SEC Charges Recidivist Adviser in Abusive Short Selling Scheme
Hedge Fund Law Report
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2w ago
SEC rules applicable to short selling are intended to prevent abusive trading practices. The SEC commenced a civil enforcement action against a hedge fund adviser and its principal for engaging in naked short sales, mismarking trades and making other misrepresentations to executing broker-dealers in a fraudulent scheme to profit from trading in the securities of at least ten issuers. This marks the second time the SEC has charged this adviser with improper short sale practices. This article details the SEC’s allegations. See “ First Circuit Upholds SEC Injunction Against Short‑Selling Priest ..read more
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Opportunities for Private Fund Managers in CMBS Repurchase Litigation
Hedge Fund Law Report
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2w ago
Following the 2008 financial crisis, many investment advisers – including advisers to private funds – pursued “repurchase” litigation claims in connection with residential mortgage-backed securities (RMBS) securitization trusts. Such claims compel the sponsor of a securitization trust to repurchase assets it sold to the trust, with the proceeds flowing to investors through the trust’s waterfall. The following decade of litigation clarified the scope of the repurchase remedy, often in plaintiffs’ favor. Now, with increasing dislocation in the commercial real estate market, a similar but mo ..read more
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Form PF Current Reports: Reporting Trigger Events (Part Two of Two)
Hedge Fund Law Report
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2w ago
Form PF was originally adopted in 2011 to provide the SEC and the Financial Stability Oversight Committee with key information about private funds’ basic operations and strategies in an effort to establish a baseline picture of the industry for assessing systemic risk. Fund managers’ initial aggravation at having to gather and report certain information was softened by the fact that Form PF only had to be filed on a quarterly or annual basis. After amendments to Form PF took effect in December 2023, however, that regular filing paradigm shifted dramatically to include what ..read more
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Tax Issues Associated With Fund Investments in Digital Assets
Hedge Fund Law Report
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3w ago
The SEC, CFTC and IRS all treat digital assets differently, creating considerable uncertainty for fund managers that invest in them. The SEC views many, if not most, tokens as securities, while the CFTC views certain tokens as commodities. The IRS, which has issued limited guidance on the tax treatment of digital asset transactions, treats virtual currencies as “property” and does not consider tokens to be “securities” for purposes of certain sections of the Internal Revenue Code. A Strafford seminar examined the uncertain tax treatment of many common types of tokens, transactions and structur ..read more
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SEC Penalizes JPMorgan for Deleting Electronic Communications
Hedge Fund Law Report
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3w ago
Although the SEC has been laser-focused on how advisers and broker-dealers manage and capture so-called “off channel” communications, firms should not expect a pass from the agency on other violations of SEC recordkeeping requirements – even when the problem is due to vendor error. The SEC charged J.P. Morgan Securities LLC (JPMorgan), which is registered with the SEC as both a broker-dealer and an investment adviser, with violating recordkeeping requirements after it inadvertently deleted millions of archived emails. The proceeding marks the third time the SEC has penalized JPMorgan ..read more
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FCA’s Final Rules on Sustainability Disclosure Requirements and Investment Labels
Hedge Fund Law Report
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3w ago
In November 2023, the U.K.’s Financial Conduct Authority (FCA) released policy statement PS23/16 on Sustainability Disclosure Requirements (SDR) and investment labels. The rules cover a new “anti-greenwashing” rule; a voluntary labeling regime for products with a sustainability objective as part of their investment objective; product disclosure requirements; sustainability entity reporting; retail investor-specific requirements on naming and marketing; and consumer-facing product-level disclosures. This guest article by Goodwin Procter attorneys Ajay Pathak, Andrew Henderson, Danielle Rey ..read more
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Go Phish: Employee Training Key to Fighting Social Engineering Attacks
Hedge Fund Law Report
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3w ago
Practice makes perfect. That is the philosophy of Erich Kron, security advocate at KnowBe4, as well as one of the main takeaways of the 2023 Edition of the KnowBe4 Phishing by Industry Benchmarking Report (Report), of which Kron served as one of the authors. Regardless of location, industry or size, consistent and frequent security awareness training paid off, resulting in employees who demonstrated lower vulnerability to, and greater awareness of, social engineering scams. The Report provides key metrics on the industries most vulnerable to phishing attacks, outlines global challenges an ..read more
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No Longer a Slap on the Wrist: SEC Penalties and Sentences on the Rise
Hedge Fund Law Report
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1M ago
A global shift in the regulatory approach to penalties is leading to greater fines across more geographies and the use of a wider variety of recourse against a bigger cross-section of targets, notably individuals and executives. Not even annual bonuses, stock shares and promotions are safe under the broadening definitions of clawbacks being sought. “We’re recalibrating and looking at how we can have penalties that don’t just punish the misconduct that occurred but also deter future misconduct,” said Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, at a session in the Glob ..read more
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SEC Settles Five Additional Enforcement Proceedings for Custody Rule and Form ADV Violations
Hedge Fund Law Report
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1M ago
The SEC had been conducting a targeted sweep of private fund advisers for compliance with Rule 206(4)‑2 under the Investment Advisers Act of 1940, commonly known as the “Custody Rule.” One key provision of the Custody Rule requires an adviser with custody of client assets to undergo a surprise annual custody examination. In lieu of that requirement, however, an adviser to a private fund may obtain and distribute to investors an annual audited financial statement for the fund. Many Custody Rule violations occur when advisers fail to comply with the requirements of that exception ..read more
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Driven by AI, Private Funds’ Use of Alternative Data Continues to Grow, Survey Finds
Hedge Fund Law Report
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1M ago
Lowenstein Sandler recently issued its fourth annual alternative data survey, which took the pulse of more than 100 hedge funds, private equity firms and venture capital firms. “The use of alternative data is here to stay; it continues to strongly influence the decision-making of investment professionals across all areas of the investment management industry,” Lowenstein Sandler partner Scott H. Moss told the Hedge Fund Law Report. “The emergence of generative artificial intelligence (AI), with its potential to help firms process enormous quantities of information, is one of the most ..read more
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