investment advisers, primarily for those RIAs, who are at least three years old and have never… Continue Reading

What To Expect In 2014 From The SEC’s Enforcement Division

Posted in Broker-Dealer Regulation, Hedge and Private Equity Funds, Insider Trading, Internal Investigations, Investment Adviser Regulation, SEC Compliance, SEC Enforcement, SEC Organization, SEC Structure, Whistleblowers

Now that 2014 is here, it is a good idea to understand what the Enforcement Division might focus on this year.  In a recent article that appeared in the BNA, David Marder, a partner with Robins, Kaplan, Miller & Ciresi identified fifteen things to expect in the coming year.  The fifteen things he noted to… Continue Reading

COLLUSION CLAIMS AGAINST PRIVATE EQUITY FIRM PROCEEDS

Posted in Corporate Governance, Hedge and Private Equity Funds, Securities Litigation

Former shareholders may pursue narrowed claims against some large private equity firms who allegedly conspired with one another minimizing competition for target companies.  See Dahl v. Bain Capital Partners LLC, D. Mass., 07-12388, 3/13/13), http://www.bloomberglaw.com/public/document/Klein_et_a_v_Bain_Capital_Partners_LLC_et_at_Docket_No_107cv1238. The plaintiffs previously held shares in various public companies that were, ultimately, acquired by private equity firms.  The complaint alleged… Continue Reading

FINRA and Alt Funds Risks

Posted in FINRA Compliance, FINRA Enforcement, Hedge and Private Equity Funds

FINRA issued an investor alert regarding the “unique characteristics and risks” presented by “alternative funds.”  See  http://op.bna.com/srlr.nsf/r?Open=rhil-98ktb8. In a release, FINRA explained that “alt” mutual funds are United States Securities and Exchange Commission-registered and publicly offered, and hold “more non-traditional in-vestments and employ more complex trading strategies than traditional mutual funds.”  Alt funds, according to… Continue Reading

PRACTICES BY PRIVATE FUND ADVISERS RAISE B-D REGISTRATION ISSUES

Posted in Broker-Dealer Regulation, Hedge and Private Equity Funds

In its scrutiny of newly registered private fund advisers, the SEC Staff has observed two practices that might implicate broker-dealer registration requirements. The first practice involves fund advisers that pay their personnel transaction-based compensation for selling interests in their funds or that have personnel whose primary purpose is selling interests in the funds. The second… Continue Reading

VENTURE CAPITAL FUND WINS DISMISSAL MOTION OVER INVESTMENT

Posted in Hedge and Private Equity Funds, Securities Litigation

The U.S. District Court for the District of New Jersey ruled that New Jersey fraud and misrepresentation claims by a venture capital firm over an unsuccessful investment in a telecom concern could proceed. See Edelson V LP v. Encore Networks Inc., D.N.J., Civ. No. 2:11-5802(KM), 5/9/13.  www.blomberglaw.com/public/document/EDELSON_V-LP-v_ENCORE -NETWORKS-INC-et_al_Docket_No_211cv05802_DNJ. The plaintiff made an investment in a… Continue Reading

“Burger King” May Not Allow You to Have it Your Way. . . Is the Two-Tier M&A Deal Ending?

Posted in Capital Formation, Corporate Financing, Hedge and Private Equity Funds, Mergers and Acquisitions, Prospectuses, Proxies, Tender Offers

A popular two-tier merger and acquisition structure may trigger certain prohibitions under the Securities Exchange Act of 1934.  In particular, this problem relates to the so-called “Burger King” structure, arising from the private equity fund acquisition of the fast-food chain by a private equity fund, and its simultaneous pursuit of a tender offer and a traditional one-step merger.  The Burger… Continue Reading

You Have to Make Sure Your Private Equity Firm Has D&O Coverage When Responding to Subpoenas

Posted in Compliance and Supervision, Federal and State Criminal Activities, Hedge and Private Equity Funds, SEC Enforcement, Securities Litigation, State Enforcement

Private equity companies have recently been hit with a barrage of regulatory subpoenas. Responding to these subpoenas may cost the private equity firms to expend millions of dollars.  These entities should have D&O liability insurance.  Initially, the entity must make sure that responding to such a subpoena falls within the definition of a claim.  Some policies may… Continue Reading

Like a Good Neighbor Hedge Fund Insurance Coverage Will Be There, No, Not Unless You Make Sure

Posted in Federal and State Criminal Activities, Hedge and Private Equity Funds, SEC Enforcement, State Enforcement

This blog entry about hedge fund insurance coverage almost sounds like a car insurance commercial.  Sadly, both are critical in today’s modern society. Given the current regulatory environment, volatile market conditions, and the public perception of the industry, hedge funds face enormous risk in doing business.  Hedge funds should carry both D&O and E&O Liability Insurance to protect directors, officers, managers and the… Continue Reading

The SEC’s Battle Continues with The Fund Industry

Posted in Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Compliance, SEC Enforcement

The Chief of the SEC’s Enforcement Division’s Asset Management Unit, recently, indicated that the SEC Staff is now looking at identifying hedge and private equity fund RIAs, who may have higher risk issues like previous fraud allegations.  See http://www.sec.gov/news/speech/2012/spch121812bk.htm   In particular, the SEC is looking at when RIA managers delay fund liquidation to continue to receive fees–… Continue Reading

