Mar. 19, 2020

HFLR Webinar Covers Key Topics for Fund Manager GCs and CCOs in Light of Coronavirus

The ongoing coronavirus pandemic has led to a need for fund manager GCs and CCOs to step up and exhibit leadership, Stroock partner Michael Emanuel told the Hedge Fund Law Report in a popup webinar, entitled “Coronavirus: Practical Implications for Fund Manager GCs/CCOs,” recorded earlier this week. During the fireside chat, which was moderated by William  V. de  Cordova, Editor-in-Chief of the Hedge Fund Law Report, Emanuel provided valuable insight for fund manager GCs and CCOs on ways the coronavirus has affected fund managers’ businesses, including with respect to operational due diligence, valuation, trading continuity and employment matters; issues relating to business continuity and disaster recovery planning; regulatory considerations triggered by the pandemic; concerns managers may face relating to third-party service providers; and factors regarding costs of mitigating the pandemic’s effects. To listen to a complimentary recording of the webinar, please click here

Safeguards for Proper Disposal of Hardware: Risks and Examiner Expectations (Part One of Two)

Are firms disposing of hardware with cyber risks in mind? The SEC Office of Compliance Inspections and Examinations’ recent report (OCIE Report) related to cybersecurity and operational resiliency practices includes a new focus on the proper disposal of hardware, a topic also included in its 2020 exam priorities. If laptops, servers and other types of computer hardware are not handled properly before and during disposal, criminals could access personal or network information contained on those devices. This article, the first in a two-part series, discusses what is behind the focus on hardware disposal; the types of hardware that should be considered; applicable laws and guidelines; and what safeguards regulators expect firms to have in place. The second article will address ways to keep track of the relevant hardware; best practices for creating and implementing policies; and protective measures for using third parties for disposal. See “How Fund Managers Can Prepare for the Latest SEC Cyber Sweeps” (Jul. 11, 2019).

Insider Trading Statute and Other Recommendations From the Bharara Task Force

Insider trading law has been in an almost continuous state of flux for the past six decades. In late 2018, SEC Commissioner Robert J. Jackson, Jr. and Preet Bharara, former U.S. Attorney for the Southern District of New York, announced the creation of a blue-ribbon task force (Task Force) to develop proposals for updating the law on insider trading. The Task Force recently issued a report recommending new clearer and simplified insider trading legislation based on the concept of “wrongful” possession of material nonpublic information. Among other recommendations, the report proposes eliminating the problematic concept of “personal benefit” and the differing treatment of so‑called “classical” and “misappropriation” insider trading. After summarizing insider trading jurisprudence, this article analyzes the Task Force’s recommendations and the basis for those recommendations. See our two‑part series on mitigating insider trading risks: “Relevant Laws and Regulations; Internal Controls; Restricted Lists; Confidentiality Agreements; Personal Trading; Testing; and Training” (Sep. 27, 2018); and “Expert Networks, Political Intelligence, Meetings With Management, Data Rooms, Information Barriers and Office Sharing” (Oct. 11, 2018).

A Roadmap for Preparation and Delivery of New Form CRS

In 2019, the SEC issued guidance on the standard of conduct applicable to investment advisers and adopted Regulation Best Interest, which enhanced the standard of conduct for brokers. It also required broker-dealers and advisers to provide retail investors with a relationship summary on Form CRS (Form CRS). The compliance date for filing and delivery of Form CRS is June 30, 2020. In a recent seminar by ACA Compliance Group, partner Joshua Broaded and senior principal consultant Christopher Michailoff discussed the fast-approaching filing and delivery deadline and offered step-by-step guidance for complying with the requirements and completing Form CRS. This article summarizes the key takeaways from their presentation. For more on Form CRS and additional upcoming filing deadlines, see “Compliance Corner Q1‑2020: Regulatory Filings and Other Considerations That Hedge Fund Managers Should Note in the Coming Quarter” (Jan. 23, 2020).

SEC Private Fund Statistics Report: Continued Growth in Private Funds and Private Fund Assets

The Analytics Office of the SEC Division of Investment Management recently released a compilation of private fund statistics (Report) drawn primarily from the two‑year period from the third calendar quarter of 2017 through the second calendar quarter of 2019, as reported by filers of Form PF or Form ADV. This article reviews the relevant data in the Report, focusing on hedge funds and their advisers, including the number of funds and advisers, as well as their domiciles and beneficial owners; assets and borrowings; use of derivatives; high frequency trading; asset and debt concentrations; large hedge fund adviser exposures; and qualifying hedge fund exposures, leverage and liquidity. For coverage of previous SEC private fund statistics reports, see “SEC Private Fund Statistics Report Indicates Rising Concentration of NAV With the Largest Hedge Funds and Increasingly Favorable Liquidity Terms for Investors” (May 18, 2017); “SEC Release of Private Fund Statistics Illuminates Key Trends in Hedge Fund Industry” (Nov. 5, 2015); and “Report Describes the SEC’s Use of Form PF for Hedge Fund Manager Examination Targeting and Risk Management” (Oct. 10, 2014).