On Friday, March 10, 2023, Silicon Valley Bank (“SVB”) became the largest U.S. lender since the Great Financial Crisis to enter into receivership with the Federal Deposit Insurance Corporation. SVB was a major provider of depository services and liquidity to various investment funds, managers and their related entities through subscription
On December 14, 2022, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 and added related new disclosure requirements. Rule 10b5-1 provides an affirmative defense to insider trading liability for individuals and companies in circumstances where, subject to certain conditions, the trade was pursuant to…
SEC Division of Enforcement Director Gurbir Grewal and several high-ranking officials from the U.S. Attorney’s Offices for the Southern and Eastern Districts of New York and the FBI spoke on November 29, 2022 at a conference sponsored by Sandpiper Partners LLC concerning hot topics in SEC and DOJ enforcement. The panelists all made clear that the views they expressed were their own, but those views are worth hearing.
Representatives of asset managers often take up positions on the boards of portfolio companies. We have written posts before on some of the litigation and regulatory risks that can arise, both for the asset managers and the individuals including: Portfolio Company Risk: Plaintiffs Set Sights on Sponsors and Board Directors, …
Private investment funds are likely to face increased regulatory scrutiny and litigation risk in 2016, not only based on the Securities and Exchange Commission’s focus on the industry but also due to transparency and compliance initiatives of limited partners and other market developments. We have highlighted several areas that should be on the top of every private fund sponsor’s list – and how to assess and manage the associated risks.
On November 19, 2015, the SEC announced a settlement with investment advisory firm Sands Brothers Asset Management, LLC for violating the Custody Rule, SEC Rule 206(4)-2, which requires that registered investment advisers who have custody of their clients’ assets put in place policies and procedures intended to safeguard those assets against loss, misuse or misappropriation. The SEC also imposed sanctions on Sands Brothers’ Chief Compliance Officer who was subjected to a one-year suspension and a fine for aiding and abetting these violations.
Last month, the Securities and Exchange Commission (SEC) set a compliance date of July 31, 2015 for the ban on payments to third parties for the solicitation of advisory business from any government entity under Rule 206(4)-5 of the Investment Advisers Act of 1940 (Pay-to-Play Rule). At the same time, the SEC also clarified in its Frequently Asked Questions (FAQ) on the Pay-to-Play Rule that it would not recommend enforcement action against an investment adviser or its covered associates under the Pay-to-Play Rule for payments to third-party solicitors until the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) have adopted equivalent pay-to-play rules for broker-dealers and municipal advisers, respectively.
Returning to an enforcement priority repeatedly articulated over the years (for example, here, here and here), the SEC recently imposed sanctions on a registered investment advisory firm and two principals arising out of an alleged scheme to inflate the valuations of illiquid mortgage-backed securities held by private investment funds managed by the adviser. The SEC charged that the overvaluations improperly increased the management and performance fees collected by the adviser.
In AlphaBridge Capital Management, LLC, the Order reflecting the parties’ agreement to an aggregate penalty of $5 million, alleged that the firm systematically overstated the value of securities known as interest-only and inverse interest-only floaters. These unlisted, thinly-traded securities are tranches of collateralized mortgage obligations which receive a coupon payment that fluctuates as interest rates change. In the absence of a robust market, these securities are typically valued based on discounted cash flows. The computation of future cash flows and the resulting valuations are heavily dependent on a projection of the percentage of the underlying mortgages that are expected to be prepaid at any given time.