Nov. 14, 2019

Former OCIE Director Carlo di Florio Discusses His Time at the SEC and FINRA (Part One of Two)

After serving at the SEC and FINRA, Carlo di Florio left the regulatory world to join ACA Compliance Group (ACA) as a partner and global chief services officer. Joining the SEC’s Office of Compliance Inspections and Examinations (OCIE) in the wake of the financial crisis, di Florio oversaw a comprehensive review and transformation of the National Exam Program, and at FINRA, he was responsible for oversight of key functions such as risk management, regulatory programs and data analytics. The Hedge Fund Law Report recently interviewed di Florio in connection with his move to ACA. This first article in our two‑part series covers his move to the private sector; his experience at the SEC and FINRA; and the relationship between OCIE and the Division of Enforcement. The second article will discuss his time at OCIE reviewing and redesigning the National Exam Program; the impact of technology on the exam program; the benefits of regulatory transparency; and the challenges faced by chief compliance officers. For coverage of di Florio while he was at the SEC, see “OCIE Director Carlo di Florio and Asset Management Unit Chief Bruce Karpati Address Examination and Enforcement Priorities for Hedge Fund Managers at the RCA’s Compliance, Risk & Enforcement 2012 Symposium” (Jan. 24, 2013); and “SEC’s OCIE Director, Carlo di Florio, Discusses Examination Strategies and Expectations for Impending Examinations of Private Equity Advisers” (May 10, 2012).

Cayman Makes Legislative Changes in Line With Global Transparency Drive

The passage of recent legislative amendments in the Cayman Islands is the latest in a series of legal and regulatory measures enacted by the government, in close consultation with the funds and finance industry, to ensure that Cayman remains at the forefront of compliance with international standards to prevent and detect money laundering and terrorist financing. The reforms are driven, in large part, by the increasing global demand for transparency within the financial sector. In a guest article, Justin Savage, partner at Ogier, reviews the genesis of the legislative reforms and analyzes the key aspects of which fund managers must be aware, including changes to the information required to be recorded and to filing requirements. See our two-part series “How Fund Managers Can Navigate the U.S. and Cayman Islands AML Requirements”: Part One (Jul. 25, 2019); and Part Two (Aug. 1, 2019). For additional commentary from former Ogier attorneys, see “How Safe Is It to Ignore Foreign Tax Claims or Judgments Against Cayman Islands Hedge Funds in the Context of a Winding Up of the Fund?” (Feb. 2, 2012); and “Investing in Cayman Islands Hedge Funds Through a Nominee or Custodian: An Unforeseen Peril” (Jan. 26, 2012).

How Managers Can Navigate the Thin Line Between SEC Examinations and Enforcement

A recent Seward & Kissel program examined when and how SEC examination staff coordinate with their counterparts in enforcement; explored how advisers can navigate that dynamic; considered the pros and cons of voluntary disclosure, remediation and cooperation; and discussed the lessons from recent SEC enforcement actions. The program featured Seward partners Robert B. Van Grover and Patricia A. Poglinco, along with counsel Philip Moustakis, former Senior Counsel in the SEC Division of Enforcement. This article focuses on the key takeaways from the presentation. For further insights from Seward partners, see “ISDA 2018 U.S. Resolution Stay Protocol: Should Fund Managers Adhere or Not?” (Nov. 8, 2018); and “Study Charts Rise of Non-Equity Funds and Related Founder Share Classes” (Apr. 19, 2018).

A Roadmap to Understanding and Complying With the California Consumer Privacy Act

The California Consumer Privacy Act of 2018 (CCPA) takes effect in less than two months, and its broad scope may capture advisers with offices, employees, investors or service providers in California. To assist advisers in navigating the CCPA, a recent ACA Aponix program offered an overview of the key provisions of the CCPA and available exemptions; the implementation timeline; key amendments; and a roadmap to preparing for compliance. The program featured Alex Scheinman and Miranda Jang, director and senior information security analyst, respectively, at ACA Aponix. This article summarizes the key takeaways from their presentation. See our two-part series “Engaging With the California Consumer Privacy Act”: How Hedge Fund Managers Can Evaluate Whether They Are Subject to the New Law (Sep. 26, 2019); and How Hedge Fund Managers Can Prepare for Compliance (Oct. 3, 2019).

SEC Continues Crackdown on Use of “May” in Disclosures

The SEC continues to emphasize that it is not enough for an adviser to disclose that it “may” engage in a particular practice when it is, in fact, actually engaging in that practice. This is particularly true in regard to disclosures concerning the adviser’s compensation. A recent SEC settlement is a case in point. An investment adviser disclosed to its investors that it would charge certain up-front fees in connection with fund investments, but it only disclosed that an affiliated broker “may” also receive commissions on fund deals when, in fact, the broker did receive commissions on several deals. This article examines the adviser’s allegedly deficient disclosures regarding its compensation and conflicts of interest and the terms of the settlement order. This settlement, which came shortly after the issuance of the SEC’s Interpretation Regarding Standard of Conduct for Investment Advisers, shows the great weight that the SEC places on clear disclosure of conflicts of interest – especially those that are not merely theoretical. See “Navigating the Interpretation Regarding an Investment Adviser’s Standard of Conduct: What It Means to Be a Fiduciary (Part One of Three)” (Oct. 17, 2019).