Civil and Criminal Enforcement Actions Against Former Morgan Stanley Employee Highlight the Relevance of the FCPA for Private Fund Managers

Hedge fund managers are often concerned about the potential for firm liability where rogue employees violate securities and other laws.  Recent parallel civil and criminal actions initiated by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) charging a rogue employee of a private fund adviser with violating the anti-bribery and internal controls provisions of the Foreign Corrupt Practices Act of 1977 (FCPA) and the Investment Advisers Act of 1940 demonstrate that a firm that has taken measures to adopt robust internal controls and other measures designed to prevent FCPA violations can avoid liability for the actions of rogue employees.  This article summarizes the parallel SEC and DOJ actions; the terms of the rogue employee’s settlement with the SEC; and the types of measures a company can implement to avoid liability for FCPA violations by a rogue employee.  See also “Practical Considerations for Compliance by Hedge Fund Managers with the FCPA When Evaluating and Engaging Foreign Advisors in Connection with Foreign Bankruptcy Investments,” Hedge Fund Law Report, Vol. 4, No. 34 (Sep. 29, 2011).

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