Articles By Topic
By Topic: Privacy
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From Vol. 5 No.17 (Apr. 26, 2012)
What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part Three of Three)
For hedge fund managers, mobile devices are pervasive, unavoidable, valuable and dangerous. Substantially everyone that works at a hedge fund management company has some sort of mobile device – personal or company-issued or both – and those devices are becoming more sophisticated every day. On the positive side, mobile devices can raze the obstacles created by time and place; they enable employees to be productive on the go or at off hours. But on the negative side, mobile devices introduce a number of competitive and regulatory challenges for hedge fund managers: they increase the odds that confidential data will leak; they facilitate the knowing or negligent misuse of material nonpublic information; they raise questions with regard to recordkeeping obligations; and so on. This article is the last in a three-part series intended to help hedge fund managers identify and address – via policies, procedures and technology – the thorniest business and legal questions raised by mobile devices. The first article in this series highlighted the risks to hedge fund managers posed by mobile devices, including susceptibility of critical information to leakage or theft, unauthorized trading, penetration of systems by malware and viruses and other potential harms. See “What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part One of Three),” The Hedge Fund Law Report, Vol. 5, No. 15 (Apr. 12, 2012). The second article offered concrete suggestions on how hedge fund managers can anticipate and address those risks using policies, procedures and technology solutions. Specifically, that second article identified three suggested steps that managers should take before crafting their mobile device policies and procedures, and made specific recommendations regarding the content of such policies and procedures. See “What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part Two of Three),” The Hedge Fund Law Report. Vol. 5, No. 16 (Apr. 19, 2012). This article discusses additional specific suggestions on crafting policies and procedures and deploying technology to address the risks posed by mobile devices. In particular, this article details: how hedge fund managers can prevent access to data on mobile devices by unauthorized persons; how managers may prevent firm personnel from exceeding authorized levels of data access; technology solutions for monitoring mobile devices; archiving data on mobile devices to comply with books and records policies and laws; and policies governing social media access via mobile devices. See “SEC Risk Alert Discusses When Social Media Interactions May Constitute Prohibited Hedge Fund Client Testimonials,” The Hedge Fund Law Report, Vol. 5, No. 14 (Apr. 5, 2012).
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From Vol. 5 No.16 (Apr. 19, 2012)
What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part Two of Three)
For hedge fund managers, mobile devices present benefits and risks. On the benefit side, mobile devices enable employees to perform their jobs more efficiently – they reduce the relevance of geography and save considerable time. But on the risk side, mobile devices create innumerable small cracks in the wall separating a manager’s confidential data from unauthorized use of that data. Unfortunately for managers that globally determine that the risks outweigh the benefits, there is no realistic way to avoid confronting mobile devices. Such devices have become an integral part of professional life in the service economy, and they play a particularly central role in information-driven businesses like hedge fund management. Accordingly, the question for hedge fund managers is not whether to implement and enforce mobile device policies and procedures, but how. This is the second article in a three-part series designed to answer this question. The first article in this series made the “case” for the importance of mobile device policies and procedures for hedge fund managers. It did so by illustrating the myriad risks imposed on a manager by the absence of such policies and procedures, including susceptibility of critical information to leakage or theft, unauthorized trading, penetration of systems by malware and viruses and other potential detriments. See “What Concerns Do Mobile Devices Present for Hedge Fund Managers, and How Should Those Concerns Be Addressed? (Part One of Three),” The Hedge Fund Law Report. Vol. 5, No. 15 (Apr. 12, 2012). This article explains how hedge fund managers can anticipate and address those risks using policies, procedures and technology solutions. This article starts by identifying three suggested steps that hedge fund managers should take before crafting their mobile device policies and procedures. The article then makes specific recommendations regarding the content of mobile device policies and procedures. As is evident in the discussion in this article, policies, procedures and technology are inextricably linked in this context, and effective policies and procedures must be informed by a thorough understanding of the relevant technology. This article, accordingly, intersperses the legal and compliance discussion with a detailed description of available technology solutions.
