• |

    Jul. 31, 2025

Dual Resolutions Demonstrate Full Spectrum of Sanctions-Related Enforcement Against Investment Firms

Although the change in presidential administration has unquestionably brought with it a shift in enforcement priorities, pursuing trade- and sanctions-related violations is one area of continuity. For example, in 2022, former Deputy Attorney General Lisa Monaco called sanctions enforcement the “new [Foreign Corrupt Practices Act],” while, this spring, Commerce Secretary Howard Lutnick signaled “a dramatic increase” in export controls enforcement. Meanwhile, DOJ officials have explicitly prioritized investigation of “trade and customs” violations. Signaling greater scrutiny of non-bank financial institutions, the DOJ’s Criminal Division has promised to focus on “conduct that threatens the country’s national security, including threats to the U.S. financial system by gatekeepers.” And it has noted that “[f]inancial institutions, shadow bankers, and other intermediaries aid U.S. adversaries by processing transactions that evade sanctions.” Two recent enforcement actions highlight those priorities, as well as the government’s increasing focus on non-bank financial institutions as financial “gatekeepers.” These actions illustrate that, more than ever, the government stands ready to impose penalties on investment fund managers that engage in criminal and regulatory violations, viewing them as responsible for the downstream effects of their investments and the conduct of their portfolio companies. But government agencies have simultaneously amplified the benefit of cooperation and voluntary self-reporting. This guest article by MoloLamken attorneys Eric R. Nitz, Anden Chow and Walter H Hawes IV discusses the two actions and the differing fates of the firms involved, highlighting the government’s dual-track approach. For more insights from Nitz, see “Agency Power and Adjudication: The Government Seeks Supreme Court Review of Jarkesy v. SEC” (Jun. 8, 2023).

Division of Investment Management Staff Discuss Staffing, Operations, Rulemaking and Other Developments

The Trump administration has implemented broad staffing reductions across the entire government – including the SEC – and promised a lighter regulatory touch. The rapid changes prompted by Trump’s executive orders and the so-called Department of Government Efficiency have led to considerable uncertainty as to how the SEC will approach and implement those mandates. At PLI’s SEC Speaks 2025 event, officials from the Disclosure Review, Rulemaking, Analytics and Chief Counsel’s Offices of the SEC Division of Investment Management (Division) discussed the current operations of the Division, highlighting the function and importance of their respective offices, as well as recent regulatory activities. The speakers provided their remarks in their official capacities, but the views expressed were not necessarily those of the SEC, its commissioners or other SEC staff members. This article synthesizes the speakers’ insights, focusing on the issues most relevant to private fund managers. See our two-part series on the anniversary of the SEC Division of Examinations: “Creation and Evolution Over the Last 30 Years” (Apr. 10, 2025); and “Present State and Possible Future” (Apr. 24, 2025).

Managing Third Party AI Risk

If a firm thinks it is insulated from use of artificial intelligence (AI) by its vendors, “[it’s] probably not,” cautioned ACA Aponix partner Michael Pappacena during an ACA program on managing the risks posed by vendors’ use of AI. Vendors are not only offering AI tools and solutions but also incorporating it behind the scenes to streamline their operations. To help firms navigate the operational and data security risks posed by third-party use of AI, Pappacena and ACA Aponix director John de Freitas discussed the ever-expanding use of AI by third-party service providers, the evolving AI risk landscape, appropriate implementation of AI, AI governance best practices and incident response. This article distills their insights. See “Managing Risks Associated With Outsourcing” (Jul. 20, 2023).

FTC and DOJ Support State Antitrust Suit Aimed at Asset Managers’ Coal Industry ESG Initiatives

There is ongoing pushback – particularly in so-called red states - against efforts to address climate change and other environmental, social and governance initiatives. In November 2024, the Attorney General (AG) of the State of Texas, as lead plaintiff, and the AGs of 10 other states commenced an action in the U.S. District Court for the Eastern District of Texas against BlackRock, Inc., State Street Corporation and The Vanguard Group, Inc., alleging that their climate-related engagement with the coal industry and participation in climate-related initiatives violated U.S. antitrust laws. The current plaintiffs in the action are the states of Alabama, Arkansas, Indiana, Iowa, Kansas, Louisiana, Missouri, Montana, Nebraska, Oklahoma, Texas, West Virginia and Wyoming. In March 2025, the defendants moved to dismiss the action for failing to state a claim. In connection with that motion, the DOJ and FTC submitted a Statement of Interest supporting the plaintiffs’ legal theories. This article discusses the genesis of the action, the key allegations, the motion to dismiss and the Statement of Interest, with commentary from David R. Pearl, partner at Axinn, Veltrop & Harkrider LLP, on the implications of the action for fund and asset managers. See “SIFMA Secures Injunction Against Missouri’s ESG Disclosure Rules” (Mar. 27, 2025).

Bank of England’s First System-Wide Exploratory Scenario Involved Hedge Fund Default

In June 2023, the Bank of England (BoE) launched its first system-wide exploratory scenario (SWES) to improve its understanding of how banks and non-bank financial institutions (NBFIs) react to sudden market stresses and the impact of their reactions on the broader financial system. BoE explored the potential impact on U.K. financial markets of a sudden spike in the yields on U.K. government bonds and sterling corporate bonds. Although the scenario revealed significant resilience across participants and the market, it also found that certain areas of concern, including NBFIs’ overestimating their access to liquidity, which could have amplified the effects of the hypothetical shocks had certain variables been different. This article discusses the design of the SWES and BoE’s findings and recommendations, which were released in late 2024. See “FCA ‘Dear CEO’ Letter Highlights Focus on Private Markets and Resilience” (Apr. 10, 2025).

Former SEC Enforcement Lawyer Joins SECIL Law

SECIL Law, a law firm specializing in securities disputes, white-collar defense and complex civil litigation, has added Tom Gorman to its Washington, D.C., office. A former senior enforcement attorney at the SEC, he represents individuals, executives, investment advisers, broker-dealers and public companies in complex proceedings involving the SEC, CFTC, DOJ and other federal and state agencies. See “Present and Former SEC Officials Discuss Strategy, Testimony, Proffers and Negotiations” (Feb. 27, 2025).

Most-Read Articles

Women to Watch: Contributions, Achievements and Observations of Outstanding Female Professionals

To mark International Women’s Day, women editors and reporters at ION Analytics interviewed outstanding women in the industries and jurisdictions we cover. In this part, Law Report Group editors Jill Abitbol, Robin L. Barton and Megan Zwiebel profile notable women in data privacy, cybersecurity, private funds and anti-corruption law, including Anne-Gabrielle Haie, Jessica Lee, Micaela McMurrough, Laura Perkins, Amanda Raad, Madelyn Calabrese, Ranah Esmaili and Genna Garver. Enjoy reading their inspiring remarks here.