In exactly three months, on November 4, 2022, compliance with the amendments to the advertising and cash solicitation rules in Rule 206(4)‑1 under the Investment Advisers Act of 1940 (Marketing Rule) will become mandatory. Fund managers need to carefully implement the Marketing Rule given its complexity as a tangled web of existing regulations, guidance in no‑action letters and modernizing revisions. Mistakes along the way can be problematic, particularly with the SEC’s aggressive stance under Chair Gary Gensler and the regulator’s history of bringing enforcement actions for performance advertising deficiencies. To support fund managers’ efforts to comply with the Marketing Rule, Eversheds Sutherland (Eversheds) developed a checklist to use when reviewing advertising materials. This article reviews the basics of the Marketing Rule; discusses potential consequences if managers fail to comply with the rule; addresses how managers can use the checklist to scrutinize advertising materials and develop compliant practices; and highlights several problematic areas managers have confronted during the implementation process. Additional insights on the Marketing Rule and the checklist’s value are provided by one of its co‑preparers, Eversheds partner Issa J. Hanna. See our two-part series on the Marketing Rule: “Key Takeaways for Private Fund Managers” (Mar. 18, 2021); and “Next Steps for Legal and Compliance” (Mar. 25, 2021). Read full article …

This twenty-first installment of the Hedge Fund Law Report’s quarterly compliance update, authored by Dan Campbell and Joey Martinez, consultants for ACA Group (ACA), highlights upcoming filing deadlines and reporting requirements that fund managers should be aware of during the third quarter – and one key compliance deadline for the fourth quarter. This article also includes information on the SEC’s Spring 2022 Regulatory Agenda; a recent SEC settlement concerning violations of Rule 105 of Regulation M; and certain results from ACA’s 2022 Investment Management Compliance Testing Survey. For more from ACA, see “Navigating Trade and Communications Surveillance Challenges” (Apr. 21, 2022). Read full article …

The E.U.’s Alternative Investment Fund Managers Directive (AIFMD) has been a staple for U.S. fund managers desiring to market in Europe. It is not the only option available, however, as managers can market via national private placement regimes or forgo marketing altogether by relying on reverse solicitation. Regardless of which option managers select, they will still have to be cognizant of an evolving array of other E.U. regulations under which obligations may be triggered. Arnold & Porter recently hosted a webinar featuring partner Simon Firth meant to assist alternative investment fund managers (AIFMs) located outside of the European Economic Area with maneuvering around those regulations. This second article in a two-part series identifies some non-AIFMD marketing options, as well as other regulatory considerations triggered by operating in the E.U. The first article outlined the operative requirements and obligations associated with marketing under AIFMD, as well as the lighter regime available to small AIFMs. See “Six Common Misconceptions U.S. Fund Managers Have About Marketing in Europe” (Mar. 9, 2017); and “What Is the Difference Between Marketing and Reverse Solicitation Under the AIFMD?” (Nov. 6, 2014). Read full article …

Various investors now consider virtual currencies and other digital assets to be a unique asset class. Fund managers seeking exposure to digital assets face a host of potentially thorny regulatory issues, one of the greatest being compliance with the custody rule under the Investment Advisers Act of 1940. A panel at Sidley Austin’s Private Funds 2022 event took a close look at the legal and practical issues associated with custody of digital assets. The panelists also addressed other important regulatory issues concerning digital assets, including the regulatory consequences of characterization of a digital asset as a security, a commodity or money; sanctions regimes; market making; and lending laws. The program featured Sidley partners Jay G. Baris, Lilya Tessler and David E. Teitelbaum, as well as Rachel Anderika, chief risk officer at Anchorage Digital Bank. This article distills their insights. Digital assets are clearly on the SEC’s radar. See “Private Funds Top the SEC’s 2022 Exam Priorities” (Jun. 9, 2022); “SEC Regional Heads Discuss SEC Structure and Priorities” (Sep. 23, 2021); and “Digital Assets Remain Top of Mind for SEC Division of Examinations” (Apr. 8, 2021). Read full article …

A patchwork of artificial intelligence (AI) legal standards emerged this year to address employers’ mass adoption of AI software, which is now used by 75 percent of companies to aid hiring and promotion choices. This second article in a three-part series analyzes laws in Maryland and Illinois; federal guidance from the EEOC and DOJ; and draft regulations in California, with commentary about the connections between those standards from AI law practitioners at Baker McKenzie, Davis Wright Tremaine, Jackson Lewis and Ogletree Deakins. The first article discussed New York’s first-in-the-U.S. requirement that companies audit their use of those AI tools. The third article will provide survey findings about companies’ existing AI compliance efforts and offer recommendations for companies to address the new requirements and avoid enforcement like the DOJ’s June 21, 2022, discriminatory-algorithm settlement with Meta. See our three-part series on AI for fund managers: “How to Use It to Streamline Operations” (Sep. 5, 2019); “Government Guidance, Service-Provider Negotiations and Risks of Bias” (Sep. 12, 2019); and “Automating the Legal Department and Maintaining Privacy” (Sep. 19, 2019). Read full article …