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From Vol. 5 No.6 (Feb. 9, 2012)
Key Legal and Operational Considerations for Hedge Fund Managers in Establishing, Maintaining and Enforcing Effective Personal Trading Policies and Procedures (Part Three of Three)
One of the principal challenges many hedge fund managers face is effectively and efficiently enforcing a firm’s compliance policies and procedures given limited compliance resources. This problem has been historically acute with respect to personal trading compliance because of the significant manual effort required to ensure compliance with applicable rules and in-house personal trading requirements. Nonetheless, in the past decade, technology vendors have made significant progress in developing personal trading compliance solutions that can significantly enhance the effectiveness and efficiency of personal trading compliance programs, at relatively modest prices. Technological solutions can facilitate personal trading reporting as well as enforcement of a firm’s personal trading restrictions and prohibitions. Furthermore, vendors can now tailor such solutions to meet the needs of hedge fund managers with varying operational requirements. As such, hedge fund managers should explore and understand the various personal trading compliance solutions available to them to determine whether any such solutions will further advance the goals of their personal trading compliance programs. This is the third article in a three-part series on personal trading policies and procedures for hedge fund managers. The first article in this series discussed general considerations for hedge fund managers in developing effective personal trading policies; the scope of persons that may be covered by such personal trading policies; and the reporting obligations imposed on registered hedge fund managers by Rule 204A-1 under the Investment Advisers Act of 1940 (Advisers Act). See “Key Legal and Operational Considerations for Hedge Fund Managers in Establishing, Maintaining and Enforcing Effective Personal Trading Policies and Procedures (Part One of Three),” The Hedge Fund Law Report, Vol. 5, No. 3 (Jan. 19, 2012). The second article discussed various personal trading restrictions and prohibitions, including limitations on the number of brokerage firms covered persons can use to effect personal trades; pre-clearance requirements for personal trades; blackout periods during which personal trades cannot be effected; holding periods applicable to securities owned by covered persons; and other types of personal trading restrictions and prohibitions. See “Key Legal and Operational Considerations for Hedge Fund Managers in Establishing, Maintaining and Enforcing Effective Personal Trading Policies and Procedures (Part Two of Three),” The Hedge Fund Law Report, Vol. 5, No. 4 (Jan. 26, 2012). This third article in the series describes various solutions designed to facilitate monitoring of personal trading compliance by hedge fund managers. Specifically, this article discusses various technological solutions designed to facilitate personal trading reporting, including the various methods for obtaining electronic personal trading data (instead of paper data) from broker-dealers; various solutions for automating personal trade monitoring; automated trade pre-clearance solutions; and a summary of key considerations for hedge fund managers when evaluating personal trading compliance solutions. See generally “How Hedge Fund Managers Can Use Technology to Enhance Their Compliance Programs,” The Hedge Fund Law Report, Vol. 4, No. 41 (Nov. 17, 2011).
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From Vol. 4 No.15 (May 6, 2011)
New Jersey Appellate Court Holds that Limited Partnership Agreements Covering State Pension Fund Private Equity Investments are Exempt from Disclosure under New Jersey’s Open Public Records Act
The Appellate Division of the New Jersey Superior Court has handed down a ruling preventing the disclosure of private equity limited partnership agreements (LP agreements) to union representatives who sought copies of those agreements. Plaintiffs are two state employee unions whose pension funds were partly invested in private equity funds by New Jersey’s pension manager. The plaintiffs sought disclosure of the LP agreements both under New Jersey’s Open Public Records Act (OPRA) and under common law principles of public access to government documents. OPRA grants broad public access to “government records” but enumerates several exemptions from disclosure. Cf. “Repeal of Dodd-Frank Confidentiality Protection for SEC: What Investment Advisers Lost and What Remains,” The Hedge Fund Law Report, Vol. 3, No. 47 (Dec. 3, 2010). The New Jersey Treasurer argued that the LP agreements were exempt as both proprietary commercial/financial information and as trade secrets. The Treasurer also argued that the common law right to disclosure of the documents was outweighed by the State’s interest in preserving the confidentiality of the LP agreements. The Court agreed with the State and prevented disclosure. We summarize the Court’s reasoning. For a discussion of a North Carolina case in which a nonprofit corporation was permitted to pursue its claim for records pertaining to state hedge fund investments in the context of a “pay to play” investigation, see “North Carolina Supreme Court Rules that State Pension Fund May Have to Disclose Information about Pension Fund’s Hedge Fund Investments, Including Hedge Fund and Manager Names, Identity of Manager Principals, Positions, Returns and Fees,” The Hedge Fund Law Report, Vol. 3, No. 27 (Jul. 8, 2010). See generally “Delaware High Court Affirms Order Compelling Defunct Hedge Fund Parkcentral Global to Divulge Its List of Limited Partners to Another Limited Partner in Order to Facilitate Future Litigation Against the Fund and Its Affiliates,” The Hedge Fund Law Report, Vol. 3, No. 33 (Aug. 20, 2010).
