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    Apr. 1, 2021

Drafting Data Privacy and Security Provisions in Vendor Agreements: Assessing the Risks (Part One of Two)

Vendors are favorite targets of hackers, and they expose fund managers to unique regulatory and civil litigation risks. This first article of our two-part coverage of a recent Strafford seminar featuring Davis Polk attorneys Matthew J. Bacal, Daniel F. Forester and Matthew A. Kelly details the current risk environment; provides guidance for managers on vendor management and due diligence; and discusses underlying considerations when negotiating vendor agreements. The second article will address critical data privacy and data security provisions fund managers should include in vendor agreements, along with key considerations for incident response. See “How Managers Can Identify and Manage Cybersecurity Risks Posed by Third-Party Service Providers” (Jul. 27, 2017).

Operation and Implications of Nasdaq's Board Diversity Rule Proposal

Nasdaq recently proposed rules that would require most Nasdaq-listed companies to provide statistics on the diversity of their boards and to have at least two “diverse” directors within four years – or provide a public explanation for why they do not. As hedge fund managers take positions – sometimes controlling positions – it is vital for them to be cognizant of the proposed rules and their potential impact on company boards, particularly as the question of diversity has risen in prominence over the past several years. A recent Thompson Hine program examined the details and operation of the proposed rule, the rationale underpinning the rule and the issues associated with its implementation. The program featured Thompson Hine senior counsel Marc B. Minor and Tracy Stewart, corporate governance manager at the Florida State Board of Administration, which oversees investment of Florida’s public pensions and other funds. This article distills their insights. See “How University Endowments Approach Diversity at Asset Managers and Racial Equity in Investments” (Nov. 12, 2020); and “HFLR Webinar Explores Legal and Compliance Employment Trends, Including Compensation, Staffing, Diversity and the Pandemic’s Impact” (Oct. 15, 2020).

Fund Manager to Pay $105 Million Over Unpaid Taxes on Deferred Compensation

Following the filing of a qui tam whistleblower action pursuant to the New York False Claims Act (NYFCA) against a hedge fund manager and its founder (Defendants), New York State (State) and New York City (City) subsequently investigated the alleged conduct and determined that they had claims against the Defendants for “tens of millions” in unpaid taxes. The parties recently entered into a stipulation and settlement agreement (Agreement), which requires the Defendants to pay $105 million to the City, State and the whistleblower in connection with the Defendants’ alleged failure to pay State and City taxes on deferred compensation earned over a decade. The settlement is the largest recovery ever under the NYFCA. This article discusses the alleged misconduct and the principal terms of the Agreement. For coverage of a similar settlement, see “Harbinger Capital Partners Offshore Manager Settles New York Tax Evasion Case for $30 Million” (Nov. 8, 2018); and “New York State Record Tax Whistleblower Settlement With Harbinger Capital Partners Illustrates Pitfalls of Domestic Tax-Shifting Schemes” (Apr. 27, 2017). For discussion of the Dodd-Frank whistleblower regime, see “SEC Annual Report Highlights Pandemic Response, Enforcement Focus Areas and Whistleblower Program Success” (Dec. 10, 2020); and “SEC and CFTC Whistleblower Awards Continue to Grow” (Jan. 17, 2019).

Acting SEC Chair Outlines Commission’s Approach to ESG

No single issue is more pressing than ensuring that the SEC is fully engaged in confronting the risks and opportunities that climate change as well as environmental, social and governance (ESG) pose for investors, the financial system and the economy, stated Allison Herren Lee, Acting Chair of the SEC, in recent remarks. This article analyzes Lee’s speech, in which she reflected on the SEC’s focus on ESG during the time she has served as Acting Chair of the Commission and outlined the regulator’s plans in the area. For coverage of other statements by Lee, see “The New Marketing Rule: Key Elements and SEC Commissioner Concerns” (Mar. 4, 2021); “SEC Adopts Incremental Expansion of Accredited Investor Definition” (Sep. 17, 2020); and “The Accredited Investor Definition: Proposed Changes and SEC Commissioner Perspectives (Part One of Two)” (Feb. 13, 2020).

WilmerHale Adds Michael Dawson to Washington, D.C., Office

Michael Dawson has joined WilmerHale as a partner in the firm’s securities and financial services department based in Washington, D.C. A former compliance consultant, Dawson aims to provide legal advice informed by an understanding of the practical implications of that advice and how to implement it in a way that makes sense. For another recent addition to the firm, see “Former Soros GC Rejoins WilmerHale in New York” (Mar. 18, 2021).

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