Apr. 25, 2019

What the Supreme Court’s Decision in Lorenzo v. SEC Means for Fund Managers

The U.S. Supreme Court (Court) recently ruled in Lorenzo v. SEC that Francis Lorenzo violated Rule 10b‑5 when he sent two emails containing false and misleading statements to prospective investors in a company. The emails contained content provided by Lorenzo’s boss that described the company’s assets as worth $10 million. Lorenzo knew, however, that the company’s assets were actually worth far less. The Court concluded that Lorenzo was liable for participating in a scheme to defraud by disseminating false or misleading statements with the intent to defraud potential investors, even though he could not be held liable as a “maker” of the statements under a previous Court ruling. This article reviews the Court’s prior ruling; explains the background of the Lorenzo case; summarizes the Court’s decision; and provides insight on the implication of the decision for private fund managers from a securities litigation attorney and a former senior counsel in the SEC’s Enforcement Division. For discussion of other recent Supreme Court decisions, see “What Are the Implications of the Supreme Court’s Decision in Lucia v. SEC for Fund Managers?” (Jul. 19, 2018); “Does the Digital Realty Decision Represent a Sea Change for Whistleblowers or Merely More of the Same?” (Mar. 15, 2018); and “Implications for Fund Managers of the Supreme Court’s Ruling in Kokesh v. SEC” (Jun. 15, 2017).

Compliance Corner Q2‑2019: Regulatory Filings and Other Considerations That Hedge Fund Managers Should Note in the Coming Quarter

As the vast majority of SEC-registered investment advisers have now filed their annual amendments to their Forms ADV, chief compliance officers must turn to the next set of regulatory filing obligations that are on the horizon. This eighth installment of the Hedge Fund Law Report’s quarterly compliance update, authored by consultants Anne Wallace and Anthony Frattone at ACA Compliance Group, highlights upcoming filing deadlines and reporting requirements that fund managers should be aware of during the second quarter; discusses the Electronic Messaging Risk Alert recently published by the SEC’s Office of Compliance Inspections and Examinations (OCIE); analyzes a recent enforcement action against a digital asset fund manager involving allegations of general solicitation; and discusses the most recent cybersecurity sweep exam initiated by OCIE. See our two-part series on OCIE’s Risk Alert on Electronic Messaging: “A Review of Best Practices” (Feb. 7, 2019); and “Four Key Steps Advisers Should Take” (Feb. 14, 2019).

CFTC Finds Increasing Use of Automated Orders for Futures Contracts but Little Impact on Long-Term Market Volatility

Automated trading is not confined to the equities markets. Futures traders also use automated ordering systems to place orders for futures contracts. The CFTC recently released a staff report summarizing the results of its study of whether and how automated orders for futures contracts have affected the futures markets. Focusing on long-term – rather than intra-day – impact, the CFTC analyzed six years of trade data for thirty of the most actively traded futures contracts in eight different categories of financial and physical commodities futures. This article analyzes the CFTC’s findings. See “Women in Derivatives Event Features Address by CFTC Chair Giancarlo and Panel Discussion on the Intersection of Technology and Regulation” (Jul. 12, 2018).

The U.K. Senior Managers Regime: Responsibilities of Senior Managers (Part One of Two)

The U.K.’s Senior Managers and Certification Regime (SMCR) will soon be applied to the rest of the financial services industry. The SMCR introduces a heightened level of personal responsibility for senior managers, shifts the duty to certify control function staff onto regulated firms and establishes rules of conduct for all financial staff. A recent ACA Compliance Group (ACA) webinar, featuring Martin Lovick, ACA senior principal consultant; Josie Cooper, ACA consultant; and Dimitrios Sachinidis, ACA senior compliance analyst, provided a roadmap for navigating the transition to the SMCR. This article, the first in a two-part series, summarizes the panelists’ insights on the genesis and extension of the SMCR, as well as the responsibilities of senior managers. The second article will explore the firm-based certification of certain other personnel, the imposition of rules of conduct on virtually all firm employees and steps fund managers can take toward compliance. See “FCA Issues Guidance on Expansion of Senior Managers Regime to Fund Managers and Others” (Feb. 1, 2018); and “Hedge Fund Legal Personnel May Fall Under U.K. Senior Managers Regime” (Feb. 4, 2016).

Marketing to Public Pension Plans: Honest Services Fraud, Use of Placement Agents and Lobbyist Registration Issues (Part Two of Two)

A recent Regulatory Compliance Association (RCA) seminar offered a comprehensive overview of the rules pertaining to marketing to public pension plans relevant to investment advisers. The seminar featured David Y. Dickstein, partner at Katten and an RCA Senior Fellow from Practice. This article, the second in a two-part series, examines honest services fraud; use of solicitors and placement agents; lobbyist registration; and disclosure, recordkeeping and other requirements applicable to doing business with public plans. The first article discussed municipal advisor registration; political contributions; and gifts and entertainment. For more from the RCA, see “Risks With Investment Allocation, Trade Execution, Soft Dollars, Client Solicitation and Valuation” (Apr. 14, 2016); and “Issues Pertaining to the Custody Rule, ERISA, Client Agreements, Fees, Codes of Ethics and Confidentiality” (Apr. 7, 2016). On May 8, 2019, the RCA will host its Enforcement, Compliance & Operations Symposium in New York City. For additional information or to register for the symposium, click here.

Steptoe Adds Stacie Hartman to Chicago Office As Financial Services Group Co‑Chair

Steptoe announced that Stacie Hartman has joined the firm as partner and co-chair of its financial services group. Working in the Chicago and New York offices, Hartman represents clients in court and in enforcement proceedings before the CFTC, SEC, FINRA, NFA and financial exchanges, as well as in investigations by the DOJ. For other recent hirings by Steptoe, see “Scott Fisher Is Newest Addition to Steptoe’s Corporate Group in New York” (Mar. 7, 2019); “William E. Turner II Joins Steptoe’s Chicago Office” (Jan. 31, 2019); and “Former SEC Deputy Director of Trading and Markets Gary Goldsholle Rejoins Steptoe” (Dec. 6, 2018).