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From Vol. 4 No.13 (Apr. 21, 2011)
For Registered Hedge Fund Managers, Inadequate Drafting or Enforcement of Privacy Policies and Procedures May Violate Regulation S-P, Even Absent Harm to Investors
Section 403 of the Dodd-Frank Act will repeal, as of July 21, 2011, the private adviser exemption in Section 203(b)(3) of the Advisers Act. Thus, under the Advisers Act and the proposed rules thereunder with respect to registration, (1) hedge fund advisers with at least $150 million in AUM in the U.S. that manage solely private funds and (2) hedge fund managers with AUM in the U.S. between $100 million and $150 million that manage at least one private fund and at least one other type of investment vehicle will have to register with the SEC. The compliance date for hedge fund adviser registration currently is July 21, 2011. However, in a letter dated April 8, 2011, Robert Plaze, Associate Director of the SEC’s Division of Investment Management, indicated that the SEC may extend the registration compliance date until the first quarter of 2012. See “SEC Anticipates Extension of Compliance Dates for Hedge Fund Adviser Registration and Mid-Sized Adviser Deregistration,” The Hedge Fund Law Report, Vol. 4, No. 12 (Apr. 11, 2011). As registered investment advisers, formerly unregistered hedge fund managers will face a range of new regulatory obligations. Among other things, registered hedge fund managers will be subject to examination by the SEC – or by FINRA, depending on how regulatory turf wars play out – and will be required to complete Form ADV, file Part 1A of Form ADV and file the brochure(s) required by Part 2A of Form ADV electronically with the Investment Adviser Registration Depository. On examinations, see Part 1, Part 2 and Part 3 of our three-part series on what hedge fund managers need to know to prepare for, handle and survive SEC examinations. On Form ADV, see “Application of Brochure Delivery and Public Filing Requirements of New Form ADV to Offshore and Domestic Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 4, No. 11 (Apr. 1, 2011). In addition, registered hedge fund managers will have to comply with certain provisions of Regulation S-P, the SEC rule governing privacy of consumer financial information. Many of the provisions of Regulation S-P are substantially similar to Federal Trade Commission privacy rules that, even before Dodd-Frank, applied to unregistered hedge fund managers. Also, as a practical matter, even unregistered hedge fund managers have in many cases operated as if they were registered (including with respect to privacy of investor information) in order to accommodate the infrastructure demands of institutional investors. However, the direct application of Regulation S-P to registered hedge fund advisers will constitute a regulatory change, and will require managers to revisit and revise (even if marginally) their privacy policies and procedures. As hedge fund managers undertake such a revision process, they would do well to keep in mind a recent settlement order in an SEC administrative proceeding against the former chief compliance officer of a defunct broker-dealer. This article discusses the legal context of the order, summarizes the factual and legal findings in the order and highlights the more notable privacy points for hedge fund managers.
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From Vol. 3 No.33 (Aug. 20, 2010)
Delaware High Court Affirms Order Compelling Defunct Hedge Fund Parkcentral Global to Divulge Its List of Limited Partners to Another Limited Partner in Order to Facilitate Future Litigation Against the Fund and Its Affiliates
On August 12, 2010, the Delaware Supreme Court unanimously affirmed a Chancery Court order compelling hedge fund Parkcentral Global, L.P., to disclose its list of names and addresses of its limited partners to Brown Investment Management, L.P., one of its limited partners. Brown, which had lost its entire investment in Parkcentral when the fund collapsed, had sought the list in order to contact other limited partners with regard to potential litigation against the fund’s general partner, Parkcentral Capital Management, L.P. (the General Partner), and its auditors. As previously reported in the Hedge Fund Law Report, the Chancery Court ruled in Brown’s favor. See “Delaware Chancery Court Permits Limited Partner in Defunct Hedge Fund Parkcentral Global to Obtain a List of Names and Addresses of Other Limited Partners in the Fund,” The Hedge Fund Law Report, Vol. 3, No. 23 (Jun. 11, 2010). The Supreme Court agreed. Reviewing a provision of the fund’s Limited Partnership Agreement, which mirrored Title 6, § 17-305 of the Delaware Revised Uniform Limited Partnership Act, it found that the limited partner had a contractual right of access to the shareholder list, which the General Partner could not unilaterally restrict, and that no federal law or regulation preempted Delaware law on this issue of disclosure. We detail the background of the action and the Court’s legal analysis.
