Although a fund manager’s response to ransomware will depend on its risk tolerance, each manager should have in place a firm and comprehensive response plan suited to its needs. This second installment of our two-part series on ransomware offers insights from technical and legal experts on effective response measures, including bringing in experts to help understand what happened and why, as well as whether a fund manager should pay a ransom. It will also examine how cryptocurrency is changing the cybersecurity landscape. The first article covered the current methods of attack and their risks, as well as prevention techniques and ways fund managers can be prepared for one of these attacks. For more on fund manager cybersecurity, see our three-part series on how fund managers should structure their cybersecurity programs: “Background and Best Practices” (Mar. 22, 2018); “CISO Hiring, Governance Structures and the Role of the CCO” (Apr. 5, 2018); and “Stakeholder Communication, Outsourcing, Co-Sourcing and Managing Third Parties” (Apr. 12, 2018). Read full article …

As the #MeToo movement presses forward, it has caught the attention of federal and state lawmakers, who have introduced, and in some cases enacted, a range of new legislation to deter and prevent sexual harassment and hold violators accountable. These legislative measures have taken several forms, including legislation (1) prohibiting certain provisions that require the arbitration of sexual harassment claims; (2) prohibiting the use of certain contractual non-disclosure provisions to the extent they cover those claims; (3) requiring firms to adopt sexual harassment prevention policies and training protocols; and (4) expanding coverage of various anti-harassment protections to certain individual contingent workers. In a guest article, Richard J. Rabin and Rachel Wisotsky, partner and associate, respectively, at Akin Gump, explore some of these initiatives, including impactful legislation recently enacted in New York, and discuss the potential consequences for investment managers in the months and years ahead. See “How Investment Managers Can Prevent and Manage Claims of Harassment in the Age of #MeToo” (Dec. 14, 2017). For additional insights from Rabin, see “Evaluating Pay Equality: Steps Investment Managers Should Consider to Avoid Running Afoul of Equal Pay Laws” (Nov. 30, 2017); and “Four Steps NYC-Based Fund Managers Should Take in Light of Newly Enacted Law Prohibiting Compensation History Queries When Interviewing Prospective Employees” (May 11, 2017). Read full article …

Blockchain technology and the related cryptocurrency asset class are rapidly evolving and present traps for unwary fund managers. A recent webinar hosted by the Hedge Fund Law Report examined regulatory developments affecting cryptocurrencies; scrutiny of initial coin offerings; the recent SEC examination sweep of firms that trade cryptocurrencies; and custody and other compliance issues faced by advisers who hold digital currencies. The program was moderated by William V. de Cordova, Editor-in-Chief of the Hedge Fund Law Report, and featured Karl A. Cole‑Frieman, partner and co-founder of Cole‑Frieman & Mallon; and Lee A. Schneider, partner at McDermott Will & Emery. This article summarizes the key takeaways from the presentation. For further commentary from Cole-Frieman, see “How Blockchain Will Continue to Revolutionize the Private Funds Sector in 2018” (Jan. 4, 2018). See also our three-part series on blockchain and the financial services industry: “Basics of the Technology and How the Financial Sector Is Currently Employing It” (Jun. 1, 2017); “Potential Uses by Private Funds and Service Providers” (Jun. 8, 2017); and “Potential Impediments to Its Eventual Adoption” (Jun. 15, 2017). Read full article …

A recent program presented by Proskauer Rose examined the key regulatory and litigation risks currently facing private fund managers. Unsurprisingly, near the top of the list were prominent issues on the regulatory radar, including cryptocurrency and blockchain; data privacy; and performance claims. A common theme among many of the risks covered in the presentation is that the law has not yet sufficiently developed to address current business practices. The program featured Proskauer partners Timothy W. Mungovan and Joshua M. Newville; counsel Anthony M. Drenzek; and associate Michael R. Hackett. This article explores the speakers’ insights. For coverage of the 2017 Proskauer presentation, see “Ten Key Risks Facing Private Fund Managers in 2017” (Apr. 6, 2017). Read full article …

An investment adviser must assess its advisory fee and expense practices to ensure that it is complying with the Investment Advisers Act of 1940, the rules thereunder and its fiduciary duty. If an adviser fails to adhere to the terms of its advisory agreements and disclosures, or otherwise engages in inappropriate fee billing and expense practices, the SEC may impose sanctions. See “Recent SEC Settlement Reminds Fund Managers to Strictly Adhere to Disclosed Fee and Expense Calculation Methodologies and Fully Disclose Conflicts of Interest” (Nov. 16, 2017). The SEC Office of Compliance Inspections and Examinations (OCIE) recently issued a Risk Alert discussing the six most frequent fee- and expense-related issues identified in deficiency letters from more than 1,500 adviser examinations completed in the last two years. This article analyzes OCIE’s findings and provides guidance from a former SEC examiner with expertise in this area. For more on fee and expense allocation practices, see our three-part series: “Practices Fund Managers Should Avoid” (Aug. 25, 2016); “Flawed Disclosures to Avoid” (Sep. 8, 2016); and “Preventing and Remedying Improper Allocations” (Sep. 15, 2016). Read full article …

Rule 15c3-3 under the Securities Exchange Act of 1934 (Exchange Act), known as the Customer Protection Rule, requires broker-dealers to take specific steps to safeguard customer cash and securities. Rule 15c2-1(a)(1) under the Exchange Act prohibits, without customer consent, hypothecation of customer securities that would result in the customer’s securities being commingled with another customer’s securities. A broker-dealer recently settled SEC charges that it had violated both rules, as well as the reporting requirements under the Exchange Act, by permitting cash customers’ fully paid securities to be improperly commingled in omnibus margin accounts at a clearing broker and to be hypothecated without their consent. The broker allegedly used those securities to finance its own operations and margin obligations. The settlement serves as a reminder that private fund advisers should pay close attention to how their brokers are protecting fund assets and whether those brokers are using fund assets to finance their operations. This article details the SEC’s allegations and the terms of the settlement. See “Morgan Stanley Settles SEC Charges Stemming From the Use of Customer Cash to Finance a Broker’s Hedge Positions” (Jan. 19, 2017); and “Merrill Lynch Settlement Reminds Hedge Fund Managers to Be Aware of How Brokers Are Handling Their Assets” (Jul. 7, 2016). Read full article …

Kristen Koren has joined Mayer Brown’s funds practice in New York as a partner. Koren specializes in advising fund managers in the private equity, infrastructure, leveraged buyout and credit fund sectors on the launch and operation of funds, seed investments, joint ventures and compliance obligations under different regulatory regimes. For coverage of another recent hire at the firm, see “Mayer Brown Hires Nicolette Kost De Sevres in Washington, D.C.” (Jun. 22, 2017). For commentary from other Mayer Brown attorneys, see “How Private Fund Managers Can Access Investor Capital in Hong Kong and China: An Interview With Mayer Brown’s Robert Woll” (Feb. 23, 2017); and “Tax Practitioners Discuss Taxation of Options and Swaps and Impact of Proposed IRS Regulations” (Feb. 19, 2015). Read full article …