SEC Hedge Fund Adviser Exams Concentrate on Four Areas

Posted in Compliance and Supervision, Financial Industry Trends, Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Compliance

The SEC announced that it will most likely look at four main areas when examining newly registered hedge fund advisers. Those areas are marketing and advertising, portfolio management, conflicts of interest, and client asset safety.  This approach will be followed as a result of certain risk assessments made by the SEC Staff.  Essentially, the SEC Staff does… Continue Reading

Is the IM Division Changing with the Times? New RIAs Force Looksy With the Advisor’s Act

Posted in Dodd-Frank, Financial Industry Trends, Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Compliance, SEC Organization, SEC Structure

The SEC’s Division of Investment Management has publicly stated that it will review the regulations relating to the Investment Advisers Act of 1940 given the large influx of new RIAs as a consequence of the registration of hedge and private equity fund managers. These new RIAs, now, account for roughly 40% of all RIAs.  IM is looking… Continue Reading

What’s in a Name? Speculation, Hedging, They Are Not the Same Thing

Posted in Closed-End Mutual Funds, Hedge and Private Equity Funds, Investment Adviser Regulation, Open-Ended Mutual Funds, SEC Enforcement

Recently, in a settled SEC enforcement action, a mutual fund manager allegedly used an option strategy, but the SEC believed it was more speculative than hedging.  See http://www.sec.gov/litigation/admin/2012/33-9377.pdf. The SEC focused on the fact that the prospectus only permitted options for hedging, instead, the SEC claimed option trading was used to speculate.  The SEC cited… Continue Reading

Hey, Control Persons and Individuals, the SEC is Targeting YOU!!

Posted in Broker-Dealer Regulation, Compliance and Supervision, Dodd-Frank, Hedge and Private Equity Funds, Investment Adviser Regulation, Registered Representatives, SEC Compliance, SEC Enforcement

Despite past false starts and losses, the SEC has announced that it will continue to bring actions against individuals and control persons. Many believe that such a focus by the SEC will lead to more litigation.  Further, an individual’s ability to defend these actions has been severely limited since the passage of the Dodd-Frank Act.  The… Continue Reading

The SEC Believes a Bar Only Relates to the Future Not the Past, Yeah Right!!

Posted in Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Enforcement

As many know, the Dodd-Frank Act confirmed the SEC’s power to seek and/or impose certain penalties and remedies.  A recent case against a hedge fund manager illustrates just how far the SEC is willing to go.  In the Matter of John W. Lawton,  http://www.sec.gov/litigation/opinions/2012/ia-3513.pdf. The manager was accused of fraud.  After a hearing, the SEC… Continue Reading

RIAS NEED TO BE PREPARED FOR “PRESENCE” EXAMS

Posted in Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Enforcement

The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a release directed to newly registered investment advisers (“RIAs”).  The release was a “hello” to these RIAs to make them aware of the National Exam Program (“NEP”) and explain the Presence Exams Initiative (“PEI”).  An RIA is “newly registered” if it registered with the SEC… Continue Reading

SEC Announces Nearly 4,000 New Registered Investment Advisors

Posted in Dodd-Frank, Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Compliance

The SEC’s Division of Investment Management has announced that nearly 4,000 investment advisors have registered with the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  In fact, with the switch to state registration, Investment Management estimates that there will be over 10,000 RIAs with approximately $8.6 trillion in assets under management.  These RIAs… Continue Reading

The JOBS Act Causing Clashes Between the Industry and Investor Groups

Posted in Broker-Dealer Regulation, Hedge and Private Equity Funds, JOBS Act, Registered Representatives

In recent days, industry and investor advocates have been fighting over the general solicitation and advertising exemptions in private placements that went into effect with the JOBS Act. Further, these advocates are also discussing the definition of the accredited investor standard.  Investor groups are looking to tighten these standards while industry advocates are seeking flexibility. … Continue Reading

No-Action Letter Permits Advisory Services to Affiliated Third Parties

Posted in Compliance and Supervision, Hedge and Private Equity Funds, Investment Adviser Regulation

In an interesting no-action letter, the SEC Staff stated it would not recommend enforcement action if a company did not register as an investment adviser where the company provided investment advisory services solely to its parent company and subsidiaries.  See Allianz of America, Inc., dated May 25, 2012, at http://www.sec.gov/divisions/investment/noaction/2012/allianzamerica052512-203a.htm. The SEC Staff found that… Continue Reading

OCIE’S PLAN TO REGULATE PRIVATE FUND ADVISORS

Posted in Compliance and Supervision, Dodd-Frank, Hedge and Private Equity Funds, Investment Adviser Regulation, SEC Compliance

OCIE is intending to review newly registered hedge and private equity fund advisers by focusing in on certain priorities. In particular, OCIE will review due diligence practices; fraud indicators; unknown service providers; problem custody arrangements; insider trading and front running issues; and preferential treatment to determine if there are conflicts of interest.  OCIE also intends to take a global approach… Continue Reading