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From Vol. 3 No.23 (Jun. 11, 2010)
Delaware Chancery Court Permits Limited Partner in Defunct Hedge Fund Parkcentral Global to Obtain a List of Names and Addresses of Other Limited Partners in the Fund
In early 2008, plaintiff Brown Investment Management, L.P. (Brown) and its affiliates purchased an aggregate $16 million of limited partnership interests in defendant hedge fund Parkcentral Global, L.P. (Fund). Despite the Fund’s representations that it would not invest more than five percent of its assets in any one of its investment strategies, and that it sought to preserve capital and garner returns comparable to long term equities, throughout 2008 the Fund suffered “catastrophic” losses, resulting in its collapse. Brown’s lost its entire investment and the entire Parkcentral fund complex ceased to do business. In 2009, following the commencement of a class action against the Fund in Texas, Brown requested a list of the Fund’s limited partners so that it could communicate with other limited partners about the collapse and their potential remedies. When the Fund refused, Brown sued to compel disclosure under the Delaware limited partnership law. The Delaware Court of Chancery ruled in favor of Brown, based on its reasoning that investors in Delaware business entities have a statutory right to access a list of their fellow investors and that Delaware public policy favors the prompt production of the list. The Fund then appealed and sought a stay of execution of the Court’s disclosure order. The Court refused to stay execution of its disclosure order. We outline the background of the case and the Court’s reasoning. Also, we discuss the 2002 decision of the Delaware Court of Chancery in Arbor Place L.P. v. Encore Opportunity Fund, L.L.C., which involved similar facts and legal questions in the context of a Delaware LLC. In addition, we address whether, in the view of the Delaware courts, the privacy provisions of the Gramm-Leach-Bliley Act of 1999 preempt Delaware law regarding access by limited partners or members to the names and addresses of other limited partners or members of, respectively, Delaware LPs or LLCs.
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From Vol. 3 No.22 (Jun. 3, 2010)
White & Case LLP and Mesirow Financial Consulting, LLC Host Program on “EU Data Privacy Compliance: Practical Strategies for Processing Imported European Data Legally,” Focusing on Compliance by U.S.-Based Multinational Companies with Europe’s Draconian Data Privacy Laws
Hedge fund managers operating globally face a variety of overlapping legal regimes. Few of those regimes are as cumbersome, counterintuitive and rife with pitfalls as the European Union laws relating to data privacy. EU privacy laws go well beyond U.S. privacy laws, and in some case can even give rise to conflicting obligations. To help explicate this complicated terrain for global hedge fund managers and other types of U.S.-based companies with international operations, White & Case LLP and Mesirow Financial Consulting, LLC hosted a seminar on May 25, 2010 entitled “EU Data Privacy Compliance: Practical Strategies for Processing Imported European Data Legally.” This article outlines the key topics discussed at the seminar, focusing on those most relevant to hedge fund managers, including the details of the EU data privacy directive, specific strategies for transferring data from the EU to the U.S., specific compliance strategies for U.S.-based global hedge fund managers and the interaction of EU data privacy laws and Sarbanes-Oxley requirements.
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From Vol. 3 No.2 (Jan. 13, 2010)
How Hedge Fund Managers Can Comply with the New Massachusetts Privacy Law
A new Massachusetts state law establishes rigorous standards applicable to companies, including hedge fund managers, regarding safeguarding personal information of residents of the Commonwealth of Massachusetts. In a guest article, Jayesh Punater, President & CEO of Gravitas Technology, a technology service provider to the alternative investment industry, suggests specific steps that affected hedge fund managers can take to comply with the new law.
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